<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 2000
REGISTRATION NO. 333-90165
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
XCARE.NET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7374 85-0373486
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
6400 S. FIDDLER'S GREEN CIRCLE, SUITE 14000
ENGLEWOOD, CO 80111
(303) 488-2019
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LORINE R. SWEENEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
XCARE.NET, INC.
6400 S. FIDDLER'S GREEN CIRCLE, SUITE 14000
ENGLEWOOD, CO 80111
(303) 488-2019
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
ARTHUR F. SCHNEIDERMAN NORA L. GIBSON
HERBERT P. FOCKLER LAURA M. DE PETRA
RACHEL S. LOVEJOY ANGELA C. HILT
WILSON SONSINI GOODRICH & ROSATI BROBECK PHLEGER & HARRISON LLP
PROFESSIONAL CORPORATION SPEAR STREET TOWER
650 PAGE MILL ROAD ONE MARKET
PALO ALTO, CA 94304 SAN FRANCISCO, CA 94105
(650) 493-9300 (415) 442-0900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.01 par
value....................... 5,750,000 $16.00 $92,000,000 $24,288(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
(2) The Registrant previously paid a fee of $20,871.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 9, 2000
LOGO
5,000,000 SHARES
COMMON STOCK
XCare.net, Inc. is offering 5,000,000 shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. We have applied for approval for quotation of our common stock on the
Nasdaq National Market under the symbol "XCAR." We anticipate that the initial
public offering price will be between $14.00 and $16.00 per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price:...................................... $ $
Underwriting Discounts and Commissions:..................... $ $
Proceeds to XCare.net:...................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
XCare.net has granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover over-allotments.
------------------------------
ROBERTSON STEPHENS
SG COWEN
E*OFFERING
ADVEST, INC.
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF A COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF TIME OF DELIVERY OF THIS PROSPECTUS
OR OF ANY SALE OF OUR COMMON STOCK.
UNTIL , 2000 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT BUY, SELL, OR TRADE OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 8
Use of Proceeds............................................. 19
Dividend Policy............................................. 19
Capitalization.............................................. 20
Dilution.................................................... 21
Selected Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 35
Management.................................................. 53
Certain Transactions with Related Parties................... 63
Principal Stockholders...................................... 66
Description of Capital Stock................................ 69
Shares Eligible for Future Sale............................. 71
Underwriting................................................ 73
Legal Matters............................................... 76
Change in Independent Accountants........................... 76
Experts..................................................... 76
Available Information....................................... 77
Index to Financial Statements............................... F-1
Appendix: "Meet the Management" Presentation available
through online prospectus [click here for "Meet the
Management" Presentation]................................. A-1
</TABLE>
------------------------------
XCare.net is a trademark of XCare.net, Inc. Trade names, trademarks and
service marks of other companies appearing in this prospectus are the property
of the respective holders.
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SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus, including the financial statements and
related notes, before deciding to invest in shares of our common stock.
XCARE.NET, INC.
XCare.net is an electronic commerce service provider for health care
businesses. We have developed an Internet-based technology platform using
extensible mark-up language, or XML, that processes health care transactions and
provides related services for payers, providers and other health care industry
participants. We process transactions such as eligibility checking, claims
submission, referral processing, physician credentialling and appointment
scheduling. We also provide consulting services to define, develop and implement
Internet health care strategies as well as Web-site hosting, transaction support
and maintenance services for our customers. Our customers include providers such
as American Medical Pathways, Inc., Asthma Management Services, Inc. and
Methodist Care, Inc.; health care payers such as Advica Health Resources,
Employers Mutual, Inc., Brokerage Services, Inc., and Delta Health Services; and
suppliers such as ADIS International Ltd., Nursefinders, Inc., Digital Medical
Registrar, Delta Health Services and Quest Diagnostics Incorporated. This list
includes all but two of our customers.
Utilizing our proprietary technology platform, which we call the XCare.net
platform, we design and develop custom health care Web sites, known as portals.
Through these portals we link health care providers, payers and other industry
participants into an Internet exchange to create a community. We use the
XCare.net platform to deliver a broad range of applications, services and
electronic product offerings that streamline and automate high-volume,
data-intensive transactions and processes. This automation reduces the need for
information exchange by telephone, facsimile or mail and redundant manual data
entry into multiple computer systems. Our portal applications are designed to
improve workflow efficiencies, reduce administrative costs and enhance
efficiency of the health care delivery and payment system. We use our XCare.net
platform as the central element for a network of business relationships among
healthcare industry participants who use our technology, thus creating
collaborative electronic communities for the exchange of healthcare data,
products and services. We call these communities our Solution Channels, and use
them to distribute our applications, services and product offerings. In
addition, our Solution Channels are designed to provide a means for our
customers, vendors, distributors, co-marketers and others to offer their own
related products and services to each other, as well as to their own customers.
Our XCare.net platform uses a proprietary set of search, filtering and
integration technologies, based on XML, an extensible mark-up language for
Internet programming, in conjunction with the Topic Navigation Mapping
publishing standard. Extensible mark-up language enables us to attach meaning to
a piece of data. For example, information in numerical format acquires meaning
once it is defined as representing a healthcare plan number, a social security
number, birth date or a zip code. Topic Navigation Mapping provides a standard
format for indexing and structuring the extensible mark-up language formatted
content. The resulting technology platform increases flexibility and
cost-effectiveness and enables a high degree of content integration from
different databases and applications, easier data manipulation and more
efficient searches. In addition, the technology platform enhances our ability to
present data in a dynamic, customized format tailored to the individual
performing a particular transaction or retrieving specific information.
MARKET OPPORTUNITY
The health care market is highly fragmented through geographic dispersion,
a large number of participants and significant differences in technology
infrastructure. Furthermore, health care is delivered in a marketplace which has
become increasingly complex given the transition to managed care, the data-
1
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intensive nature of health care transactions, the lack of standard data formats,
the complicated procurement process and the pervasiveness of government
regulation. As a result of this fragmentation and complexity, health care market
participants are unable to cost-effectively manage, communicate and exchange
information in real-time.
The Internet is currently being used to speed and streamline a variety of
business transactions. Nonetheless, additional improvements in the ability to
search, structure, integrate and filter vast amounts of disparate data and to
dynamically customize and display information in contexts relevant to particular
users would increase the usefulness of Internet-based applications. These
improvements would be particularly useful in health care transaction processing
and information retrieval systems, where streamlining data exchanges among
industry participants can reduce process inefficiencies and costs. The enhanced
capabilities of our XCare.net platform, applications, services and product
offerings are designed to provide such improvements.
STRATEGY
Our objective is to become a significant provider of Internet-based
solutions to health care businesses to enable them to exchange information,
process transactions, conduct electronic commerce and communicate with each
other. To implement our strategy we will continue to:
- utilize our Solution Channels to deploy new applications, services and
electronic commerce product offerings developed by us or obtained through
customer and vendor relationships;
- pursue payer/third party administrator and at-risk provider customers,
which are well positioned to influence and drive change in health care
processes;
- identify new application development opportunities as Internet strategies
in the health care industry evolve and new relationships between
organizations develop;
- identify functions that are critical to particular industry participants
and develop solutions, services and products supporting these functions;
and
- aggressively pursue customer, vendor, distributor, co-marketing and other
relationships with leaders in key health industry segments to increase
our portfolio of applications, services and product offerings, increase
the scope of the community of users of our XCare.net platform and provide
specialized industry expertise for new solutions.
OUR HISTORY
We were incorporated in Delaware in March 1989 under the name Reilly Dike
Dosher Corporation, Inc. In December 1996, we changed our name to MPower
Solutions, Inc. In April 1999, we changed our name to XCare.net, Inc. We have
historically derived a significant portion of our revenue from sales of
mainframe and client-server software for managed health care systems and from
providing services to health care organizations seeking to outsource
administrative functions. In early 1998 we identified an emerging opportunity to
utilize the Internet to connect health care participants together into a
community structure. We saw this as an opportunity to provide a more efficient
service to health care and to offer our existing services, as well as additional
applications, services and products, through a more efficient delivery medium.
Beginning in mid-1998, we began to focus on Internet-based health care
solutions. We intend to derive an increasing portion of our future revenue from
our Internet-based applications, services and product offerings.
We operate in a highly competitive market. We do not know whether our new
applications, services and product offerings will be accepted by health care
market participants. We started developing our Internet-based technologies in
early 1998 and first made them available to our customers during the third
quarter of 1999. As a result, we have a limited operating history as an Internet
company. We incurred losses of $7.3 million for fiscal 1997, $4.1 million for
fiscal 1998 and $2.2 million for the nine months
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ended September 30, 1999. For the nine months ended September 30, 1999, sales to
four customers accounted for 82% of our revenues. We are controlled by a limited
number of investors. As of September 30, 1999, our directors, officers and
affiliated entities controlled 87.2% of our common stock and will continue to
control 61.2% of our common stock after completion of this offering, based on
our outstanding capitalization on that date.
Our principal executive office is located at 6400 S. Fiddler's Green
Circle, Suite 14000, Englewood, CO 80111, and our telephone number at that
office is (303) 488-2019.
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RECENT RESULTS
Our results of operations for the three months ended December 31, 1999 are
expected to reflect approximately $2.0 million of revenue (unaudited), an
increase of 146% from $813,000 (unaudited) for the three months ended September
30, 1999, and approximately $3.3 million of total costs and expenses
(unaudited), an increase of 50% from $2.2 million (unaudited) for the three
months ended September 30, 1999, resulting in a net loss of approximately $1.3
million (unaudited), an increase of 8% from $1.2 million (unaudited) for the
three months ended September 30, 1999. Revenue increased for the three months
ended December 31, 1999 due to revenue recognized from new customers coupled
with an increase in total arrangement fees. Total costs and expenses increased
during the same period as a result of additional personnel hired to execute new
custom development projects and implement our Internet-based sales and marketing
initiatives. Although we have increased revenues during 1999, we have continued
to add personnel and invest in improving our existing technology and
infrastructure to support future growth which has resulted in net losses and
negative cash flows from operations. Additionally, our cash and cash equivalents
as of December 31, 1999 was $7.5 million (unaudited), a decrease of
approximately $3.5 million from $11.0 million (unaudited) as of September 30,
1999. The cash and cash equivalents balance decreased during the fourth quarter
ended December 31, 1999 due to the purchase of computer equipment, expenditures
related to the Company's initial public offering, and an increase in accounts
receivable. Results of operations for the three months ended December 31, 1999
include all adjustments, consisting only of normal recurring adjustments, which
management considers necessary for a fair presentation and should not be
considered indicative of results to be expected for any future period. See "Risk
Factors -- Our quarterly operating results are likely to fluctuate significantly
and may fail to meet the expectations of security analysts and investors,
causing our share price to decline" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THE OFFERING
Common stock offered by us...................... 5,000,000 shares
Common stock to be outstanding after the
offering........................................ 15,366,346 shares
Use of proceeds................................. General corporate purposes,
working capital and capital
expenditures for operations,
including for research and
development, sales and
marketing, hardware and
software purchases and
general and administrative
expenses.
Proposed Nasdaq National Market symbol.......... XCAR
The number of shares of our common stock to be outstanding after this
offering is based on shares outstanding as of September 30, 1999, and reflects a
one-for-ten reverse stock split that was effected in January 2000. It excludes
1,491,492 shares issuable upon exercise of outstanding options at September 30,
1999, with a weighted average exercise price of $1.35 per share, 541,345 shares
reserved for future issuance under our stock plan, and 750,000 shares reserved
for future issuance under our director plan and employee stock purchase plan,
both of which become effective upon the closing of the offering. In the fourth
quarter ended December 31, 1999, we granted options to purchase 145,451 shares
of common stock, leaving a total of 400,444 shares reserved for future issuance;
and options to purchase a total of 20,500 shares were exercised. See
"Capitalization," "Management -- Employee Benefit Plans" and notes 4, 6 and 9 of
notes to the financial statements.
4
<PAGE> 8
Generally, unless otherwise indicated in this prospectus, the number of
shares of common stock to be outstanding after the offering, pro forma and pro
forma as adjusted information give effect to the conversion of all outstanding
convertible preferred stock to common stock, including convertible preferred
stock issuable upon the assumed cashless exercise of all outstanding convertible
preferred stock warrants, and the assumed cashless exercise of all outstanding
common stock warrants. Information in this prospectus also assumes no exercise
of the underwriters' over-allotment option.
5
<PAGE> 9
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
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(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................... $4,310 $7,708 $ 9,726 $ 5,984 $ 2,270 $ 1,564 $ 2,654
Total costs and expenses........ 4,120 6,083 10,523 14,641 5,915 4,215 4,680
Income (loss) from operations... 190 1,625 (797) (8,657) (3,645) (2,651) (2,026)
Total other income (expense).... (77) (42) 2,250 255 (437) (306) (150)
Income (loss) before income
taxes......................... 113 1,583 1,453 (8,402) (4,082) (2,957) (2,176)
Net income (loss)............... $ 113 $1,583 $ 253 $(7,324) $(4,082) $(2,957) $(2,176)
Net income (loss) per common
share -- basic and diluted.... $ 0.19 $ 2.64 $ 0.53 $(18.92) $(10.64) $ (7.71) $ (5.09)
Weighted average common shares
outstanding -- basic and
diluted....................... 596 599 476 390 390 390 438
Pro forma:
Income before income taxes.... $ 113 $1,583
Net income.................... $ 65 $ 980
Pro forma net income (loss) per
common share -- basic and
diluted....................... $ 0.11 $ 1.64 $ (1.00) $ (0.32)
Pro forma weighted average
common shares
outstanding -- basic and
diluted....................... 596 599 4,069 6,727
</TABLE>
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<CAPTION>
AT SEPTEMBER 30, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 11,031 $11,031 $79,231
Working capital...................................... 10,222 10,222 78,422
Total assets......................................... 13,523 13,523 81,723
Long-term debt....................................... 25 25 25
Mandatorily redeemable convertible preferred stock... 23,821 -- --
Stockholders' equity (deficit)....................... (12,586) 11,235 79,435
</TABLE>
- During 1996, a major customer terminated its contract with us and paid
$2.3 million to settle all claims arising under the termination. During
1997, another major customer terminated its contract with us and paid
$250,000 to settle all claims associated with the termination. These
amounts are included above in total other income (expense).
- As a result of the contract terminations referred to above, during 1997
we abandoned an operating lease and incurred impairment charges for
related fixed assets aggregating $887,000. This amount is included above
in total costs and expenses.
- Prior to January 1, 1996, XCare.net was an S corporation for federal and
state income tax purposes, and accordingly, our income was taxed directly
to our stockholders. Pro forma income before income taxes, pro forma net
income and pro forma net income per common share for the years ended
December 31, 1994 and 1995 give effect to pro forma adjustments that
reflect the estimated federal and state income taxes that would have been
recorded if XCare.net had been a C corporation prior to January 1, 1996.
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- See note 1 of notes to the financial statements for a description of the
method used to compute net income (loss) per common share and pro forma
net income (loss) per common share for all periods presented.
- Pro forma balance sheet data reflect the conversion of convertible
preferred stock, which will occur automatically upon the closing of this
offering, the assumed cashless exercise of all outstanding common stock
warrants and convertible preferred stock warrants, and the conversion of
the convertible preferred stock issued upon assumed exercise of the
latter warrants into common stock. See note 1 of notes to the financial
statements.
- Pro forma as adjusted balance sheet data reflect the receipt of the
estimated net proceeds from this offering at an assumed initial public
offering price of $15.00 per share, after deducting estimated
underwriting discounts and offering expenses. See "Capitalization" and
"Use of Proceeds."
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RISK FACTORS
You should carefully consider these risk factors, together with all of the
other information included in this prospectus, before you decide whether to
purchase shares of our common stock. The risks set out below may not be
exhaustive. If any of the following risks actually occur, our business,
financial condition or results of operations could be harmed, the value of our
common stock could decline and you may lose all or part of your investment.
OUR BUSINESS AND PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE WE ARE IN A
TRANSITIONAL STAGE OF DEVELOPMENT
It is difficult to evaluate our business and our prospects because our
business model is new and unproven. We commenced operations in March 1989, but
we did not begin focusing on Internet-based health care solutions until early
1999. We have historically derived a significant portion of our revenue from
sales of maintenance and client/server software for managed health care systems
and from providing services to health care organizations seeking to outsource
administrative functions. We intend to derive an increasing portion of our
future revenue from our Internet-based applications, services and product
offerings. As a result, even though we have been in existence for over ten
years, we are prone to the risks and difficulties frequently encountered by
early stage companies, particularly companies in new and rapidly evolving
technology-related markets.
WE WILL HAVE DIFFICULTY PREDICTING OUR FUTURE RESULTS OF OPERATIONS
Due to our limited operating history in the Internet-based health care
market, it is difficult for us to predict with any accuracy our future results
of operations. For example, we cannot accurately forecast expenses based on our
historical results because our experience in our current market is limited, and
we are required to forecast expenses in part on future revenue projections. The
provision of services using Internet technology in the health care industry is a
developing business that is inherently riskier than business in industries where
companies have established operating histories. Accordingly, our historical
financial results are not necessarily indicative of our future financial
performance.
WE HAVE INCURRED LOSSES SINCE CHANGING OUR FOCUS TO INTERNET-BASED SOLUTIONS AND
WE MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN PROFITABILITY
We incurred net losses and losses from operations for the nine months ended
September 30, 1999 and the years ended December 31, 1998 and 1997. As of
September 30, 1999, we had an accumulated deficit of approximately $13.3
million. Since we began developing and marketing our Internet-based health care
products and services in early 1999, we have funded our business primarily by
borrowing funds and from the sale of our stock, not from cash generated by our
business. We expect to continue to incur significant sales and marketing,
research and development and general and administrative expenses. As a result,
we will experience losses and negative cash flows for the foreseeable future.
Factors which may prevent us from achieving or maintaining profitability and
cause our stock price to decline include the demand for and acceptance of our
products, product enhancements and services, and our ability to attract new
customers, as well as a number of other factors described elsewhere in this
"Risk Factors" section.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY
FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS AND INVESTORS, CAUSING OUR
SHARE PRICE TO DECLINE
Our quarterly operating results have fluctuated significantly in the past
and are likely to fluctuate in the future depending on a number of factors
described below and elsewhere in this "Risk Factors" section of the prospectus,
including:
- any delay in the introduction of new applications, services and product
offerings and enhancements of existing solutions;
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- the loss of a major customer;
- reductions in the average selling prices of our applications, services
and product offerings;
- cost pressures from shortages of skilled technical employees, increased
product development and engineering expenditures; and
- changes in industry market conditions.
Due to the factors described above and other factors, our results of
operations could fluctuate substantially in the future, and quarterly
comparisons may not indicate reliable trends of future performance. If our
operating results do not meet the expectations of securities analysts and
investors, our share price is likely to decline.
IF WE FAIL TO DEVELOP RELATIONSHIPS WITH ESTABLISHED HEALTH CARE INDUSTRY
PARTICIPANTS, WE MAY EXPERIENCE DELAYS IN THE GROWTH OF OUR BUSINESS
Relationships with established health care industry participants are
critical to our success. These relationships include customer, vendor,
distribution and co-marketing relationships. To date, we have established only a
limited number of these relationships, and these relationships are in the early
stages of development. Entering into relationships is complicated because it
involves identifying opportunities and collaborating with a number of our
customers, vendors and competitors. In addition, we may not be able to establish
relationships with particular key participants in the health care industry if we
have established relationships with competitors, and therefore it is important
that we are perceived as independent of any particular customer or partner.
Moreover, many potential customers and vendors may resist working with us until
our applications, services and product offerings have been successfully
introduced and have achieved market acceptance. If we cannot successfully
establish relationships with key health care industry participants, our business
will grow slowly.
IF WE CANNOT MAINTAIN OUR RELATIONSHIPS WITH ESTABLISHED HEALTH CARE INDUSTRY
PARTICIPANTS, OUR APPLICATIONS, SERVICES AND PRODUCTS MAY NOT ACHIEVE MARKET
ACCEPTANCE
Once we have established a relationship with an established health care
industry participant, we rely on that participant's ability to assist us in
generating increased acceptance and use of our applications, services and
product offerings. We have limited experience in maintaining relationships with
health care industry participants. Additionally, the other parties to these
relationships may not view these relationships with us as significant to their
own business, and they may reassess their commitment to us or decide to compete
directly with us in the future. We generally do not have agreements that
prohibit them from competing against us directly or from contracting with our
competitors. We cannot guarantee that any such party will perform its
obligations as agreed or contemplated or that we would be able to specifically
enforce any agreement with it. Our arrangements generally do not establish
minimum performance requirements, but instead rely on the voluntary efforts of
the other party. Therefore, we cannot guarantee that these relationships will be
successful. If we were to lose any of these relationships, or if the other
parties were to fail to collaborate with us to pursue additional business
relationships, we would not be able to execute our business plans and our
business would suffer significantly. Moreover, we may not experience increased
use of our applications, services and product offerings even if we establish and
maintain these relationships.
For additional information regarding these relationships, see
"Business -- Strategy."
IF THE HEALTH CARE INDUSTRY DOES NOT ACCEPT THE NEED FOR A COMMON TECHNOLOGY
PLATFORM, OUR BUSINESS WOULD NOT GROW
To be successful and to grow, we must attract a significant number of
customers throughout the health care industry. To date, the health care industry
has been resistant to adopting new information technology applications, services
and product offerings. Electronic information exchange and transaction
processing by the health care industry is still developing. Complexities in the
nature of health care
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transactions and lack of a common technology platform are significant issues in
the development and acceptance of information technology applications, services
and product offerings by the industry. There are currently hundreds of different
incompatible hardware, software and database components. If health care industry
participants do not accept the need to integrate pre-existing information
technology components, the market for our applications and services would not
develop and our business would not grow.
IF PHYSICIANS AND OTHER HEALTH CARE PROVIDERS DO NOT ACCEPT INTERNET-BASED WORK
FLOW MODIFICATIONS, THE MARKET FOR OUR PRODUCTS MAY NOT GROW
Acceptance of Internet technology by physicians and other providers into
daily administrative and clinical workflow is a key factor in our ability to
meet our anticipated deployment levels for transaction services and process
automation components. However, without the acceptance by physicians and
providers of workflow modifications, new installation projects, such as our
applications, services and product offerings, may be stalled.
IF THE EXTENSIBLE MARK-UP LANGUAGE FAILS TO BECOME A STANDARD DATA EXCHANGE
PROTOCOL FOR THE INTERNET, THE MARKETABILITY OF OUR PRODUCTS MAY BE LIMITED
Our XCare.net platform operates with the extensible mark-up language, or
XML. The failure of extensible mark-up language to become well-accepted would
seriously impede the marketability of our products and force us to adapt our
products to other data exchange protocols. Any such adaptation may entail
substantial costs, may require substantial time and effort, and may not lead to
marketable and competitive products. In addition, if incompatible versions of
the extensible mark-up language standard arise in the market, the market for
extensible mark-up language-based applications may grow slowly or not at all. If
the version of extensive mark-up language for which we have developed
applications, services and product offerings does not gain widespread
acceptance, we will have to adapt our products to another version of extensible
mark-up language, which will cause delays in shipments of our application and
product offerings and impede our ability to provide services.
OUR REVENUE IS CONCENTRATED IN A FEW CUSTOMERS, WHICH PUTS OUR REVENUE AT RISK
We receive a substantial majority of our revenue from a limited number of
customers. In 1998, sales to Employers Mutual, Inc. accounted for 29% of
revenue, sales to Brokerage Services, Inc. accounted for 20% of revenue, sales
to Quest Diagnostics Incorporated accounted for 12% of revenue and sales to ADIS
International accounted for 11% of revenue. For the nine months ended September
30, 1999, sales to Methodist Care, Inc. accounted for 29% of revenue, sales to
American Medical Pathways, Inc. a subsidiary of American Medical Response, Inc.,
accounted for 19% of revenue, sales to Quest Diagnostics Incorporated accounted
for 17% of revenue and sales to Brokerage Services Incorporated accounted for
17% of revenue. We expect that a significant portion of our revenue will
continue to depend on sales to a small number of customers. If we do not
generate as much revenue from these major customers as we expect to, or if we
lose any of them as customers, our total revenue will be significantly reduced.
We have a contract with American Medical Pathways, Inc., a wholly owned
subsidiary of American Medical Response, Inc., to provide third-party
administrative services in connection with its contracts to provide medical
transportation services. Our revenue under this contract accounted for 19% of
our revenue during the nine month period ended September 30, 1999. American
Medical Pathways, Inc. may terminate our contract on 120 days notice. In
addition, Laidlaw, Inc., the owner of American Medical Response, Inc., recently
announced its decision to seek a buyer for American Medical Response, Inc. A new
owner of American Medical Response, Inc. may not continue to provide the same
level of medical transportation services or may seek to terminate our contract.
Any termination of the contract or reduction in license fees earned under the
contract would reduce our revenue and could slow our growth. American Medical
Response, Inc. is the largest provider of private ambulance service in the
United States. Therefore, if we lose revenue due to termination of the contract
or reduction in license
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fees, it will be difficult to replace such revenue through contracts with other
providers of medical transportation services.
IF WE LOSE KEY LICENSES WE MAY BE REQUIRED TO DEVELOP OR LICENSE ALTERNATIVE
TECHNOLOGY, WHICH MAY CAUSE DELAYS, ADD CONSIDERABLE EXPENSE OR REDUCE SALES
We currently rely on software that we have licensed from Sinclair Montrose
Healthcare plc of London, England for our Match.Net Staffing and Scheduling
product. We will integrate this software with our software applications,
services and product offerings to centralize the scheduling and staffing
functions for health care providers in a secure Internet environment. We
currently have an exclusive license to the software, although exclusivity may
terminate if we are unable to meet milestones. This license may not continue to
be available to us on commercially reasonable terms in the future. The loss of
this license could result in delays or reductions of shipments of our MatchNet
Staffing & Scheduling product until equivalent software could be identified,
developed, licensed and integrated. In addition, other products and services we
may offer in the future may rely on licensed software. The loss of any current
or future license could result in delays in the introduction of our products and
services, add additional expense, and reduce sales of our products and services
until equivalent software could be developed, identified, licensed and
integrated.
IF OUR TRANSACTION AND DATA PROCESSING FACILITY FAILS, CUSTOMER SATISFACTION
COULD DECLINE
We currently process substantially all of our customer transactions and
data at our facility in Albuquerque, New Mexico. Although we have safeguards for
emergencies, we do not have back-up facilities to process information if this
facility is not functioning. The occurrence of a major catastrophic event or
other system failure at our Albuquerque, New Mexico facility could interrupt
data processing or result in the loss of stored data. In addition, we depend on
the efficient operation of Internet connections from customers to our systems.
These connections, in turn, depend on the efficient operation of Web browsers,
Internet service providers and Internet backbone service providers, all of which
have had periodic operational problems or experienced outages. Any system
delays, failures or loss of data, whatever the cause, could reduce customer
satisfaction with our applications, services and product offerings.
IF SECURITY OF OUR CUSTOMER AND PATIENT INFORMATION IS COMPROMISED, PATIENT CARE
COULD SUFFER, WE COULD BE LIABLE FOR DAMAGES AND OUR REPUTATION COULD DECLINE
We retain confidential customer and patient information in our processing
centers. Therefore, it is critical that our facilities and infrastructure remain
secure and that our facilities and infrastructure are perceived by the
marketplace to be secure. Despite the implementation of security measures, our
infrastructure may be vulnerable to physical break-ins, computer viruses,
programming errors, attacks by third parties or similar disruptive problems. If
we fail to meet our clients' expectations, we could be liable for damages and
our reputation could suffer. In addition, patient care could suffer and we could
be liable if our systems fail to deliver correct information in a timely manner.
Our insurance may not protect us from this risk.
IF OUR TRANSACTION HOSTING SERVICES SUFFER INTERRUPTIONS, OUR BUSINESS AND
REPUTATION COULD BE HARMED
Our customers have in the past experienced some interruptions with our
transaction hosting services. Similar interruptions may continue to occur from
time to time. These interruptions could be due to hardware and operating system
failures. We expect a large portion of our revenue to be derived from customers
who use our transaction hosting services. As a result, our business will suffer
if we experience frequent or long system interruptions that result in the
unavailability or reduced performance of our hosting. We expect to experience
occasional temporary capacity constraints due to sharply increased traffic,
which may cause unanticipated system disruptions, slower response times,
impaired
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quality and degradation in levels of customer service. If this were to continue
to happen, our business and reputation could be seriously harmed.
OUR MARKETS ARE HIGHLY COMPETITIVE AND COMPETITION COULD HARM OUR ABILITY TO
SELL APPLICATIONS, SERVICES AND PRODUCT OFFERINGS
Competition could seriously harm our ability to sell additional products
and services. Potential competitors fall primarily into three categories: health
care Internet companies focused on providing connectivity and transactions
within business-to-business and business-to-consumer frameworks; traditional
health care information system vendors who seek to extend the services of their
core products using Internet-based technology; and traditional managed care
information system and outsourcing vendors who are focusing on extending the
services of their core products to the Internet. In addition, from time to time
our customers may develop applications, services and product offerings
competitive with those offered by us.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly than
we can to new or emerging technologies and changes in customer requirements. Our
competitors may develop and successfully market Internet-based health care
products and services in a manner that could have an adverse effect on our
business model. See "Business -- Competition."
IF WE CANNOT EXPAND OUR MANAGEMENT SYSTEMS AND NETWORK INFRASTRUCTURE, WE MAY
EXPERIENCE DELAYS IN THE GROWTH OF OUR BUSINESS
In order to grow, we intend to rapidly expand our management, product
development, testing, network operations, marketing, sales and customer service
personnel over the next year. This growth has and will continue to place a
significant strain on our managerial, operational, financial and information
systems resources. We may not be able to effectively manage expansion of our
operations, and our facilities, systems, procedures or controls may not be
adequate to support our operations. Moreover, our systems may not accommodate
increased use while maintaining acceptable overall performance.
As we grow, we will also need to expand and adapt our network
infrastructure to accommodate additional users, increased transaction volumes
and changing customer requirements. So far, we have processed a limited number
and variety of transactions over our network infrastructure and only a limited
number of health care participants use our infrastructure. Many of our service
agreements contain performance standards. If we fail to meet these standards,
our customers could terminate their agreements with us. The loss of any of our
service agreements would cause a decline in our revenues. We may be unable to
expand or adapt our network infrastructure to meet additional demand or our
customers' changing needs on a timely basis and at a commercially reasonable
cost, or at all.
IF OUR OPERATING RESULTS VARY SIGNIFICANTLY DUE TO THE LENGTHY SALES AND
IMPLEMENTATION CYCLES FOR OUR PRODUCTS AND SERVICES, OUR REVENUES MAY BE DELAYED
AND OUR RESULTS OF OPERATIONS AND SHARE PRICE MAY FLUCTUATE
Because our applications, services and product offerings have lengthy sales
and implementation cycles, it is difficult for us to forecast the timing and
recognition of revenues from sales of our applications, services and product
offerings. Since we are unable to control many of the factors that will
influence our customers' buying decisions, the lengthy sales cycle could cause
our operating results to be below the expectations of analysts and investors.
A key element of our strategy is to market our applications, services and
product offerings to large organizations with significant data management and
access needs. The sales process normally involves a significant evaluation
process, and commitment of budgets may be subject to delays due to a customer's
internal procedures for approving new expenditures and deploying new
technologies. The period of time between initial customer contact and a purchase
order can span up to three months or more.
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In addition, we often must provide a significant level of education to our
prospective customers regarding the use and benefit of our applications,
services and product offerings, which may cause additional delays during the
evaluation and acceptance process. General concerns regarding year 2000
compliance may further delay purchasing decisions by prospective customers. Our
long and unpredictable sales cycle can result in delayed revenues, difficulty in
matching revenues with expenses and increased expenditures, which together may
contribute to fluctuations in our results of operations and share price.
WE MAY LOSE EXISTING CUSTOMERS OR BE UNABLE TO ATTRACT NEW CUSTOMERS IF WE DO
NOT DEVELOP NEW APPLICATIONS, SERVICES AND PRODUCTS OR IF THESE SOLUTIONS DO NOT
KEEP PACE WITH TECHNOLOGICAL CHANGES
Internet technologies are evolving rapidly and the technology used by any
electronic commerce business is subject to rapid change and obsolescence. If we
are not able to maintain and improve our products and develop new products that
keep pace with competitive product introductions and technological developments,
satisfy diverse and evolving customer requirements and achieve market
acceptance, we may lose existing customers or be unable to attract new
customers. For example, we currently are developing Physician Credentialing,
Electronic Medical Record, Case Management, Medication and Medical Assessment
Inquiry Systems, Physician Practice Management, MD Pay Accelerator, Online Drug
Store, Medical Supply Product, Health and Medical Bookstore products. We may not
be successful in developing and marketing these or other product enhancements or
new products that respond to technological advances by others on a timely or
cost-effective basis. In addition, such applications, services and product
offerings may contain licensed components which may be difficult to integrate or
may cause the solutions to be ineffective. These products, if developed, may not
achieve market acceptance. Any delay or problems in the installation or
implementation of new products or services may cause customers to forego
purchases from us and could cause them to purchase from our competitors.
IF WE ARE REQUIRED TO COMMIT UNANTICIPATED RESOURCES TO COMPLETE FIXED-PRICE
CONTRACTS, OUR OPERATING RESULTS MAY DECLINE
We had historically derived a majority of our revenue from contracts that
were billed on a time-and-materials basis. Beginning in 1998, a significant
portion of our revenue has been derived from contracts that were billed on a
fixed-price basis. These contracts specify certain obligations and deliverables
to be met by us regardless of our actual costs incurred. We cannot assure you
that we can successfully complete these contracts on budget, and our inability
to do so could seriously harm our business, financial condition and results of
operations.
Our failure to accurately estimate the resources required for a fixed-price
contract could cause our operating results to decline. In the past, we have been
required to commit unanticipated additional resources to complete certain
project plans during the project to ensure that the project was completed on
schedule. We may experience similar situations in the future.
IF COMPLIANCE WITH GOVERNMENT REGULATION OF HEALTH CARE BECOMES COSTLY AND
DIFFICULT FOR US AND OUR CUSTOMERS, WE MAY NOT BE ABLE TO GROW OUR BUSINESS
Participants in the health care industry are subject to extensive and
frequently changing regulation under numerous laws administered by governmental
entities at the federal, state and local levels, some of which are, and others
of which may be, applicable to our business. Furthermore, our health care
service provider, payer and plan customers are also subject to a wide variety of
laws and regulations that could affect the nature and scope of their
relationships with us.
Laws regulating health care providers, health insurance, health maintenance
organizations and similar organizations, employee benefit plans and governmental
health benefit programs cover a broad array of subjects, including but not
limited to licensing, billing, collection and reimbursement,
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advertising, confidentiality, financial relationships with, and referral of
services and goods among and to, suppliers and providers, mandated benefits and
grievance and appeal procedures. Furthermore, the federal Health Insurance
Portability and Accountability Act of 1996 mandates the use of standard
transactions, standard identifiers, security and other provisions by the year
2000.
These laws are often not uniform between states, and could require us to
undertake the expense and difficulty of tailoring our business procedures,
information systems, or financial relationships in order for our customers to be
in compliance with applicable laws and regulations. Compliance with such laws
could also interfere with the scope of our applications, services and product
offerings, or make them less cost effective for our customers. Furthermore, the
impact of regulatory developments in the health care industry is complex and
difficult to predict, and we cannot guarantee that we will not be adversely
affected by new regulatory requirements or interpretations.
Some computer applications and software are considered medical devices and
are subject to regulation by the United States Food and Drug Administration, or
FDA. We do not believe that our current applications, services or product
offerings are subject to FDA regulation. If we expand our applications, services
and product offerings into areas subject to FDA regulation, complying with these
regulations could be time consuming, burdensome and expensive and could delay
our introduction of new products. For more information on government regulation
affecting our business, see "Business -- Government Regulation."
BECAUSE WE PROVIDE UTILIZATION REVIEW SERVICES, WE MAY INCUR LIABILITY
One of the functions of our applications is automatic adjudication of
whether or not a claim for payment or service should be denied or whether
existing coverage should be continued based upon particular plans or contracts
and industry-standard, clinical-support criteria. Our payer customers are
ultimately responsible for deciding whether to deny claims for payment or
medical services. It is possible, however, that liability may be asserted
against us for denial of payment of medical claims or medical service. The
contractual protections included in our customer contracts and our insurance
coverage may not be sufficient to protect us against such liability.
IF OUR EXECUTIVE OFFICERS AND KEY PERSONNEL DO NOT REMAIN WITH US IN THE FUTURE,
WE MAY EXPERIENCE DIFFICULTY IN ATTRACTING AND RETAINING QUALIFIED PERSONNEL
Our future success depends upon the continued service of our executive
officers and other key employees as well as our ability to hire a significant
number of new employees. In particular, it would be difficult for us to replace
the services of our President and Chief Executive Officer, Lorine Sweeney. In
addition, we are particularly dependent on the continued services of software
developers with programming skills in extensible mark-up language, Java and
Oracle. Competition for these individuals is intense, and we may not be able to
attract, assimilate or retain additional highly qualified personnel in the
future. None of our executive officers or key personnel have employment
agreements with us, except for standard agreements we have with all of our
employees providing for confidentiality and invention assignment obligations.
WE MAY FACE PRODUCT-RELATED LIABILITIES THAT COULD FORCE US TO PAY DAMAGES WHICH
WOULD HURT OUR REPUTATION
While we and our customers test our applications, services and product
offerings, they may contain defects or result in system failures. These defects
or problems could result in the loss of or delay in generating revenue, loss of
market share, failure to achieve market acceptance, diversion of development
resources, injury to our reputation or increased insurance costs.
Our contracts limit our liability arising from our errors; however, these
provisions may not be enforceable and may not protect us from liability. While
we have general liability insurance that we believe is adequate, including
coverage for errors and omissions, we may not be able to maintain this
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insurance on reasonable terms in the future. In addition, our insurance may not
be sufficient to cover large claims and our insurer could disclaim coverage on
claims. If we are liable for an uninsured or underinsured claim or if our
premiums increase significantly, our financial condition could be materially
harmed.
IF WE DO NOT ESTABLISH AND MAINTAIN THE XCARE.NET BRAND, OUR REPUTATION COULD BE
ADVERSELY AFFECTED
In order to increase our customer base and expand our online traffic, we
must establish, maintain and strengthen the XCare.net brand. For us to be
successful in establishing our brand, health care professionals must perceive us
as offering quality, cost-effective, communications, information and
administrative services. Our reputation and brand name could be adversely
affected if we experience difficulties in introducing new applications, services
and product offerings, if these applications, services and product offerings are
not accepted by customers, if we are required to discontinue existing
applications, services and product offerings or if our products and services do
not function properly.
OUR GROWTH AND OPERATING RESULTS WOULD BE IMPAIRED IF WE WERE UNABLE TO MEET OUR
FUTURE CAPITAL REQUIREMENTS
We expect that the money generated from this offering, combined with our
current cash resources, will be sufficient to meet our requirements for
approximately 18 months. However, we expect that we will continue to experience
negative cash flow in the near term. Accordingly, we may need to raise
additional capital to support expansion, develop new or enhanced applications,
services and product offerings, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of unanticipated
opportunities. We may need to raise additional funds by selling debt or equity
securities, by entering into strategic relationships or through other
arrangements. We cannot assure you that we will be able to raise any additional
amounts on reasonable terms, or at all, when they are needed.
ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS AND DILUTE
STOCKHOLDER VALUE
We expect to acquire technologies and other health care technology
companies to increase the number and variety of applications, services and
product offerings we offer and to increase our customer base. To be successful,
we will need to identify applications, technologies and businesses that are
complementary to ours, integrate disparate technologies and corporate cultures
and manage a geographically dispersed company. Acquisitions could divert our
attention from other business concerns and expose us to unforeseen liabilities
or risks associated with entering new markets. Finally, we may lose key
employees while integrating these new companies. Integrating newly acquired
organizations and technologies into XCare.net could be expensive, time consuming
and may strain our resources. In addition, we may lose our current customers if
any acquired companies have relationships with competitors of our customers.
Consequently, we may not be successful in integrating any acquired businesses or
technologies and may not achieve anticipated revenue and cost benefits. The
health care industry is consolidating and we expect that we will face
intensified competition for acquisitions, especially from larger, better-funded
organizations. If we fail to execute our acquisition strategy successfully for
any reason, our business will suffer significantly.
We intend to pay for some of our acquisitions by issuing additional common
stock and this could dilute our stockholders. We may also use cash to buy
companies or technologies in the future. If we do use cash, we may need to incur
debt to pay for these acquisitions. Acquisition financing may not be available
on favorable terms or at all. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would seriously harm our results of operations.
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IF OUR PROPRIETARY TECHNOLOGY IS SUBJECTED TO INFRINGEMENT CLAIMS, WE MAY HAVE
TO PAY DAMAGES OR SEEK A LICENSE FROM THIRD PARTIES, WHICH COULD DELAY SALES OF
OUR PRODUCTS, AND IF OUR PROPRIETARY TECHNOLOGY IS INFRINGED UPON, WE MAY
EXPERIENCE LOSSES
Our intellectual property is important to our business. We expect that we
could be subject to intellectual property infringement claims as the number of
our competitors grows and the functionality of our applications overlap with
competitive offerings. These claims, whether or not meritorious, could be
expensive and divert our attention from operating our company. If we become
liable to third parties for infringing their intellectual property rights, we
would be required to pay a substantial damage award and to develop noninfringing
technology, obtain a license or cease selling the applications that contain the
infringing intellectual property. We may be unable to develop noninfringing
technology or obtain a license on commercially reasonable terms, or at all. In
addition, we may not be able to protect against misappropriation of our
intellectual property. Third parties may infringe upon our intellectual property
rights, we may not detect this unauthorized use and we may be unable to enforce
our rights. See "Business -- Intellectual Property."
IF WE ARE NOT ABLE TO PROTECT AND ENFORCE OUR TRADENAMES, INTERNET ADDRESS AND
INTELLECTUAL PROPERTY RIGHTS, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAY SUFFER
We seek to protect our brand and our other intellectual property through a
combination of copyright, trade secret and trademark laws. Our XCare.net brand
is an important component of our business strategy. We have recently filed
federal trademark applications for "XCare.net," "XCare," "Solution Channels" and
"the Business to Business Platform for eHealth." We cannot guarantee that any of
these trademark applications will be granted. If we are unable to secure
registration of these marks or otherwise obtain the right to use these marks
under contract or common law, we may be required to stop using these marks. This
could cause confusion to our customers and in the marketplace and harm our
business, financial condition and results of operations.
In addition, our future success and ability to compete in our markets may
be dependent in part on our proprietary rights to products and services which we
develop. We rely on copyright, trademark and trade secret laws and contractual
restrictions. We also expect to rely on patents to protect our proprietary
technology and to rely on similar proprietary rights of any of our technology
providers. We have filed a patent application to protect certain of our
proprietary technology. We cannot assure you that such application will be
approved or, if approved, will be effective in protecting our proprietary
technology. We enter into confidentiality agreements with all of our employees,
as well as with our customers and potential customers seeking proprietary
information, and limit access to and distribution of our software, documentation
and other proprietary information. We cannot assure you that the steps we take
or the steps such providers take would be adequate to prevent misappropriation
of our respective proprietary rights.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR PRODUCTS OR INTERNAL SYSTEMS MAY INVOLVE
SIGNIFICANT TIME AND EXPENSE AND MAY REDUCE OUR FUTURE SALES
Many currently installed computer systems and software products store dates
using only the last two digits of the calendar year. As a result, such systems
may not be able to distinguish whether "00" means 1900 or 2000, which may cause
system failures or erroneous results. Although no material year 2000 problems
with our application, services and product offerings have been brought to our
attention to date, year 2000 problems emerging in the future could subject us to
liability claims and disrupt our customers' purchasing patterns, either of which
could harm our business.
Our applications, services and product offerings operate in complex network
environments and directly or indirectly interact with a number of other hardware
and software systems that we cannot adequately evaluate for year 2000
compliance. We may face claims based on year 2000 problems in other companies'
products, or issues arising from the integration of multiple products within an
overall system. Although we have not been a party to any litigation or
arbitration proceeding involving our
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solutions related to year 2000 compliance issues, we may in the future be
required to defend our applications, services and product offerings in such
proceedings, or to negotiate resolutions of claims based on year 2000 issues.
Defending and resolving year 2000-related disputes, regardless of the merits of
such disputes, and any liability we have for year 2000-related damages,
including consequential damages, could be expensive to us. In addition,
customers and potential customers may limit purchases of new applications,
services and product offerings due to year 2000 issues as companies expend
significant resources to correct or upgrade their current software systems for
year 2000 compliance. These expenditures may result in reduced funds available
to purchase our applications, services and product offerings. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
GOVERNMENT REGULATION OF INTERNET COMMUNICATIONS MAY IMPACT OUR BUSINESS BY
DIRECTLY OR INDIRECTLY INCREASING OUR COSTS
We provide Internet services, in part, through data transmissions over
public telephone lines. These transmissions are governed by regulatory policies
establishing charges and terms for wireline communications. We currently are not
subject to direct regulation by the Federal Communications Commission or any
other governmental agency, other than regulations applicable to businesses
generally.
However, in the future we could become subject to regulation by the Federal
Communications Commission or another regulatory agency as a provider of basic
telecommunications services. Changes in the regulatory environment relating to
the application of access charges and Universal Service Fund support payments to
Internet and Internet telephony providers, regulation of Internet services,
including Internet telephony, and other regulatory changes that directly or
indirectly affect costs imposed on Internet or Internet telephony providers,
telecommunications costs or increase in the likelihood or scope of competition,
could harm our business and financial results.
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES WILL HAVE SIGNIFICANT CONTROL
OVER US AND MAY APPROVE OR REJECT MATTERS CONTRARY TO OUR STOCKHOLDERS' VOTE
Our executive officers and directors, together with their affiliates, will
beneficially own an aggregate of approximately 61.2% of our outstanding common
stock following the completion of the offering. These stockholders, if acting
together, will be able to significantly influence all matters requiring approval
by our stockholders, including the election of directors and the approval of
mergers or similar transactions even if other stockholders disagree. See
"Principal Stockholders."
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR
COMPANY
Provisions of our certificate of incorporation, bylaws, other agreements
and Delaware law could make it more difficult for a third-party to acquire us,
even if doing so would be beneficial to our stockholders. See "Description of
Capital Stock."
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND OUR INVESTMENT OF
THESE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN
We intend to use the proceeds from the offering for general corporate
purposes, including working capital, capital expenditures and repayment of
long-term indebtedness, and may use a portion of proceeds to acquire other
businesses, products or technologies. Our management will have considerable
discretion in the application of the net proceeds of this offering, and you will
not have the opportunity, as part of your investment decision, to assess whether
the proceeds are being used appropriately. The net proceeds of this offering may
be used for corporate purposes that do not increase our results of operations or
our market value. Pending any such uses, we plan to invest the net proceeds of
the offering in investment-grade, interest-bearing securities. We cannot predict
that such investments will yield a favorable return. See "Use of Proceeds."
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OUR SECURITIES HAVE NO PRIOR MARKET AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING
Our common stock has never been sold in a public market. An active trading
market for our common stock may not develop or be sustained after completion of
the offering. The initial public offering price may not be indicative of the
prices that will prevail in the public market after the offering, and the market
price of the common stock could fall below the initial public offering price. In
addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many
technology companies and which have often been unrelated to the operating
performance of such companies. See "Underwriting."
WE MAY BE SUBJECT TO LITIGATION IF OUR COMMON STOCK PRICE IS VOLATILE
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against the company. The institution of class action litigation
against us could result in substantial costs to us and a diversion of our
management's attention and resources which would harm our business, financial
condition and results of operations. Any adverse determination in this
litigation could also subject us to significant liabilities.
SHARES ELIGIBLE FOR FUTURE SALE AFTER THE OFFERING COULD CAUSE OUR STOCK PRICE
TO FALL
If our stockholders sell substantial amounts of our common stock in the
public market following the offering, the market price of our common stock could
fall. Such sales also might make it more difficult for XCare.net to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Based upon the number of our shares outstanding as of September 30,
1999, upon completion of the offering, we will have outstanding 15,366,346
shares of common stock, assuming no exercise of the underwriters' option to
purchase additional shares and no exercise of outstanding options after
September 30, 1999. Of these shares, the 5,000,000 shares sold in the offering
will be freely tradable. The remaining 10,366,346 shares of common stock will be
available for sale in the public market 180 days after the date of this
prospectus or afterwards.
Based on the number of our shares outstanding as of September 30, 1999,
after the offering, the holders of approximately 9,808,540 shares of common
stock, which represents 64% of our outstanding stock after completion of the
offering, will be entitled to certain rights to have the resale of their shares
registered under the Securities Act of 1933. If these holders, by exercising
their registration rights, cause a large number of securities to be registered
and sold in the public market, such sales could materially and adversely affect
the market price for our common stock. In addition, if we were to include in a
registration statement shares held by these holders pursuant to the exercise of
their registration rights, such sales may impede our ability to raise needed
capital. See "Shares Eligible for Future Sale" and "Underwriting."
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION
If you purchase shares of our common stock, you will incur immediate and
substantial dilution in pro forma net tangible book value. Investors
participating in the offering of our common stock will pay a price per share,
which substantially exceeds the value of our assets after subtracting our
liabilities. These investors will contribute 75.7% of the total amount paid to
fund us but will own only 32.5% of our outstanding shares. If the holders of
outstanding options or warrants exercise those options or warrants, you will
suffer further dilution. See "Dilution."
18
<PAGE> 22
USE OF PROCEEDS
The net proceeds to us from the sale of shares of our common stock in the
offering at an estimated initial public offering price of $15.00 per share,
after deducting estimated expenses of $1.6 million and underwriting discounts
and commissions, are estimated to be approximately $68.2 million (approximately
$78.7 million if the underwriters' over-allotment option is exercised in full).
We expect to use the net proceeds from this offering for general corporate
purposes, working capital and capital expenditures to fund our operations,
including to continue expanding and enhancing our sales and marketing operations
and to continue expanding our product offerings. We have not yet determined our
expected use of these proceeds, but we currently anticipate that we will incur
approximately $3 million in research and development expenses, $7 million in
sales and marketing expenses, $2 million in hardware and software purchases and
other capital expenditures and $6 million in general and administrative expenses
over the next 12 months. Actual expenditures may vary substantially from these
estimates. The amounts and timing of our actual expenditures will depend upon
numerous factors, including the status of our product development efforts,
marketing and sales activities, and the amount of cash generated by our
operations and competition. We may find it necessary or advisable to use
portions of the proceeds for other purposes.
A portion of the proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies, although there are no current plans, negotiations or discussions
for any such transactions. Pending use of the net proceeds for the above
purposes, we intend to invest such funds in short-term, interest-bearing,
investment grade obligations.
DIVIDEND POLICY
Except for dividends declared in connection with our status as an S
corporation prior to January 1996, we have never declared or paid any cash
dividends on our common stock or other securities. We currently anticipate that
we will retain all of our future earnings for use in the expansion and operation
of our business and do not anticipate paying any cash dividends in the
foreseeable future.
19
<PAGE> 23
CAPITALIZATION
The following table sets forth our total capitalization as of September 30,
1999 on an actual, pro forma and pro forma as adjusted basis. The pro forma
capitalization reflects the automatic conversion of all outstanding shares of
our convertible preferred stock into common stock upon the closing of this
offering, the assumed cashless exercise of all outstanding common and
convertible preferred stock warrants, the conversion of the convertible
preferred stock issued upon the assumed cashless exercise of the latter warrants
into common stock, and amendments to our certificate of incorporation effective
after September 30, 1999. The pro forma as adjusted capitalization reflects our
receipt of estimated net proceeds from the sale of the 5,000,000 shares of
common stock in this offering (at an estimated initial public offering price of
$15.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------
(UNAUDITED)
PRO FORMA
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Long-term debt............................................. $ 25 $ 25 $ 25
-------- -------- --------
Series A mandatorily redeemable convertible preferred
stock, $0.01 par value; 6,000,000 shares authorized;
2,450,000 shares outstanding, actual; no shares
authorized or outstanding, pro forma and pro forma as
adjusted................................................. 6,793 -- --
Series B mandatorily redeemable convertible preferred
stock, $0.01 par value; 75,000,000 shares authorized;
63,053,144 shares outstanding, actual; no shares
authorized or outstanding, pro forma and pro forma as
adjusted................................................. 16,944 -- --
Value ascribed to mandatorily redeemable convertible
preferred stock warrants................................. 84 -- --
-------- -------- --------
23,821 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, no shares authorized or
outstanding, actual; 5,000,000 shares authorized, no
shares outstanding, pro forma and pro forma as
adjusted.............................................. -- -- --
Common stock, $0.01 par value; 12,500,000 shares
authorized, actual; 100,000,000 shares authorized, pro
forma and pro forma as adjusted; 557,163 shares
outstanding, actual; 10,366,346 shares outstanding,
pro forma; 15,366,346 shares outstanding, pro forma as
adjusted.............................................. 6 104 154
Additional paid-in capital............................... 3,120 26,843 94,993
Unearned compensation.................................... (2,383) (2,383) (2,383)
Accumulated deficit...................................... (13,329) (13,329) (13,329)
-------- -------- --------
Total stockholders' equity (deficit)................ (12,586) 11,235 79,435
-------- -------- --------
Total capitalization................................ $ 11,260 $ 11,260 $ 79,460
======== ======== ========
</TABLE>
We expect to incur a charge to operations of approximately $116,000 that
will further increase the accumulated deficit and decrease unearned compensation
upon completion of this offering, representing the acceleration of the vesting
of an option granted to a consultant. We also expect to record a charge of
$132,000, during the first quarter of 2000, relating to the settlement of a
dispute with a holder of a warrant to purchase common stock.
Outstanding shares in the above table excludes 1,491,492 shares issuable
upon exercise of outstanding options at September 30, 1999, with a weighted
average exercise price of $1.35 per share, 541,345 shares reserved for future
issuance under our stock plan after September 30, 1999, and 750,000 shares
reserved for future issuance under our director option plan and employee stock
purchase plan, both of which become effective upon the closing of the offering.
In the fourth quarter ended December 31, 1999, we granted options to purchase
145,451 shares of common stock, leaving a total of 400,444 shares reserved for
future issuance; and options to purchase a total of 20,500 shares were
exercised. See "Management -- Employee Benefit Plans" and notes 4, 6 and 9 of
notes to the financial statements.
20
<PAGE> 24
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $10.6 million or $1.02 per share of common stock, after giving
effect to the conversion of our outstanding convertible preferred stock, the
assumed cashless exercise of all outstanding common and convertible preferred
stock warrants, and the conversion of the convertible preferred stock issued
upon assumed exercise of the warrants into common stock. Pro forma net tangible
book value per share represents total tangible assets less total liabilities,
divided by the number of outstanding shares of common stock after giving effect
to the transactions described in the previous sentence.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of our common stock in
this offering and the net tangible book value per share of our common stock
immediately afterwards. After giving effect to our sale of the 5,000,000 shares
of common stock in this offering at an assumed initial public offering price of
$15.00 per share, and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value at September 30, 1999 would have been approximately $78.8 million or $5.13
per share. This represents an immediate increase in net tangible book value to
existing stockholders of $4.11 per share and an immediate dilution to new public
investors of $9.87 per share. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.00
Pro forma net tangible book value per share as of
September 30, 1999..................................... $1.02
Increase per share attributable to new public investors... 4.11
-----
Pro forma net tangible book value per share after
offering.................................................. 5.13
------
Dilution per share to new public investors.................. $ 9.87
======
</TABLE>
The following table sets forth, on a pro forma basis as of September 30,
1999, the difference between the number of shares of common stock purchased from
us, the total consideration paid, and the average price per share paid by
existing stockholders and by new public investors before deducting estimated
underwriting discounts and commissions and offering expenses payable by us,
using an assumed initial public offering price of $15.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 10,366,346 67.5% $24,085,569 24.3% $ 2.32
New public investors.......... 5,000,000 32.5 75,000,000 75.7 15.00
---------- ------ ----------- ------
Total.................... 15,366,346 100.0% $99,085,569 100.0%
========== ====== =========== ======
</TABLE>
As of September 30, 1999, we had outstanding options to purchase 1,491,492
shares of common stock at a weighted average exercise price of $1.35 per share.
In addition, we have reserved 541,345 additional shares for future issuance
under our stock plan at September 30, 1999, and 750,000 shares reserved for
future issuance under our director option plan and employee stock purchase plan,
both of which become effective upon the closing of the offering. To the extent
that any of these options or warrants are exercised, there will be further
dilution to new investors. In the fourth quarter ended December 31, 1999, we
granted options to purchase 145,451 shares of common stock, leaving a total of
400,444 shares reserved for future issuance; and options to purchase a total of
20,500 shares were exercised. See "Management -- Employee Benefit Plans" and
notes 4, 6 and 9 of notes to the financial statements.
21
<PAGE> 25
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
should be read in conjunction with, our financial statements and notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this prospectus. The balance sheet data as of
December 31, 1997 and 1998 and statement of operations data for each of the
three years ended December 31, 1998 have been derived from our audited financial
statements and the notes thereto included elsewhere in this prospectus. The
statement of operations data for the years ended December 31, 1994 and 1995 and
the balance sheet data as of December 31, 1994, 1995 and 1996 are derived from
our historical financial statements not included in this prospectus. The
unaudited statement of operations data for the nine-month periods ended
September 30, 1998 and 1999 and the balance sheet data as of September 30, 1999
are derived from unaudited financial statements included in this prospectus
which have been prepared on the same basis as the audited financial statements
and, in our opinion, include all adjustments, consisting only of normal
recurring adjustments, which are necessary to present fairly the results of
operations and financial position of XCare.net for the period in accordance with
generally accepted accounting principles. Historical results are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................... $4,310 $7,708 $ 9,726 $ 5,984 $ 2,270 $ 1,564 $ 2,654
------ ------ ------- ------- ------- ------- -------
Costs and expenses:
Cost of revenue........................... 1,450 2,593 3,744 4,575 2,086 1,440 2,421
Sales and marketing....................... 181 236 1,369 2,531 965 792 545
General and administrative................ 1,121 1,465 2,220 2,436 2,194 1,389 1,185
Research and development.................. 1,368 1,789 3,190 4,212 670 594 417
Impairment of long-lived assets and
abandonment of operating lease.......... -- -- -- 887 -- -- --
Stock compensation expense................ -- -- -- -- -- -- 112
------ ------ ------- ------- ------- ------- -------
Total costs and expenses........... 4,120 6,083 10,523 14,641 5,915 4,215 4,680
Income (loss) from operations............... 190 1,625 (797) (8,657) (3,645) (2,651) (2,026)
Settlements received from contract
terminations.............................. -- -- 2,250 250 -- -- --
Interest income (expense), net.............. (77) (42) -- 5 (437) (306) (150)
------ ------ ------- ------- ------- ------- -------
Income (loss) before income taxes........... 113 1,583 1,453 (8,402) (4,082) (2,957) (2,176)
Income tax (benefit) expense................ -- -- 1,200 (1,078) -- -- --
------ ------ ------- ------- ------- ------- -------
Net income (loss)........................... $ 113 $1,583 $ 253 $(7,324) $(4,082) $(2,957) $(2,176)
====== ====== ======= ======= ======= ======= =======
Net income (loss) per common share -- basic
and diluted............................... $ 0.19 $ 2.64 $ 0.53 $(18.92) $(10.64) $ (7.71) $ (5.09)
====== ====== ======= ======= ======= ======= =======
Weighted average common shares outstanding--
basic and diluted......................... 596 599 476 390 390 390 438
====== ====== ======= ======= ======= ======= =======
Pro forma:
Income before income taxes................ $ 113 $1,583
Net income................................ $ 65 $ 980
Pro forma net income (loss) per common
share -- basic and diluted................ $ 0.11 $ 1.64 $ (1.00) $ (0.32)
====== ====== ======= =======
Pro forma weighted average common shares
outstanding -- basic and diluted.......... 596 599 4,069 6,727
====== ====== ======= =======
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
------ ------ ------ ------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 123 $ 172 $1,394 $ 697 $ 198 $ 11,031
Working capital........................... 61 840 243 (952) (5,335) 10,222
Total assets.............................. 1,266 4,190 4,492 4,026 2,805 13,523
Long-term debt............................ 402 1,012 1,317 939 284 25
Mandatorily redeemable convertible
preferred stock......................... -- -- -- 6,728 6,827 23,821
Stockholders' equity (deficit)............ 347 1,770 842 (6,537) (10,620) (12,586)
</TABLE>
In reviewing the above data, you should consider the following:
- During 1996, a major customer terminated its contract with us and paid
$2.3 million to settle all claims arising from the termination. During
1997, another major customer terminated its contract with us and paid
$250,000 to settle all claims associated with the termination.
- As a result of the contract terminations referred to above, during 1997
we abandoned an operating lease and incurred impairment charges for
related fixed assets aggregating $887,000.
- Prior to January 1, 1996, XCare.net was an S corporation for federal and
state income tax purposes, and, accordingly, our income was taxed
directly to our stockholders. Pro forma income before income taxes and
pro forma net income and pro forma net income (loss) per common share for
the years ended December 31, 1994 and 1995 give effect to pro forma
adjustments that reflect the federal and state income taxes that would
have been recorded if XCare.net had been a C corporation prior to January
1, 1996.
- See note 1 of notes to the financial statements for a description of the
method used to compute net income (loss) per share and pro forma net loss
per common share for all periods presented.
- During June and July 1999, we completed a sale of Series B convertible
preferred stock with net proceeds totaling $13.7 million, of which $7.3
million was received in June 1999 and $6.4 million was received in July
1999.
23
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements, trend analysis and other information contained in the
following discussion relative to markets for our products and trends in revenue,
gross margins and anticipated expense levels, as well as other statements
including words such as "anticipate," "believe," "plan," "estimate," "expect"
and "intend" and other similar expressions constitute forward-looking
statements. These forward-looking statements are subject to business and
economic risks and uncertainties, and our actual results of operations may
differ materially from those contained in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors" as well as other risks and
uncertainties referenced in this prospectus.
OVERVIEW
XCare.net is an electronic commerce service provider for health care
businesses. We have developed an Internet-based technology platform using
extensible mark-up language, or XML, to process health care transactions and
provide related services for payers, providers and other health care industry
participants. We process transactions such as eligibility checking, claims
submission, referral processing, physician credentialling, and appointment
scheduling. We also provide consulting services to define, develop and implement
Internet healthcare strategies as well as Web-site hosting, transaction support
and maintenance services for our customers.
Utilizing our proprietary technology platform, which we call the XCare.net
platform, we design and develop custom health care Web sites, known as portals.
Through these portals we link health care providers, payers and other industry
participants into a community to form an Internet exchange. We use the XCare.net
platform to deliver a broad range of applications, services and electronic
product offerings that streamline and automate high-volume, data-intensive
transactions and processes.
We commenced operations in March 1989, but we did not begin to focus on
Internet-based health care solutions until mid-1998. We have historically
derived a significant portion of our revenue from sales of mainframe and
client-server software for managed health care systems and from providing
services to health care organizations seeking to outsource administrative
functions. We intend to derive an increasing portion of our future revenue from
our Internet-based applications, services and product offerings. Due to our
limited operating history in the Internet-based health care market, it is
difficult for us to predict with any accuracy our future results of operations.
Accordingly, we believe that our historical financial results are not
necessarily indicative of our future financial performance.
At the end of the first quarter of 1996, our largest customer at the time,
who accounted for approximately 67% of 1996 revenue, changed its information
technology strategy and terminated its contract with us. In June 1996, the
customer paid approximately $2.3 million to settle all claims arising under the
termination.
In the first quarter of 1997, we obtained financing from new investors
through the issuance of Series A convertible preferred stock. This financing
enabled us to develop and pursue a new strategic plan to supplement our
mainframe-based business with client-server applications and services. In
pursuing this strategy, we increased our expenditures in marketing, research and
development, and general administration.
At the beginning of the third quarter of 1997, our largest customer at the
time, who accounted for approximately 74% of 1997 revenue, decided to pursue an
alternative software approach and terminated its contract with us. In August
1997, the customer paid $250,000 to settle all claims arising under the
termination. In response, we reduced total personnel by 40% and 26%, as well as
other expenditures, during the fourth quarter of 1997 and the first quarter of
1998, respectively.
Also at the end of 1997 and during the first quarter of 1998, we obtained
additional financing through the issuance of convertible promissory notes. This
financing allowed us to continue to license
24
<PAGE> 28
and implement our client-server based product to new customers and begin
development of our Internet-based applications and services. Notwithstanding
this financing, we had limited available working capital during the latter part
of 1998 through the first part of 1999, causing us to reduce our sales and
marketing, research and development, and general and administration expenditures
from 1997 levels.
At the end of 1998, we obtained additional financing from our existing
investors through the issuance of convertible promissory notes, and in June and
July 1999, we obtained financing through the issuance of Series B convertible
preferred stock. These financings have enabled us to add personnel and other
resources to facilitate the development and marketing of the new Internet-based
applications, services and product offerings.
For contracts entered into subsequent to January 1, 1998, we recognize
revenue in accordance with the provisions of Statement of Position 97-2,
"Software Revenue Recognition." We derive revenue from license fees and related
services under the terms of fixed price contracts. Maintenance revenue is
derived from agreements for supporting and providing periodic updates to
licensed software. Consulting revenue consists of revenue from consulting
services provided pursuant to time and materials contracts. Transaction
processing revenue is derived from outsourcing and transaction hosting services
and is recognized on a per-transaction basis as services are performed.
License fees and related services revenue is generally recognized from
fixed price contracts using the percentage-of-completion method of accounting
where collectibility of fees is probable. Where collectibility of fees is not
probable, we defer revenue and related costs as deferred contract costs and
recognize revenue and cost of revenue as cash is collected.
We may encounter budget and schedule overruns on fixed price contracts
caused by increased material, labor or overhead costs. Adjustments to cost
estimates are made in the periods in which the facts requiring such revisions
become known. Estimated losses, if any, are recorded in the period in which
current estimates of total contract revenue and contract costs indicate a loss.
We do not require collateral for our receivables and an allowance is maintained
for potential credit losses.
Maintenance revenue is recorded as unearned revenue and is recognized
ratably over the service period, which is generally 12 months. When maintenance
is bundled with the original license fee arrangement, its fair value is deferred
and recognized during the period such services are provided.
Revenue from consulting services provided pursuant to time-and-materials
contracts is recognized as the services are performed.
For contracts entered into prior to January 1, 1998, we recognized revenue
in accordance with Statement of Position 91-1, "Software Revenue Recognition."
Our revenue recognition for such pre-1998 contracts was substantially the same
as that discussed above.
For the nine months ended September 30, 1999, sales to Methodist Care, Inc.
accounted for 29% of revenue, sales to American Medical Pathways, Inc. accounted
for 19% of revenue, sales to Quest Diagnostics Incorporated accounted for 17% of
revenue and sales to Brokerage Services, Inc. accounted for 17% of revenue. If
we do not generate as much revenue from these major customers as we expect to,
or if we lose any of them as customers, our revenue will be significantly
reduced.
We incurred net losses and losses from operations for the nine months ended
September 30, 1999 and the years ended December 31, 1998 and 1997. As of
September 30, 1999, we had an accumulated deficit of approximately $13.3
million. Since we began developing and marketing our Internet-based health care
applications, services, and product offerings in early 1999, we have funded our
business primarily by borrowing funds and from the sale of convertible preferred
stock, not from cash generated by our business. We expect to continue to incur
significant sales and marketing, research and development and general and
administrative expenses. As a result, we will experience losses and negative
cash flows for the foreseeable future. Factors which may prevent us from
achieving or maintaining profitability and cause our stock price to decline
include the demand for and acceptance of
25
<PAGE> 29
our solutions, and our ability to attract new customers, as well as a number of
other factors described in the "Risk Factors" section.
During the nine months ended September 30, 1999, in connection with stock
options granted to certain employees under the stock plan, we have recorded
unearned stock compensation representing the difference between the exercise
price of the options and the deemed fair value of our common stock at the date
of grant. This unearned stock compensation will be amortized to expense over the
period during which the options or common stock subject to repurchase vest,
generally four years, using an accelerated method as described in Financial
Accounting Standards Board Interpretation No. 28. Subsequent to September 30,
1999, the Company granted additional options with exercise prices below the
deemed fair value of the Company's common stock at the date of grant and will
record unearned compensation of approximately $233,000 in the fourth quarter of
1999 to be amortized over the period of vesting. We also expect to incur a
charge to operations of approximately $116,000 that will further increase the
accumulated deficit and decrease unearned compensation upon completion of this
offering, representing the acceleration of the vesting of an option granted to a
consultant. Amortization of unearned stock compensation amounted to
approximately $112,000 during the nine months ended September 30, 1999. We
expect to recognize amortization expense related to unearned compensation for
the aforementioned grants of approximately $397,000 in the fourth quarter of
1999, $1,441,000 in 2000, $538,000 in 2001, $243,000 in 2002 and $47,000 in
2003.
We expect to record a charge during the first quarter of 2000, of $132,000,
relating to the settlement of a dispute with a holder of a warrant to purchase
common stock.
In September 1999 Laidlaw Inc., the Canadian parent company of American
Medical Response, Inc. announced its intention to divest its interest in that
company in order to focus on its transportation business. American Medical
Response, Inc. is the parent company of one of our customers, American Medical
Pathways, Inc. If such a sale is consummated, and the new owner decided to
terminate our agreement, there would likely be a material adverse impact on our
future earnings and cash flow.
RESULTS OF OPERATIONS
The following table sets forth financial data for the periods indicated as
a percentage of revenue.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -----------------
1996 1997 1998 1998 1999
----- ------ ------ ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenue............................ 38.5 76.5 91.9 92.1 91.2
Sales and marketing........................ 14.1 42.3 42.5 50.6 20.5
General and administrative................. 22.8 40.7 96.7 88.8 44.7
Research and development................... 32.8 70.4 29.5 38.0 15.7
Impairment of long-lived assets and
abandonment of operating lease.......... -- 14.8 -- -- --
Stock compensation expense................. -- -- -- -- 4.2
----- ------ ------ ------ -----
Total costs and expenses........... 108.2 244.7 260.6 269.5 176.3
----- ------ ------ ------ -----
Loss from operations......................... (8.2) (144.7) (160.6) (169.5) (76.3)
Settlements received from contract
terminations............................... 23.1 4.2 -- -- --
Interest income (expense), net............... -- 0.1 (19.2) (19.6) (5.7)
----- ------ ------ ------ -----
Income (loss) before income taxes............ 14.9 (140.4) (179.8) (189.1) (82.0)
----- ------ ------ ------ -----
Income tax (benefit) expense................. 12.3 (18.0) -- -- --
----- ------ ------ ------ -----
Net income (loss)............................ 2.6% (122.4)% (179.8)% (189.1)% (82.0)%
===== ====== ====== ====== =====
</TABLE>
26
<PAGE> 30
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenue. Revenue increased 70% to $2.7 million for the nine months ended
September 30, 1999 from $1.6 million for the nine months ended September 30,
1998. This increase reflects revenue recognized from new customers coupled with
an increase in average total arrangement fees as compared to average total
arrangement fees in the nine months ended September 30, 1998 partially offset by
decreased transaction processing revenue, as two customers did not continue
their transaction processing arrangements after they completed implementation of
our software.
Cost of revenue. Cost of revenue includes personnel and related overhead
costs, payments to third party consultants who assist with implementation and
support services, facilities costs and equipment depreciation. Cost of revenue
increased 68% to $2.4 million for the nine months ended September 30, 1999 from
$1.4 million for the nine months ended September 30, 1998. This increase
reflects the cost of additional third party consultants utilized to support the
current license implementation contracts and custom development projects, as
well as the amortization of purchased software. Cost of revenue as a percentage
of revenue was relatively consistent between the two nine-month periods.
Sales and marketing. Sales and marketing expenses consist of personnel and
related overhead costs, including commissions and travel expenses, field sales
office expenses, and advertising and promotion costs. Sales and marketing
expenses decreased 31% to $545,000 for the nine months ended September 30, 1999
from $792,000 for the nine months ended September 30, 1998, representing 21% and
51% of revenue, respectively. The decrease in sales and marketing expenses in
absolute dollars and as a percentage of revenue reflects a 15% reduction in
sales force personnel, and other promotional marketing activities as a result of
the limited working capital available during the nine months ended September 30,
1999 as compared to the nine months ended September 30, 1998. During the third
quarter we began to expand our sales and marketing organization using the
proceeds from the issuance of the Series B convertible preferred stock received
in June and July 1999.
General and administrative. General and administrative expenses include
personnel and related overhead costs for our executive, administrative, finance
and human resources functions, as well as legal and accounting fees. General and
administrative expenses decreased 15% to $1.2 million for the nine months ended
September 30, 1999 from $1.4 million for the nine months ended September 30,
1998, representing 45% and 89% of revenue, respectively. General and
administrative costs in absolute dollars were relatively consistent in absolute
dollars in both periods. However, general and administrative expenses decreased
as a percentage of revenue reflecting the 70% increase in revenue, as discussed
above, during the nine months ended September 30, 1999.
Research and development. Research and development expenses include
personnel and related overhead costs for product development, enhancements to
existing applications and services, and quality assurance activities. Research
and development expenses decreased 30% to $417,000 for the nine months ended
September 30, 1999 from $594,000 for the nine months ended September 30, 1998,
representing 16% and 38% of total revenue, respectively. The decrease in
research and development expenses in absolute dollars and as a percentage of
revenue reflects a reduction in the number of third party consultants used
during the nine months ended September 30, 1999 as compared to nine months ended
September 30, 1998. During the nine months ended September 30, 1998, these
consultants assisted in the development of the XCare.net platform.
Stock compensation expense. During the third quarter of 1999, we recorded
aggregate unearned compensation of $2.4 million in connection with the grant of
certain stock options. Amortization of such compensation amounted to
approximately $112,000 during the nine months ended September 30, 1999.
Interest income (expense), net. Interest income (expense), net includes
interest expense on our convertible promissory notes and capital lease
obligations partially offset by interest income on cash and cash equivalent
balances. Interest expense, net of interest income, decreased 51% to $150,000
for the nine months ended September 30, 1999 from $306,000 for the nine months
ended September 30, 1998
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<PAGE> 31
due to the conversion of the convertible promissory notes to Series B
convertible preferred stock in June 1999.
Provision for (benefit from) income taxes. No provision for federal and
state income taxes has been recorded for the nine months ended September 30,
1999 or 1998 as we have incurred net operating losses for each of these periods.
We believe that, based on the history of losses and other factors, the weight of
available evidence indicates that it is more likely than not that we will not be
able to realize our deferred tax assets, and thus a full valuation allowance has
been recorded against such assets as of September 30, 1999 and 1998.
Net income (loss). Net loss decreased 26% to $2.2 million for the nine
months ended September 30, 1999 from $3.0 million for the nine months ended
September 30, 1998, primarily due to a 70% increase in revenue, partially offset
by an increase in total costs and expenses as discussed above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue. Revenue decreased 62% to $2.3 million for the year ended December
31, 1998 from $6.0 million for the year ended December 31, 1997. This decrease
reflects a significant reduction in consulting revenue due to the loss of a
major customer during July 1997 that accounted for approximately $4.4 million,
or 74%, of total 1997 revenue.
Cost of revenue. Cost of revenue decreased 54% to $2.1 million for the year
ended December 31, 1998 from $4.6 million for the year ended December 31, 1997.
As a percentage of revenue, cost of revenue increased to 92% in 1998 from 77% in
1997. The decrease in absolute dollars reflects a 55% reduction in the number of
employees who perform implementation services due to limited availability of
working capital in 1998. The increase in cost of revenue as a percentage of
revenue reflects decreased revenue associated with a major contract termination
in 1997 which was not completely offset by a decline in cost of revenue due to
certain fixed infrastructure costs which are included in cost of revenue.
Sales and marketing. Sales and marketing expenses decreased 62% to $965,000
for the year ended December 31, 1998 from $2.5 million for the year ended
December 31, 1997, representing 43% and 42% of revenue, respectively. The
decrease in absolute dollars reflects a 29% reduction in sales and marketing
personnel, and decreased travel and entertainment costs due to the loss of the
significant customer described above. In addition, we incurred higher costs for
marketing, consulting, advertising and promotion and attendance at trade shows
in 1997 as compared to 1998 in connection with our new strategic focus on
client-server applications and services, including various marketing studies and
analyst research projects on the client-server market.
General and administrative. General and administrative expenses decreased
10% to $2.2 million for the year ended December 31, 1998 from $2.4 million for
the year ended December 31, 1997, representing 97% and 41% of revenue,
respectively. The increase as a percentage of revenue is due to significantly
reduced revenue and losses on the disposal of fixed assets. The decrease in
absolute dollars reflects a 68% reduction in general and administrative
management personnel due to the loss of the significant customer described
above, which was partially offset by charges relating to the loss on disposal of
property and equipment referred to above.
Research and development. Research and development expenses decreased 84%
to $670,000 for the year ended December 31, 1998 from $4.2 million for the year
ended December 31, 1997, representing 30% and 70% of revenue, respectively. The
decrease in absolute dollars reflects management's decision to reduce research
and development staff by 96%, and support costs, as a result of the significant
decrease in revenue. In addition, during 1997, we had focused on developing and
maintaining two separate software applications, one for the mainframe market and
one for the client-server market, while in 1998 we were developing only the
client-server product.
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<PAGE> 32
Interest income (expense), net. Interest expense, net, significantly
increased to $437,000 for the year ended December 31, 1998 from $5,000 of
interest income for the year ended December 31, 1997, as a result of interest
expense incurred on the December 1997 and April 1998 convertible promissory
notes.
Provision for (benefit from) income taxes. No provision for federal and
state income taxes has been recorded for the year ended December 31, 1998, as we
incurred a net operating loss. We believe that based on the history of losses
and other factors, the weight of available evidence indicates that it is more
likely than not that we will not be able to realize our deferred tax assets, and
thus a full valuation allowance has been recorded as of December 31, 1998.
Net income (loss). Net loss decreased 44% to $4.3 million for the year
ended December 31, 1998 from $7.3 million for the year ended December 31, 1997,
primarily due to a 60% decrease in total costs and expenses as discussed above,
partially offset by a decrease in total revenue.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue. Revenue decreased 38% to $6.0 million for the year ended December
31, 1997 from $9.7 million for the year ended December 31, 1996. This decrease
reflects a significant reduction in consulting revenue due to the loss of a
major customer, who accounted for approximately $6.5 million, or 67%, of 1996
revenue.
Cost of revenue. Cost of revenue increased 22% to $4.6 million for the year
ended December 31, 1997 from $3.7 million for the year ended December 31, 1996.
As a percentage of revenue, cost of revenue increased to 77% in 1997 from 39% in
1996. This increase in absolute dollars and as a percentage of revenue is due to
an increase in the use of third party consultants and travel expenses during
1997 and the decrease in revenue associated with a major contract termination
during 1997.
Sales and marketing. Sales and marketing expenses increased 85% to $2.5
million for the year ended December 31, 1997 from $1.4 million for the year
ended December 31, 1996, representing 42% and 14% of revenue, respectively.
After we received the proceeds from the issuance of convertible preferred stock
in the first quarter of 1997, we focused on increasing our marketing
expenditures in an attempt to bring in new customers. The increase in absolute
dollars and as a percentage of revenue reflects decreased revenue, an increase
of 115% in the number of sales and marketing employees, increased advertising
and promotional activities, and increased travel expenses during 1997.
General and administrative. General and administrative expenses increased
10% to $2.4 million for the year ended December 31, 1997 from $2.2 million for
the year ended December 31, 1996, representing 41% and 23% of revenue,
respectively. The increase in absolute dollars and as a percentage of revenue
reflects the decreased revenue during 1997 and a 28% increase in the number of
general and administrative employees during 1997, as several executive level
employees were hired and relocated to Albuquerque, New Mexico after we received
proceeds from the issuance of convertible preferred stock in the first quarter
of 1997.
Research and development. Research and development expenses increased 32%
to $4.2 million for the year ended December 31, 1997 from $3.2 million for the
year ended December 31, 1996, representing 70% and 33% of revenue, respectively.
During 1997, we increased research and development personnel by 23% to continue
development of our software applications after the issuance of convertible
preferred stock in the first quarter of 1997.
Impairment of long-lived assets and abandonment of operating
lease. Impairment of long-lived assets and abandonment of operating lease
increased 100% to $887,000 for the year ended December 31, 1997 from $0 for the
year ended December 31, 1996. During 1997, due to the loss of our largest
customer, we abandoned an operating lease and incurred impairment charges for
related fixed assets aggregating $887,000.
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<PAGE> 33
Settlement received from contract termination. During 1996, our largest
customer terminated its contract with us and paid $2.3 million to settle all
claims arising under the termination. During 1997, another major customer
terminated its contract with us and paid $250,000 to settle all claims
associated with the termination.
Interest income (expense), net. Interest income (expense), net did not
change significantly in the year ended December 31, 1997 from the year ended
December 31, 1996.
Provision for (benefit from) income taxes. The 1997 tax benefit was
primarily due to net operating losses generated in 1997 which were partially
realized through a carryback of the net operating loss against income taxes paid
in 1996. The 1996 tax expense was related to taxable income generated in 1996.
The effective tax rate for 1997 was approximately 12.8% which was lower
than the Federal statutory rate primarily because of the effect of recording a
valuation allowance against all of our remaining deferred tax assets at December
31, 1997. The effective tax rate for 1996 was approximately 82.6% which was
higher than the Federal statutory rate primarily because of the effect of our
conversion to a taxable corporation on January 1, 1996.
Net income (loss). Net loss increased significantly to $7.3 million for the
year ended December 31, 1997 from net income of $253,000 for the year ended
December 31, 1996, primarily due to the loss of our most significant customer
during 1997 resulting in a reduction of revenue and decreased settlements
received from contract terminations as discussed above. Further, total expenses
increased by 39% during 1997 as discussed above.
QUARTERLY RESULTS OF OPERATIONS
We have experienced quarterly fluctuations in our operating and financial
results due to the timing and relative size of new custom software development
projects, cancellations of contracts, and fluctuations in costs, including
personnel, equipment and facilities costs. We expect quarterly results to
fluctuate in the future due to the timing and introduction of new applications
and services and other market factors. See "Risk Factors."
The following tables set forth unaudited statement of operations data for
each of the seven quarters ended September 30, 1999, as well as the percentage
of our revenue represented by each line item. This information has been derived
from our unaudited financial statements. The unaudited financial statements have
been prepared on the same basis as the audited financial statements contained in
this prospectus and include all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of this
information. These unaudited quarterly results should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in the
prospectus. Our
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<PAGE> 34
operating results are expected to vary significantly from quarter to quarter and
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUE)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................... $ 521 $ 521 $ 522 $ 706 $1,311 $ 530 $ 813
Costs and expenses:
Cost of revenue......... 547 445 448 646 923 714 784
Sales and marketing..... 334 232 226 173 155 138 252
General and
administrative........ 612 431 346 805 144 282 759
Research and
development........... 396 150 48 76 104 57 256
Stock compensation
expense............... -- -- -- -- -- -- 112
------- ------- ------- ------- ------ ------- -------
Total costs and
expenses....... 1,889 1,258 1,068 1,700 1,326 1,191 2,163
------- ------- ------- ------- ------ ------- -------
Income (loss) from
operations.............. (1,368) (737) (546) (994) (15) (661) (1,350)
Interest income (expense),
net..................... (74) (106) (126) (131) (136) (122) 108
------- ------- ------- ------- ------ ------- -------
Loss before income
taxes................... (1,442) (843) (672) (1,125) (151) (783) (1,242)
Income tax (benefit)
expense................. -- -- -- -- -- -- --
------- ------- ------- ------- ------ ------- -------
Net loss.................. $(1,442) $ (843) $ (672) $(1,125) $ (151) $ (783) $(1,242)
======= ======= ======= ======= ====== ======= =======
AS A PERCENT OF REVENUE:
Revenue................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenue......... 105.0 85.4 85.8 91.5 70.4 134.7 96.4
Sales and marketing..... 64.1 44.5 43.3 24.5 11.8 26.0 31.0
General and
administrative........ 117.5 82.7 66.3 114.0 11.0 53.2 93.4
Research and
development........... 76.0 28.8 9.2 10.8 7.9 10.8 31.5
Stock compensation
expense............... -- -- -- -- -- -- 13.8
------- ------- ------- ------- ------ ------- -------
Total costs and
expenses....... 362.6 241.4 204.6 240.8 101.1 224.7 266.1
------- ------- ------- ------- ------ ------- -------
Income (loss) from
operations.............. (262.6) (141.4) (104.6) (140.8) (1.1) (124.7) (166.1)
------- ------- ------- ------- ------ ------- -------
Interest income (expense),
net..................... (14.2) (20.4) (24.1) (18.5) (10.4) (23.0) 13.3
------- ------- ------- ------- ------ ------- -------
Loss before income
taxes................... (276.8) (161.8) (128.7) (159.3) (11.5) (147.7) (152.8)
Income tax (benefit)
expense................. -- -- -- -- -- -- --
------- ------- ------- ------- ------ ------- -------
Net loss.................. (276.8)% (161.8)% (128.7)% (159.3)% (11.5)% (147.7)% (152.8)%
======= ======= ======= ======= ====== ======= =======
</TABLE>
Revenue increased significantly during the quarter ended March 31, 1999 due
to the progress made in completing several custom software development projects.
Revenue for the quarter ended June 30, 1999 decreased relative to the prior
quarter as limited working capital available during the six months ended June
30, 1999 resulted in a reduction in our sales force personnel and other
promotional marketing activities, which impeded our ability to generate new
sales leads. Revenue for the quarter ended September 30, 1999 included $240,000
for the settlement of outstanding amounts owed by a customer relating to work
that had been performed in a prior quarter and for which the revenue had not
previously been recognized because collectibility of fees was not probable.
Cost of revenue as a percentage of revenue has varied from quarter to
quarter due to fluctuations in quarterly revenue and changes in associated
personnel costs. During the quarter ended March 31, 1999, cost of revenue
decreased as a percentage of revenue due to increased revenue from the
completion of several custom software development projects during the quarter.
During the quarter ended June 30, 1999, the increase in cost of revenue as a
percentage of revenue reflects the decreased revenue
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recognized during the quarter the utilization of third party consultants for
license implementation contracts and custom development projects, and the
amortization of purchased software.
During the quarter ended December 31, 1998, general and administrative
expense increased in absolute dollars and as a percentage of revenue due to an
approximate $360,000 loss on disposal of fixed assets. During the quarter ended
March 31, 1999, sales and marketing and general administrative expense declined
in both dollars and as a percentage of revenue due to substantial reductions of
personnel costs. During the quarter ended September 30, 1999, we increased
general and administrative personnel by 68%, and recruiting and relocation costs
increased by $192,000 reflecting costs associated with recruiting new employees.
Research and development expenses sharply declined following the quarter
ended March 31, 1998 due to reduction of research and development personnel
caused by limited working capital. During the quarter ended September 30, 1999,
we increased research and development employees by 266% reflecting our
commitment to enhance the XCare.net platform.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations through a combination of cash
flow from operations, private sales of common and convertible preferred stock,
and issuances of convertible promissory notes.
During March 1997, we completed a sale of Series A convertible preferred
stock for net proceeds of $6.6 million. From the period December 1997 through
December 1998, we issued $2.7 million of convertible promissory notes. During
June and July 1999, we completed a sale of Series B convertible preferred stock
with net proceeds totaling $13.7 million of which $7.3 million was received in
June 1999 and $6.4 million was received in July 1999. A portion of these
proceeds amounting to $438,000 was used to pay the majority of our capital lease
obligations during the third quarter of 1999 and $302,000 was used to repay debt
during that quarter.
At September 30, 1999, our principal sources of liquidity included $10.2
million in working capital with $107,000 in outstanding debt. Outstanding debt
at September 30, 1999 consists of a capital lease which is secured by the
underlying equipment and matures in December 2000.
Net cash used in operating activities was $1.9 million in the nine months
ended September 30, 1999, $2.2 million in 1998 and $6.6 million in 1997. Net
cash provided by operating activities was $2.8 million in 1996. Net cash used in
operating activities is primarily attributable to net losses.
Net cash used in investing activities was $109,000 in the nine months ended
September 30, 1999 and net cash provided by investing activities was $167,000 in
1998. Net cash used in investing activities was $318,000 in 1997 and $330,000 in
1996. Investing activities consist primarily of purchases of computer hardware
and software, office furniture and equipment, offset by proceeds from the sale
of property and equipment.
Net cash provided by financing activities was $12.8 million in the nine
months ended September 30, 1999, $1.5 million in 1998, and $6.2 million in 1997
and consists primarily of net proceeds from the issuance of convertible
preferred stock and convertible promissory notes. Net cash used in financing
activities was $1.3 million in 1996, which reflects principal payments on debt
and cash paid for the repurchase of common stock from former employees.
We anticipate that our cash and cash equivalents of $11.0 million at
September 30, 1999 will be sufficient to meet our working capital and
anticipated capital expenditure requirements for the next eighteen months. This
is regardless of whether or not the anticipated proceeds from this offering are
received and is based on and assuming our targets for cash flow are achieved.
Thereafter, we may require additional funds to support our working capital
requirements or for other purposes, and we may seek, even before such time, to
raise additional funds through public or private equity financing or from other
sources. Such additional financing may not be available at all or, if available,
on terms acceptable to us and that are not dilutive to our stockholders.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We recognize revenue in accordance with Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," which provides guidance on recognizing revenue
from software transactions, as amended by SOP 98-4, "Deferral of the Effective
Date of a Provision of SOP 97-2, Software Revenue Recognition." We applied the
provisions of SOP 97-2 on a prospective basis for new software transactions
entered into as of January 1, 1998. The adoption of this guidance did not have a
material impact on our financial condition or results of operations.
Further guidance was published during 1998 in SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions."
Additionally, the AICPA issued technical questions and answers on financial and
reporting issues related to SOP 97-2 in January 1999. The adoption of this
guidance is not expected to have a material impact on our financial condition or
results of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We currently develop and market our products in the United States. As all
sales are currently made in U.S. dollars, a strengthening of the dollar could
make our product less competitive in foreign markets. Our interest income is
sensitive to changes in the general level of U.S. interest rates. Due to the
short-term nature of our investments, we believe that there is no material risk
exposure. Based on the foregoing, no quantitative disclosures have been
provided.
YEAR 2000 ISSUES
We have completed our initial assessment of the potential overall impact of
the impending century change on our business, financial condition and operating
results. Based on our current assessment, we believe the current versions of our
applications are year 2000 ready -- that is, they are capable of adequately
distinguishing 21st century dates from 20th century dates. Although no material
year 2000 problems with our application have been brought to our attention to
date, our applications operate in complex network environments and directly or
indirectly interact with a number of other hardware and software systems that we
cannot completely evaluate for year 2000 readiness.
We may face claims based on year 2000 problems in other companies'
products, or issues arising from the integration of multiple products within an
overall system, although we have not been a party to any litigation or
arbitration proceeding or services involving our applications related to year
2000 readiness issues or services. We may in the future be required to defend
our applications or services in such proceedings, or to negotiate resolutions of
claims based on year 2000 issues. The costs of defending and resolving year
2000-related disputes, regardless of the merits of such disputes, and any
liability we have for year 2000-related damages, including consequential
damages, could harm our business. In addition, we believe that the purchasing
patterns of customers and potential customers may be affected by year 2000
issues, as companies expend significant resources to correct or upgrade their
current software systems for year 2000 readiness. These expenditures may result
in reduced funds available to purchase applications and services like those we
offer. To the extent year 2000 issues cause a significant delay in, or
cancellation of, decisions to purchase our applications, services or product
offerings, our business would suffer.
We have reviewed our internal management information and other critical
business systems to identify any year 2000 problems. We also have communicated
with the external vendors that supply us with material software and information
systems to determine their year 2000 readiness. Based on our vendors'
representations, we believe that the third-party hardware and software we use is
year 2000 ready.
To date, we have not incurred any material costs directly associated with
year 2000 readiness efforts, except for compensation expense associated with
salaried employees who have devoted some of their time to year 2000 assessment
and remediation efforts. As discussed above, we do not expect the
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<PAGE> 37
total cost of year 2000 problems to be material to our business, financial
condition and operating results. However, we will continue to evaluate new
versions of our applications and services, software and information systems
provided by third parties, and any new infrastructure systems that we acquire,
to determine whether they are year 2000 ready. Despite our current assessment,
we may not identify and correct all significant year 2000 problems on a timely
basis. Year 2000 readiness efforts may involve significant time and expense and
unremediated problems could harm our business, financial condition and operating
results. We currently have no contingency plans to address the risks associated
with unremediated year 2000 problems.
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BUSINESS
The following description of our business should be read in conjunction
with the information included elsewhere in this prospectus. This description
contains certain forward-looking statements that are based largely on our
current expectations and are subject to a number of risks and uncertainties. Our
actual results could differ significantly from the results discussed in the
forward-looking statements as a result of certain of the factors set forth below
and elsewhere in this prospectus.
OVERVIEW
XCare.net is an electronic commerce service provider for health care
businesses. We have developed an Internet-based technology platform using
extensible mark-up language, or XML, to process health care transactions and
provide related services for payers, providers and other health care industry
participants. We process transactions such as eligibility checking, claims
submission, referral processing, physician credentialling and appointment
scheduling. We also provide consulting services to define, develop and implement
Internet health care strategies as well as Web-site hosting, transaction support
and maintenance services for our customers.
Utilizing our proprietary technology platform, which we call the XCare.net
platform, we design and develop custom health care Web sites, known as portals.
Through these portals we link health care providers, payers and other industry
participants into a community to create an Internet exchange. We use the
XCare.net platform to deliver a broad range of applications, services and
electronic product offerings that streamline and automate high-volume,
data-intensive transactions and processes. The XCare.net platform is based on
extensible mark-up language, or XML, in conjunction with the Topic Navigation
Mapping standard. The enhanced integration and filtering capabilities of this
platform are designed to meet the demands of health care industry participants.
We expect extensible mark-up language to be a predominant protocol for
exchanging data for electronic commerce in the future. Topic Navigation Mapping
provides a standard format for indexing and structuring the extensible mark-up
language formatted content. We take advantage of the benefits of both extensible
mark-up language and Topic Navigation Mapping technologies to process data
trapped in usually incompatible existing computer systems, allow for automation
of health care processes and integrate a wide variety of health care data
including audio, video and text.
The XCare.net platform has been adopted by health care providers, payers
and suppliers. Some of our customers include American Medical Pathways, Inc. and
Asthma Management Services, Inc. in the provider field, Advica Health Resources,
Employers Mutual, Inc. and Brokerage Services, Inc. in the health care payer
field and ADIS International Ltd, Nursefinders, Inc., Digital Medical Registrar,
Delta Health Services, Quest Diagnostic Incorporated and Methodist Care, Inc. in
the health care supplier field.
Health Care Market Overview
The U.S. Health Care Finance Administration estimates that health care
expenditures currently represent $1.2 trillion, or 14% of the U.S. economy, and
that these expenditures will increase to $2.0 trillion by 2007 due both to
rising health care costs and an aging population. Health care claims, which
totalled approximately 4.4 billion in 1998, generally are processed through
antiquated computer systems via paper, fax or phone. These systems can be
inefficient due to their inability to communicate with the systems of other
health care participants and lead to unnecessary and duplicative costs. We
believe that the provision of new, Internet-based, business-to-business
information exchange and electronic commerce services that effectively address
processing inefficiencies is one of the significant market opportunities in
health care today.
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The health care industry is currently one of the most complex markets due
to the numerous interrelationships among health care participants.
Marketing Participants Graphic
The payment for and delivery of health care requires that consistent,
accurate information be shared confidentially among health care participants
across a large and fragmented industry. Employers select health plans, determine
benefit levels, enroll employees and maintain employee eligibility data.
Individuals compare medical plans, choose physicians and submit claims for
reimbursement. Physicians, hospitals and other providers verify patient
eligibility, collect patient histories, order diagnostic tests and x-rays,
receive and interpret test results, render diagnoses, issue referrals and submit
claims to payers. Payers manage referrals, establish medical care protocols and
reimbursement policies and process claims. Laboratories analyze and process
patient samples or tests, provide results and submit claims for reimbursement.
Pharmacies fill prescriptions and submit claims for reimbursement. Medical
supply companies distribute medical devices and pharmaceutical supplies. These
health care transactions all are highly dependent on the collection and
communication of information, and each participant is dependent on the others
for portions of that information.
Market Characteristics
Market fragmentation. The health care market is highly fragmented with wide
geographic dispersion, a large number of participants and significant
differences in technology infrastructure.
- Geographic fragmentation. Because health care is delivered locally, there
are hundreds of thousands of market participants in different locations.
For example, there are approximately 750 HMOs in the United States,
644,000 active physicians and 6,200 hospitals. Additionally, there are
over 16,500 nursing homes, 8,000 home health agencies and 4,500
independent laboratories.
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- Technological fragmentation. Information technology investment has not
been coordinated among health care participants. Current technology
infrastructure in health care is characterized by numerous, incompatible
and, in many cases, antiquated computer systems. Consequently,
communication of information generally takes place via paper, fax and
telephone.
Complex processes. Health care is delivered in a marketplace which has
become increasingly complex given the transition to managed care, the
data-intensive nature of health care transactions, the lack of standard data
formats, the complicated procurement process and the pervasiveness of government
regulation.
- Transition to managed care. One of the most important changes in the U.S.
health care system since the 1980s has been the shift away from
fee-for-service indemnity plans to managed care organizations. Currently,
67.1% of the U.S. population is covered through some form of managed
care. As managed care has become more prevalent and the number of payers
has increased, provider reimbursement and general administration has
become increasingly burdensome.
- Intensive data management. Upkeep of health care data is largely a
labor-intensive, paper-based and error-prone process in which data are
manually collected, authenticated, edited, categorized and updated. For
example, eligibility and plan information, which is basic information
about an individual and his or her dependents, is cumbersome to manage,
given that the data must be constantly updated to reflect any changes
affecting coverage status, such as marriage, child births and address
changes. However, this information is required at all points of health
care delivery.
- No standard data format or business rules. Data formats vary considerably
throughout the health care industry and typically are unique to each
particular health plan or provider. The data are stored in different
formats and health care participants often rely on proprietary business
rules for information such as plan coverage, eligibility and physician
co-payments.
- Complexity of procurement, purchasing and payment processes. There are
numerous types of health care transactions due to the large number of
both suppliers and buyers of care. In addition, there are multiple
payment mechanisms depending on who has assumed the health care coverage
risk. Payment mechanisms can range from fee-for-service to a fully
insured health care maintenance organization, known as an HMO, and may be
paid for by the individual, the individual's employer, the government, or
a combination of all three.
- Increasing government regulation. Numerous federal, state and local laws
and regulations govern the health care industry, which change frequently
depending on political and economic influences. For example, the Health
Insurance Portability and Accountability Act of 1996 has recently placed
substantial new administrative requirements on many health care
participants, including rules regarding compliance with industry
standards, data formats, portability of insurance and data security.
Current Health Care Market Issues
As a result of the fragmentation and complexity of the health care market,
participants are unable to cost-effectively manage, communicate and exchange
information in real-time. This fragmentation and complexity has resulted in
increasing dissatisfaction among health care participants.
- Inability to manage and exchange data. In order to achieve efficient
delivery of health care, information must flow within and between health
care participants. The enrollment and eligibility process requires shared
employee information among employers, health plans and provider groups.
The referral and authorization process involves physicians seeking
approval from health plans and patients scheduling appointments with
other physicians. To diagnose and treat patients, physicians need access
to clinical information, such as medical history data or lab results,
from various hospitals, laboratories or other providers. Prescription
services require communication of medication histories and payer rules
among patients, physicians, pharmacy benefit managers,
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pharmacies and payers. Finally, for the health care supply chain to
generate and fulfill transactions, medical supply vendors and
laboratories require information about the availability and pricing of
supplies. The inability to transfer information between participants is
exacerbated by the fact that several different data formats can exist
even within one health plan.
- Lack of real-time and secure communication. The current, paper-based
processes do not allow for automated, daily workflow or the secure
exchange of time-sensitive and critical information. This often results
in administrative inefficiencies related to the manual retrieval of
information, delivery of unnecessary care and the performance of
redundant tests and procedures.
- Rising costs. Despite payers' use of a number of techniques designed to
control the cost of care and administration -- such as lowering
reimbursement rates, shifting costs to providers and restricting coverage
for services -- health care costs are continuing to escalate. To
compensate for operating margin pressures, payers are raising premiums.
This, in turn, is increasing the costs of health care for individuals and
their employers.
Growth of the Internet and Applicability to Health Care
The Internet has emerged as the fastest growing communication medium in
history. International Data Corporation, an independent research firm, estimates
that the total number of Internet users worldwide will grow from 142 million at
the end of 1998 to 502 million by the end of 2003. The ubiquitous nature, low
cost and ability to scale of the Internet have created new opportunities for
conducting secure commerce. Recently, the widespread adoption of intranets and
the acceptance of the Internet as a business communications platform have
created a foundation for business-to-business electronic commerce that should
enable organizations to streamline complex processes, lower costs and improve
productivity.
Forrester Research, Inc., an independent research firm, estimates that
business-to-business electronic commerce will grow from $43.1 billion in the
United States in 1998 to $1.3 trillion in 2003 while business-to-consumer
electronic commerce will grow from $7.8 billion in 1998 to $108.0 billion in
2003. We believe that the lower cost nature of the Internet can serve as a
catalyst to lower the cost of business-to-business commerce and bring market
participants across industry lines together in more efficient and productive
relationships.
The Internet is currently being used to speed and streamline a variety of
business transactions. Nonetheless, additional improvements in the ability to
search, structure, integrate and filter vast amounts of disparate data and to
dynamically customize and display information in contexts relevant to particular
users would increase the usefulness of Internet-based applications. These
improvements would be particularly useful in health care transaction processing
and information retrieval systems, where streamlining data exchanges among
industry participants can reduce process inefficiencies and costs. In order for
an Internet-based health care solution to be successful, the following key
technology and business components are important:
- a common, secure and scaleable platform for structuring information
exchange and commerce among multiple market participants;
- an effective and cost-efficient interface with existing computer systems;
- automation of health care transaction processes to reduce paper, improve
work flow and streamline administration;
- integration of disparate data from a variety of multimedia sources such
as audio, video and written documents;
- ability to dynamically retrieve and update data in a view customizable
for each particular health care participant; and
- quick returns on investment to facilitate adoption by health care
participants.
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OUR SOLUTION
We are an electronic commerce services provider for health care businesses.
Using the XCare.net platform, we can customize Web-site portals to meet our
customers' needs in a flexible and cost-effective manner. Through these
customized portals, we deliver applications, services and electronic commerce
product offerings that are designed to improve workflow efficiencies, reduce
administrative costs and create new revenue opportunities for our customers. Our
applications consist of software modules facilitating health care transactions
such as eligibility checks, referrals and health plan enrollment. Our services
include formulating and implementing Internet strategies for our customers,
administering back office operations and operating and hosting their technology
environments in our electronic commerce operations center. Our electronic
commerce product offerings include drug store products, medical supplies and
credit cards with smart card technology for claims payment. Our technology
platform, applications, services and product offerings are designed to enhance
the efficiency of the health care delivery and payment system. Our approach to
the market is based on the following:
Use of new standard for information exchange. The XCare.net platform and
associated applications and services are based on extensible mark-up language,
or XML. We expect extensible mark-up language to be a predominant protocol for
exchanging multimedia data for information exchange and electronic commerce on
the Internet in the future. Extensible mark-up language provides a document
structure that allows complex data from multiple sources to be dynamically
processed and displayed to users in personalized ways. We believe that these
capabilities are particularly applicable to the health care industry because
extensible mark-up language can process data trapped in pre-existing computer
systems, allow for automation of health care processes and integrate a wide
array of health care data including audio, video and text.
Ability to develop comprehensive customer strategies. We have developed a
step by step approach to assist our customers in designing a health care
Internet strategy, creating a customized portal and hosting their Internet
offerings and transactions in a secure and reliable data operations
infrastructure. The XCare.net platform is designed to provide a comprehensive
set of applications, services and product offerings while preserving previous
technology investments by integrating diverse multimedia content, including data
and information from large, existing and usually incompatible computer systems.
Solution Channels that provide value to other healthcare industry
participants. We use our XCare.net platform as the central element for a network
of business relationships among healthcare industry participants who use our
technology, thus creating collaborative electronic communities for the exchange
of healthcare data, products and services. We call these communities our
Solution Channels, and use them to distribute our applications, services and
product offerings through our Solution Channels, in addition to our normal sales
activities. In addition, our Solution Channels are designed to provide a means
for our customers, vendors, distributors, co-marketers and others to offer their
own related products and services to each other, as well as to their own
customers. Solution Channels allow us to:
- Create new revenue opportunities for others. Customers and vendors can
utilize our Solution Channels as distribution channels for existing as
well as new products and services that allow them to generate new sources
of incremental revenue. For example, we package our eXtensible CARE
applications system with medical management and third party
administration services provided by Employers Mutual, Inc. for
distribution to members of the XCare.net community such as American
Medical Pathways, Inc., a subsidiary of American Medical Response, Inc.
- Identify new revenue opportunities for us. Our customers can produce
complementary applications or services that operate on the XCare.net
platform and enhance the value of the specific applications, services and
product offerings we have developed. We can deliver these new
applications and services to the XCare.net community through our Solution
Channels, generating additional revenue for us. For example, we can
license credentialing applications from one existing customer, and then
resell these applications through our Solution Channels to other
community members.
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- Establish growing communities connected through the XCare.net
platform. Our customers can extend the scope and reach of the XCare.net
platform by distributing our applications, services and product offerings
to their customers. By leveraging our customer base as channels for wider
deployment of our solutions, we encourage increased usage of the
XCare.net platform as well as extend the community to new users.
STRATEGY
Our objective is to become the leading electronic commerce service provider
for health care businesses. Our strategy focuses on the following:
Cross-sell applications, services and electronic commerce product offerings
in our Solution Channels. We will sell additional applications, services and
product offerings to existing customers through our Solution Channels. Our
Solution Channels distribution model is designed to promote new applications,
services and electronic commerce product offerings that are either internally
developed or obtained through our growing number of customer and vendor
relationships. This cross-selling approach is designed to simplify the sales
process, and may shorten our sales cycle and reduce our cost of sales.
Penetrate target market segments. We will continue to target the more than
12,000 entities in the payer/third-party administrator, at-risk provider and
health care supplier market segments. These potential customers have the
influence to drive change in health care processes, and have the incentive to
lower their operating costs by adopting new process improvement technologies
such as the Internet.
Develop new applications, services and product offerings. We will continue
to develop a variety of applications, services and product offerings to address
operational inefficiencies in the health care industry. As Internet strategies
in the health care and other industries evolve and new relationships between
organizations are formed, we intend to continue to identify new development
opportunities.
Leverage existing applications, services and product offerings. We seek to
identify key functions that are critical to particular industry participants and
develop solutions supporting these functions. We intend to regularly review
existing applications, services and product offerings to extend their
functionality, transaction capabilities and features as customer needs dictate.
In addition, we may modify existing solutions to pursue new market
opportunities. We plan to accomplish this by building extensible mark-up
language-based applications encompassing the identified functionality, by
acquiring businesses or technologies, by enabling industry-leading, third-party
applications to operate on our platform, and by increasing our product
offerings. We have initially targeted applications, service and product
offerings that streamline mission critical processes and transactions such as
managed care administration and personnel management. These applications,
services and product offerings offer the highest value to health care
participants and are readily adaptable to our XCare.net platform.
Form customer, vendor, distributor, and co-marketing relationships with
leading health care participants. We are aggressively pursuing relationships
with leaders in key health care industry segments to increase our portfolio of
applications, services and product offerings, to increase the scope of our
XCare.net community of users and to provide specialized industry expertise for
new solutions. These relationships are intended to accelerate market awareness
and demand for our applications, services and product offerings, through the
influence of these partners both directly, through their use of our solutions
and sales efforts, and indirectly, through their relationships with other
potential customers.
TECHNOLOGY
Our XCare.net platform is based on an extensible mark-up language, or
XML-based infrastructure in conjunction with the Topic Navigation Mapping
standard. The enhanced capabilities of this platform are designed to meet the
demands of health care industry participants. Unlike the current Internet
standard, hypertext mark-up language, or HTML, extensible mark-up language in
combination with the Topic Navigation Mapping standard allows a higher degree of
flexibility for customized data exchange between health care participants. We
expect extensible mark-up language to be a predominant protocol
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for exchanging multimedia data for information exchange and electronic commerce
in the future. Topic Navigation Mapping provides a standard format for indexing
and structuring the extensible mark-up language formatted content. We call the
resulting indices and structures Topic Maps. We take advantage of the benefits
of both extensible mark-up language and Topic Navigation Mapping technologies to
process data previously trapped in usually incompatible existing computer
systems, allow for automation of health care processes and integrate a wide
variety of health care data including data in audio, video and text form.
Extensible mark-up language is a method of writing programming instructions
which attaches invisible labels describing the objects contained in the web
page. As a result, for example, a number isn't just a number. A number on a Web
page can also be in a format specifying whether the number represents a price,
an invoice, a date or a zip code. This makes it easier to extract information
from a page to suit a particular use, and/or increase the speed and accuracy of
Internet searches. It also enables users to select information from different
Web sites without having to re-enter the same information repeatedly. Topic Maps
are Web-based software tools used to organize information in a way that is
optimized for navigation. They address the problem of excess information and
provide a tool to filter and extract efficiently the kind of information which
is most relevant to the user.
We use a set of software applications, known as brokering components, to
find, integrate and present relevant, customized information to individual
users.
[Graphic]
Context Broker. The Context Broker acts as a user's personal information
manager and transaction assistant. It stores information about the user and
learns personal preferences. With each use, the Context Broker further refines a
user's personal preferences, and, as a result, the user's experience with the
Web site is continually tailored to his or her particular needs based on current
and past sessions. As
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the user moves from one transaction to another, the Context Broker also ensures
that information is carried through and remains consistent across multiple
transactions.
DataFabric. The DataFabric is a map formed by linking data and weighting
relationships. This fabric filters out irrelevant information and allows for
more intelligent searching.
LogicFabric. The LogicFabric is a map assembled by the rules and workflow
associated with the data relationships. This fabric provides the order and
assembly instructions for the information.
Semantic Broker. The Semantic Broker is responsible for interpreting a
user's request and finding the relevant information. It does this by reading the
DataFabric and LogicFabric for interpretation, location and assembly
instructions. It then dispatches the Service Broker to obtain the information
from any location throughout the Web. The final integration of data may involve
multi-media content, transactions and associated rules and workflow.
Service Broker. The Service Broker is the gateway out to the Internet,
locating and collecting the information as specified by the Semantic Broker. The
Service Broker then returns the information to the Context Broker, which
presents the relevant information in a manner customized to individual users.
The technology components which comprise our platform are developed using
the Oracle 8i relational database management system, Enterprise JavaBeans
programming language and Object Store, a global object-oriented database
management system. To support the ability of our technology platform to enable
and facilitate electronic commerce, we have built and maintain an electronic
commerce operations center designed for high performance, scalability and
stability utilizing Sun Microsystems, Inc.'s Solaris operating system.
Our platform architecture was designed for use in highly confidential,
health care computing environments where security is a high priority. A Web
server authenticates the identity of the end-users to ensure only authorized
end-users have access to our Web applications. Users are authenticated by a
valid user identification and password, a security token or a digital
certificate, or a certificate authority. We address data security using digital
certificate technology signed with private keys and verified with public keys.
Our facilities and operations utilize redundancy and back-up to minimize
exposure to systems failure. Telecommunications and server infrastructures
support redundant processing and data back-up capabilities. Our routine back-up
procedures are performed incrementally on a daily basis with a full system
back-up performed monthly. In addition, we use RAID5 systems which provide
real-time back-up of data. All back-ups are maintained in fire proof storage
with critical support information. Technical and operations support staff are
available on a 24-hours-a-day, seven-days-a-week basis to assist with any
critical processing incidents or failures.
The XCare.net platform provides our customers with the capability to scale
their applications, services, and product offerings as their business grows.
This ability to scale can extend these solutions across multiple organizations
in diverse geographic settings supporting high volumes of users. Our flexible
technology architecture can also accommodate high volumes of transactions and
dynamic customization for the multiple participants within the health care
marketplace.
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APPLICATIONS, SERVICES AND PRODUCT OFFERINGS
We provide a range of applications, services and product offerings that
support the management of health care data and facilitate health care business
connectivity, information exchange and electronic commerce among health care
industry participants. Our applications, services and product offerings, which
may incorporate licensed components, are designed to enable our customers to
preserve investments in existing computer systems while integrating new
Internet-based products and services.
<TABLE>
------------------------------------------------------------------------------------------
APPLICATION DESCRIPTION
<S> <C>
------------------------------------------------------------------------------------------
eXtensible CARE System Provides back-office processing for managed care
transactions by health plan payers and at-risk provider
organizations.
- -------------------------------------------------------------------------------------------
eXtensible CARE Transactions Facilitates submission, adjudication, remittance and
verification transactions for a variety of managed care
functions such as claims, capitation, authorizations,
referrals, eligibility, enrollment, and benefits.
- -------------------------------------------------------------------------------------------
MatchNet Staffing & Facilitates staffing, scheduling, management and reporting
Scheduling* transactions.
- -------------------------------------------------------------------------------------------
Physician Credentialing* Stores physician credentialing data with the ability to
automatically populate fields of associated managed care
applications.
- -------------------------------------------------------------------------------------------
Electronic Medical Record* Facilitates the data collection and review of
patient-level medical conditions based on access to
disease, allergy, medication and other related historical
data and clinical observations.
- -------------------------------------------------------------------------------------------
Medication and Medical Provides comprehensive patient-level information on
Assessment Inquiry Systems* prescription and over-the-counter medications, as well as
common medical conditions.
- -------------------------------------------------------------------------------------------
Physician Practice Management* Automates physician practice management functions
including patient scheduling, third-party billing,
contract maintenance, receivables management, accounting
and reporting.
- -------------------------------------------------------------------------------------------
Provider and Payer Profiling Provides access to a national provider database of
and Report Cards* demographic, clinical and National Committee for Quality
Assurance-specific information, as well as a national
payer database containing Health Plan Employer Data and
Information Set ratings and National Committee for Quality
Assurance accreditation status.
- -------------------------------------------------------------------------------------------
Document Management* Automates various paper-based processes through a
Web-based workflow combining document imaging, storage and
retrieval by authorized users.
- -------------------------------------------------------------------------------------------
Decision Support System* Web-enabled ad-hoc reporting system for mining and
analysis of data from managed care information system
sources.
- -------------------------------------------------------------------------------------------
Remote Patient Monitoring* Combines an external monitoring device with a Web-based
workflow engine to facilitate communication of test
results from patient to physician for chronic disease
management.
- -------------------------------------------------------------------------------------------
</TABLE>
*We are currently marketing these applications but have not yet recognized
revenue from sales.
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<TABLE>
------------------------------------------------------------------------------------------
SERVICES DESCRIPTION
<S> <C>
------------------------------------------------------------------------------------------
eHealth Development Discipline Provides a framework for development and design of
Internet strategies.
- -------------------------------------------------------------------------------------------
Custom Portal Integration & Provides professional services and operations management
Hosting for customers through the analysis of business,
operational and technology needs, including next
generation information and transaction portal
customizations for virtual health care organizations.
- -------------------------------------------------------------------------------------------
Third-Party Administration/ Provides outsourcing services for health care
Management Service organizations not utilizing internally managed information
Organization Outsourcing systems, including back- office administration,
Services timesharing services and additional service bureau
functions.
- -------------------------------------------------------------------------------------------
eHealth Operations Management Provides a secure, 24 hours a day, seven days a week
environment for Internet hosting of transactions and
multi-media content, application maintenance and customer
service.
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------
PRODUCT OFFERINGS DESCRIPTION
<S> <C>
------------------------------------------------------------------------------------------
MDPay Accelerator* Links eligibility verification, claims submission, co-pay
collection and receivables management within the
physician's or hospital's point-of-service environment.
- -------------------------------------------------------------------------------------------
Online Drug Store* Facilitates the purchase of brand-name pharmaceutical and
personal health care products, as well as access to
decision-making resources.
- -------------------------------------------------------------------------------------------
Medical Supply Product* Provides Internet-based medical supply ordering service
for use by health care buyers and suppliers.
- -------------------------------------------------------------------------------------------
</TABLE>
* We are currently marketing these product offerings but have not yet recognized
revenue from sales.
We are actively developing new applications, services and product
offerings, and from time to time, we license technology necessary for such
development. Nonetheless, new applications, services and product offerings may
not be introduced as scheduled, and we may not be able to enter into needed
licensing arrangements in a timely manner or at all.
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CUSTOMERS
The following is a representative list of our customers that have purchased
applications or services:
<TABLE>
<CAPTION>
MARKET SEGMENT CUSTOMERS
-------------- ---------
<S> <C>
Health Care Providers American Medical Pathways, Inc., a subsidiary of American
Medical Response, Inc.
Breathnet LLC
Methodist Care, Inc.
Quest Diagnostics Incorporated
University of Southern California -- Doheny Eye Institute
Health Care Payers Advica Health Resources
Community Health Electronic Clearing House
Delta Health Systems
Employers Mutual, Inc., a wholly owned subsidiary of Florida
Physicians Insurance Company, and Brokerage Services, Inc.,
a division of Employers Mutual, Inc.
Provider Services, Incorporated
Health Care Suppliers ADIS International Ltd
Clinical Solutions LLC
Expert Practice Inc.
NotifyMD, Inc.
Nursefinders, Inc.
</TABLE>
In 1998, sales to Employers Mutual, Inc. accounted for 29% of revenue,
sales to Brokerage Services, Inc. accounted for 20% of revenue, sales to Quest
Diagnostics Incorporated accounted for 12% of revenue and sales to ADIS
International Ltd accounted for 11% of revenue. For the nine months ended
September 30, 1999, sales to American Medical Pathways, Inc. accounted for 19%
of revenue, sales to Methodist Care, Inc. accounted for 29% of revenue, sales to
Quest Diagnostics Incorporated accounted for 17% of total revenues, and sales to
Brokerage Services, Inc. accounted for 17% of revenue. The above list includes
all but two of our customers.
The following are summaries of some of our contracts, including several
contracts with customers listed above:
Licensing Agreement entered into on December 30, 1998 with Match Health
Care Services, Ltd. whereby Match granted us a license to modify the Match
proprietary software; integrate Match software with XCare.net software; or
sublicense the Match proprietary software. In consideration of the license
grant, we shall pay $850,000 to Match plus 17.5% of all amounts received by us
for sales or sublicenses of any products containing Match software. There are no
fees to be received by us from Match related to this arrangement.
Master Licensing Agreement entered into on February 4, 1999 with Methodist
Care, Inc. whereby we agreed to provide a license to Methodist Care for use of
the XCare.net software in exchange for a $205,000 licensing fee; implementation,
interface development, installation services of the XCare.net software and 80
hours of training for $600,000; software maintenance services which include
phone support, bug fixes and unspecified updates and enhancements to the
XCare.net software for 18% of the license fee of $205,000; and additional
consulting services at the request of Methodist Care at the rate of $108 per
hour.
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Master Licensing, Processing and Services Agreement entered into on
February 16, 1997 with Healthscope/United, Inc. whereby we agreed to provide a
license to Heathscope/United, Inc. for use of the XCare.net software and
development and implementation services related to the XCare.net software.
Additionally, the contract provided for software maintenance services which
include phone support, bug fixes and unspecified updates and enhancements to the
XCare.net software; and Supplemental Services Fees for additional development or
consulting projects as described in separate work orders from Healthscope/United
will be charged on a time-and-materials basis. Included is initial training
services to be provided by us. As Healthscope/United was the beta testing site
and first customer to license the XCare.net proprietary software, we waived the
license and implementation fee.
Administration Services Agreement entered into on March 29, 1999 with
American Medical Pathways, Inc. whereby we agreed to provide claims processing
services for American Medical Pathways' medical transportation services; medical
review services associated with the claims processing; and receipt of inquiries
concerning eligibility, benefits and claims status; and related reports. We
agreed to customize and develop our XCare.net software and other necessary
network connections to provide the services outlined above for a fixed fee of
$778,000. Software for on-site customer workstations is charged per workstation.
In addition to the fixed fee noted above, American Medical Pathways agreed to
pay a monthly transaction fee based on a tiered pricing structure as outlined in
the Agreement. Also,we granted to American Medical Pathways an option to license
the American Medical Pathways customized XCare.net software after completion of
the first two years of the initial term of the Agreement. If American Medical
Pathways chooses to license the XCare.net software, American Medical Pathways
will have the option of purchasing maintenance services which include phone
support, bug fixes and unspecified upgrades and enhancements. At its option,
American Medical Pathways may also purchase operational systems management
services.
Processing and Services Agreement entered into on January 1, 1997 with
Brokerage Services, Incorporated whereby we agreed to provide Brokerage
Services, Incorporated remote processing services for $0.65 per Brokerage
Services member residing in the XCare.net database per month. Fees for Brokerage
Services members who are only entitled to Life Insurance or Dental benefits were
$0.22 per member per month. As part of the monthly processing fees described
above, we agreed to provide telephone support related to bug fixes, simple
inquiries, and account management and coordination. Additional development and
consulting services would be provided at $100 -- $150 per hour, depending on the
level of our staff required for the project.
Addendum to Processing and Services Agreement entered into on July 25, 1997
with Brokerage Services, Incorporated whereby we agreed to provide a license to
use the XCare.net software and third party HUBLINK interface software for
$400,000 and $50,000, respectively; development and implementation services
related to the XCare.net software for $125,000; rental of system server for
$127,634; (4) PC and network setup fees for $16,800; Brokerage Services PC
upgrade for $216,673; monthly operational support fees which included server and
database support for $21,000 per month based on an active membership base of up
to 75,000 members; maintenance services which included telephone support, bug
fixes and unspecified upgrades and enhancements for $75,000 per year for the
XCare.net software and $10,000 per year for the HUBLINK software; and
supplemental development or consulting services at $100 per hour for 1997 and
thereafter at our applicable rates.
Master License and Services Agreement, dated June 24, 1998, with Employers
Mutual, Inc. whereby we agreed to provide a license to use the XCare.net
software at a single site for $400,000 less a credit equal to $95,489 plus
Employers Mutual's June processing fees; members added to Employers Mutual's
business as a result of merger or acquisition may be added to the license by
payment per member; development and implementation services related to the
XCare.net software; monthly operational support fees which included server and
database support; maintenance services which included telephone support, bug
fixes and unspecified upgrades and enhancements; additional members as described
above will be charged an annual maintenance fee of 22.5% of the license fee paid
by Employers Mutual for such additional members; supplemental development or
consulting services; and a customer of Employers Mutual may acquire a license to
use the data and XCare.net software developed
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for Employers Mutual in which case we would pay a royalty to Employers Mutual
for reselling their software in consideration of the reduced implementation
effort because XCare.net will have already developed the data and setups for the
Employers Mutual project. At the request of Employers Mutual through a separate
agreement, we agree to develop eligibility interfaces for Employers Mutual's
customers on a time and materials basis. XCare.net also agrees to sublicense to
Employers Mutual the HUBLINK interface engine for a license fee and annual
maintenance per year, if requested by Employers Mutual. The total anticipated
payment under this contract is $1,348,151. The initial license fee amount is
$304,151.
Contractor Agreement, dated February 19, 1999 with Employers Mutual, Inc.
whereby we agreed to provide Employers Mutual with all necessary information
from Employers Mutual Health Plan Agreements and Member Agreements and
requirements for Employers Mutual to perform claims processing services for us;
and all administrative and other connections and arrangements necessary for the
transfer of data. We will bill the applicable tiered encounter fee and remit the
agreed upon fixed fee to Employers Mutual per the schedule outlined in the
Agreement. The total anticipated payment amount under this contract is unknown
as this is a per encounter fee contract.
Master Licensing and Services Agreement, dated February 20, 1998, with
Provider Services, Incorporated whereby we agreed to provide a license to use
the XCare.net software for up to a certain number of members; Provider Services
may add additional lives for an additional license fee; development,
implementation and data conversion services related to the XCare.net software;
maintenance services which included telephone support, bug fixes and unspecified
upgrades and enhancements for an annual maintenance fee equal to 12% of the
license fee; training services; and Provider Services agrees to pay us at a
time-and-materials rate for problem resolution services rendered that are not
covered under the terms of the maintenance provisions outlined in the Agreement.
The total anticipated payment amount under this contract is $221,400.
Contract Agreement, dated April 27, 1999, with Provider Services, Inc.
whereby we agreed to provide Provider Services with all necessary information
from Provider Services Health Plan Agreements and Member Agreements and
requirements for Provider Services to perform claims processing services for us;
and all administrative and other connections and arrangements necessary for the
transfer of data. We will bill the applicable tiered encounter fee and remit the
agreed upon fixed fee to Provider Services per the schedule outlined in the
Agreement. The total anticipated payment amount under this contract is unknown
as this is a per encounter fee contract.
Master Licensing and Services Agreement, dated August 24, 1998, with Quest
Diagnostics Incorporated whereby we agreed to provide a license to use the
XCare.net software for up to a certain number of members for $250,000 ; Quest
may add additional lives for a fee; development, implementation, data conversion
services and 40 hours training related to the XCare.net software for $100,000;
maintenance services which included telephone support, bug fixes and unspecified
upgrades and enhancements for an annual maintenance fee equal to $45,000;
extended support services which include database and server maintenance as well
as general system utilities for Quest's technology environment for $7,500 per
month; and training services for a total of 40 hours for no charge. The total
anticipated payment amount under this contract is $1,295,000. Assuming a seven
year term, the total payment for maintenance is anticipated to be $315,000.
Software License and Services Agreement dated as of October 25, 1999 with
Oracle Corporation whereby we agreed to pay aggregate fees of $236,567.75 to
Oracle including a nonexclusive two-year license to use Oracle software for a
fee of $139,735.75 and the provision of one year of technical support for
Oracle's software for a fee of $96,832. The total anticipated payment amount is
$236,568.
Professional Services Agreement entered into on September 9, 1999 with
Asthma Management Company whereby we will provide consulting and development
services to Asthma including the development of a beta website version 1.0 for
fees of approximately $240,000 to $270,000 based on a billing rate of $150 per
hour, the development of a beta website version 2.0 for fees to be defined in a
subsequent addendum to the agreement, the provision of final website integration
and implementation for
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fees to be defined in subsequent addendum to the agreement, the provision of
website maintenance of Asthma's website for a initial fee of approximately 25%
of the final application development fee and an annual fee thereafter of
approximately 25% of the total application development fee, and the provision of
website hosting services for a monthly fee of $3500 and a hosting transaction
fee of $.04 per transaction.
SALES AND MARKETING
Sales. We sell our applications, services and product offerings through our
direct sales and business development groups, targeting the payer/third-party
administrator, risk-bearing provider and health care supplier market segments.
Our sales office is located at our principal offices in Englewood, Colorado. The
direct sales process involves the generation of sales leads through direct
marketing, tele-prospecting, public relations, Web advertising and promotion,
attendance and presentations at major health care and technology-oriented trade
shows and industry conferences. The time between initial customer contact and an
actual sales order may span three months or more. See "Risk Factors -- If our
operating results vary significantly due to the lengthy sales and implementation
cycles for our products and services, our revenues may be delayed and our
results of operations and share price may fluctuate."
In addition, our direct sales and business development groups use our
Solution Channels to cultivate strategic relationships with our customers and
vendors to encourage them to provide value-added applications, services and
products for redistribution through the network of users of the XCare.net
platform.
Marketing. Our primary marketing initiatives include public relations,
direct mail and outreach programs to customers and vendors. We use our Web site,
www.xcare.net, to establish our market presence, generate leads and extend our
program offerings to health care industry participants.
As of September 30, 1999, we had 11 employees in sales and marketing
functions.
CUSTOMER SUPPORT
We provide a range of customer support services through our staff of
customer service personnel, multiple call centers and an e-mail help desk all of
which are available 24 hours a day, seven days a week and are frequently updated
to improve existing information and to support new services. We also employ
technical support personnel who work directly with our direct sales force and
customers of our applications and services. We provide our customers with the
ability to purchase maintenance for our applications and services, which
includes technical support and upgrades. We also provide training programs for
our customers. As of September 30, 1999, we had 22 employees in addition to one
independent contractor in customer support functions.
RESEARCH AND DEVELOPMENT
As of September 30, 1999, our development and engineering group consisted
of 11 employees divided into extensible mark-up language, Topic Navigation
Mapping and infrastructure groups. For the years ended December 31, 1996, 1997
and 1998, we incurred $3.2 million, $4.2 million and $670,000 in research and
development expenses respectively. In addition, for the nine month period ended
September 30, 1999, we had incurred $417,000 in research and development
expenses. We believe that timely development of new and enhanced applications
and technology is necessary to remain competitive in the marketplace.
Accordingly, we intend to continue recruiting and hiring experienced development
personnel and to make investments in development and engineering.
COMPETITION
The emerging Internet-based health care market is undergoing rapid
technological change. The ubiquitous reach of the Internet, coupled with the
availability and acceptability of new Internet-based
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technologies, has created significant opportunities in health care for both
traditional and new Internet-based system vendors. Potential competitors fall
primarily into three categories: health care Internet companies focused on
providing connectivity and transactions within business-to-business and
business-to-consumer frameworks; traditional health care information system
vendors who seek to extend the services of their core products using
Internet-based technology; and traditional managed care information system and
outsourcing vendors who are focusing on extending the services of their core
products to the Internet. In addition, from time to time our customers may
develop products and services competitive with those offered by us.
We believe that our main competitors currently are CareInsite, Inc., Exodus
Communications Inc., Healtheon Corporation, IDX Systems Corporation, iXL
Enterprises, Inc., McKesson HBOC Inc., and Razorfish, Inc. and that the
principal competitive factors in the Internet-based health care market are the:
- ability of technology to integrate data from existing computer systems
and other multimedia content;
- timeliness and price of new applications, services and electronic
commerce product offerings;
- degree of customer service offered to purchasers of Internet health care
solutions;
- scope of industry knowledge and familiarity with needs of health care
market participants; and
- size and scope of a solution's user base.
INTELLECTUAL PROPERTY
We seek to protect our software, documentation and other written materials
primarily through a combination of trade secret, trademark and copyright laws,
confidentiality procedures and contractual provisions. For example, we license
rather than sell our software applications and require licensees to enter into
license agreements that impose certain restrictions on the licensees' ability to
utilize the software code. In addition, we seek to avoid disclosure of our trade
secrets, by, among other things, requiring those persons with access to our
proprietary information to execute confidentiality agreements with us and
restricting access to our source code.
We have filed a patent application in the United States with respect to
certain aspects of our content brokering technology. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or obtain and use information that we regard as proprietary.
Policing unauthorized use of our products is difficult. While we are unable to
determine the extent to which piracy of our products exists, software piracy can
be expected to be a persistent problem, particularly in foreign countries where
the laws may not protect our proprietary rights as fully as in the United
States.
From time to time, we may be involved in intellectual property disputes. We
have not been notified that any of our products infringe the proprietary rights
of third parties. However, in the future, third parties may claim infringement
against us with respect to current or future products. We expect that providers
of Internet health care solutions will increasingly be subject to infringement
claims as the number of products and competitors in our industry grows and
traditional suppliers of health care data and transaction solutions begin to
offer Internet-based products. See "Risk Factors -- If our proprietary
technology is subjected to infringement claims, we may have to pay damages or
seek a license from third parties, which could delay sales of our products, and
if our proprietary technology is infringed upon, we may experience losses."
We rely upon software we have licensed from Sinclair Montrose Healthcare
PLC to perform key functions of our MatchNet Staffing & Scheduling product. We
currently have an exclusive license to the software, although exclusivity may
terminate if we are unable to meet milestones. This license may not continue to
be available to us on commercially reasonable terms. The loss of this license
could result in delays or reductions of shipments of the MatchNet Staffing &
Scheduling application until equivalent software could be identified, developed,
licensed and integrated. See "Risk Factors -- If we lose key
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licenses we may be required to develop or license alternative technology which
may cause delays, at considerable expense or reduce sales."
GOVERNMENT REGULATION
Standards
The Health Insurance Portability and Accountability Act of 1996 mandates
the use of standard transactions, standard identifiers, security and other
provisions by the year 2000. We are designing our XCare.net platform and
applications, services and product offerings to enable compliance with the
proposed regulations. However, until such regulations become final, they could
change, which could require us to expend additional resources to comply with the
revised standards. In addition, the success of our compliance efforts may be
dependent on the success of health care participants in dealing with the
standards.
Confidentiality
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in our databases are subject to
substantial regulation by state governments. These state laws and regulations
govern both the disclosure and the use of confidential patient medical record
information. Additional legislation governing the dissemination of medical
record information has been proposed at both the state and federal level. This
legislation may require holders of such information to implement security
measures that may require substantial expenditures by us. Changes to state or
federal laws may materially restrict the ability of health care providers to
submit information from patient records using our applications.
We utilize an architecture that incorporates a secured socket layer
encryption which surpasses required security protection. Additionally the use of
firewalls and other security schemes assure customers of a compliant and secure
computing environment. Additionally, we utilize a formal, authority-based use of
digital certificates to assure the identity of electronic trading partners. For
support of identification requirements we utilize an exchange of passwords and
identities by U.S. certified mail or telephonic identification. If unauthorized
persons were to gain access to patient records notwithstanding our efforts to
maintain their security, this could result in our liability for these security
breaches and damage to our reputation.
Third Party Administration and Utilization Review Licensure and Registration
Certain of the administrative services we provide health plans, payers and
providers, including our third-party administration and utilization review
operations, are regulated by the statutes and regulations of various states and
require that we obtain appropriate licensure or registration.
False Claims Act
Under the federal False Claims Act, liability may be imposed on any
individual or entity who knowingly submits or participates in submitting claims
for payment to the federal government which are false or fraudulent, or which
contain false or misleading information. Liability may also be imposed on any
individual or entity who knowingly make or use a false record or statement to
avoid an obligation to pay the federal government. Various state laws impose
liability for similar acts. Claims under the federal False Claims Act may be
brought by the federal government or private whistleblowers. If we are found
liable for a violation of the federal False Claims Act, or any similar state
law, it may result in substantial civil and criminal penalties. In addition, we
could be prohibited from processing Medicaid or Medicare claims for payment.
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Prompt Payment Laws
Various states have passed laws regarding the prompt payment of medical
claims by health plans. If a claim is brought against us and we are found to
have violated a law regarding the prompt processing of claims for payment, we
may incur civil or other penalties.
Government Investigations
There is increasing scrutiny by law enforcement authorities, the U.S.
Department of Health and Human Services Office of Inspector General, the courts
and Congress of agreements between health care providers and suppliers or other
contractors which have a potential to increase utilization of government health
care resources. In particular, scrutiny has been placed on the coding of claims
for payment and contracted billing arrangements. Investigators have demonstrated
a willingness to look beyond the formalities of business arrangements to
determine the underlying purposes of payments between health care participants.
Although, to our knowledge, neither we nor any of our customers is the subject
of any investigation, we cannot tell whether we or our customers will be the
target of governmental investigations in the future.
Regulation of the Practice of Medicine and Other Health Care Professions
The practices of medicine, nursing and pharmacology are generally defined
by state law and vary from state to state. These practices require a license
under state law and, depending on state law, practicing without a license can be
a civil or criminal violation. We have endeavored to structure our existing
operations to be in substantial compliance with state health care professional
licensing requirements. However, the application of this area of the law to
Internet services such as ours is new. Also, we have not conducted a state by
state survey of licensing requirements and policies. Accordingly, a state
regulatory authority and/or one or more licensed professionals or advocacy
groups or consumers may allege that one or more elements of our business
requires a license to practice under existing or future laws or statutes. Any
application of professional practice regulations to our business could
negatively impact our business. Further, liability based on a determination that
we engaged in a professional practice without a license may cause us to be
excluded from coverage under the terms of our current general liability
insurance policy and may also subject us to a higher standard of care than would
be applicable to activities which do not require a professional license.
Regulation of Pharmacy Prescription Drug Activities
The business of providing prescription drugs and other medical products is
subject to federal, state and local regulations, many of which are specific to
pharmacies. In addition, the Federal Trade Commission and many state agencies
regulate advertising and product performance claims for prescription drugs.
Pharmacy operations are subject to federal, state and local licensing and
registration regulations with respect to the Controlled Substances Act and
federal Drug Enforcement Agency regulations, as well as related state and local
laws and regulations relating to pharmacy operations, including registration,
security, recordkeeping, and reporting requirements related to the purchase,
storage and dispensing of controlled substances, prescription drugs and certain
over-the-counter drugs.
The U.S. House of Representatives Committee on Commerce and the General
Accounting Office are currently investigating online pharmacies and online
prescribing, especially focusing on those who prescribe drugs online and
pharmacies that fill invalid prescriptions, including those that are written
online. The committee on commerce requested that the General Accounting Office
undertake a formal review of a number of issues pertaining to online pharmacies,
including an assessment of mechanisms to ensure that online pharmacies are
obeying the various state and federal regulations for the industry. In addition,
various state legislatures are considering new legislation related to the
regulation of nonresident pharmacies. The inclusion of prescription drugs as a
Medicare benefit has been the subject of numerous bills in the U.S. Congress.
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Should we commence providing prescription drugs to consumers, we will be
required to comply with many of the laws, regulations and initiatives described
above. These efforts may require the commitment of additional resources by us.
Federal and State Anti-Kickback Laws
Provisions of the Social Security Act, which are commonly known as the
Federal Anti-Kickback Law, prohibit knowingly or willfully, directly or
indirectly, paying or offering to pay, or soliciting or receiving, any
remuneration in exchange for the referral of patients to a person participating
in, or for the order, purchase or recommendation of items or services that are
subject to reimbursement by, Medicare, Medicaid and similar other federal or
state healthcare programs. Violations may result in civil and criminal sanctions
and penalties. Applications, services or product offerings. If any of our health
care communications or electronic commerce activities were deemed to be
inconsistent with the Federal Anti-Kickback Law or with state anti-kickback or
illegal remuneration laws, we could face civil and criminal penalties or be
barred from such activities. Further, we could be required to restructure our
existing or planned sponsorship compensation arrangements and electronic
commerce activities in a manner which could harm our business.
Regulation of the Sale of Over-the-Counter Drugs, Nutritional Supplements,
Cosmetics and Medical Devices
The U.S. Food and Drug Administration and Federal Trade Commission and
similar state agencies regulate drug and cosmetic advertising and promotion,
including direct-to-consumer advertising, done by or on behalf of drug and
cosmetic manufacturers and marketers. In addition, the Federal Trade Commission
regulates product safety for nutritional supplements as well as over-the-counter
drugs, medical devices and prescription drugs. In the event that we provide such
products or services, we will be subject to U.S. Food and Drug Administration
and Federal Trade Commission regulation and enforcement for false advertising
and misleading advertising, including overstatements regarding product
performance, especially regarding nutritional supplements. While we have rights
against the manufacturer as to adulteration issues and product claims to the
extent we have received the claims from the manufacturer, we may have liability
if the manufacturer cannot or will not indemnify us in a specific situation.
FDA Regulation of Medical Devices
The FDA is responsible for assuring the safety and effectiveness of medical
devices under the Federal Food, Drug and Cosmetic Act. Computer applications and
software are considered medical devices and subject to regulation by the FDA
when they are indicated, labeled or intended to be used in the diagnosis of
disease or other conditions, or in the cure, mitigation, treatment or prevention
of disease, or are intended to affect the structure or function of the body. We
do not believe that any of our current applications, services or product
offerings are subject to FDA jurisdiction or regulation; however, we may expand
our applications, services and offerings into areas that may subject it to FDA
regulation. We have no experience in complying with FDA regulations and
compliance with FDA regulations could prove to be time consuming, burdensome and
expensive, which could impede our ability to introduce new applications,
services or product offerings in a timely manner.
Please see "Risk Factors -- If compliance with government regulation of
health care becomes costly and difficult for us and our customers, we may not be
able to grow our business" for more information regarding the risks government
regulation pose for our business.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against us. We could become
involved in litigation from time to time relating to claims arising out of our
ordinary course of business.
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EMPLOYEES
As of September 30, 1999, we had a total of 57 employees, of whom 22 are
engaged in professional services and customer support functions, 11 in product
development, seven in the electronic commerce operations center, 11 in sales and
marketing and six in management, finance and administration. None of our
employees is represented by a labor union. We have not experienced any work
stoppages, and we consider our relations with our employees to be good.
Our future performance depends in significant part upon the continued
service of our key personnel, none of whom is bound by an employment agreement
requiring service for any defined period of time. Our future success also
depends on our continued ability to attract, integrate, retain and motivate
highly qualified sales, technical and managerial personnel. Competition for such
qualified personnel is intense. See "Risk Factors -- If our executive officers
and key personnel do not remain with us in the future, we may experience
difficulty in attracting and retaining qualified personnel."
FACILITIES
Our principal executive and corporate offices are located in Englewood,
Colorado, in approximately 21,978 square feet of subleased office space under a
sublease that expires on December 30, 2001. We also sublease 4,145 square feet
of office space in the same building, which expires on December 30, 2002. We
also maintain an electronic commerce operations center in Albuquerque, New
Mexico, in 6,800 square feet of subleased office space under a lease that
expires in January 2000. We have recently entered into a lease for a new 5,240
square foot facility for our Albuquerque electronic commerce operations center.
This lease commences in January 2000 and expires in January 2005. We believe our
space is adequate for our current operations and that additional leased space
can be obtained on commercially reasonable terms if needed.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors as of September 30, 1999, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lorine R. Sweeney........................ 42 President and Chief Executive Officer, Director
Peter H. Cheesbrough..................... 47 Senior Vice President, Finance and Chief
Financial Officer
Lawrence S. Dike......................... 52 Senior Vice President and Chief Scientist
Mark Rangell............................. 36 Senior Vice President, Marketing and Product
Management
Thomas M. Pianko......................... 39 Senior Vice President, Sales and Business
Development
Tammy McLaren............................ 33 Vice President, Professional Services
Jon B. Wisda............................. 33 Vice President, Product Development
Jeffrey M. Krauss(1)..................... 42 Chairman of the Board of Directors
Fred L. Brown(3)......................... 59 Director
J. Andrew Cowherd(2)..................... 46 Director
James B. Hoover(2)....................... 44 Director
L. Ben Lytle(4).......................... 53 Director
Daniel J. Mitchell(1).................... 42 Director
William F. Reilly(1)..................... 57 Director
Robert Tsao(2)........................... 27 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Director as of December 30, 1999.
(4) Director as of January 11, 2000.
Lorine R. Sweeney. Ms. Sweeney has been President, Chief Executive Officer
and a director of XCare.net since October 1997. From November 1994 until
September 1997, Ms. Sweeney was Vice President of Software Development and
Technology and Vice President of the UltiMedex Business Unit of Micromedex,
Inc., an international supplier of clinical reference information to the health
care and environmental industries. From August 1993 until November 1994, Ms.
Sweeney was a Managing Consultant for Microsoft Consulting Services, the
management consulting division of Microsoft Corporation. Ms. Sweeney has over 19
years of executive leadership experience in the commercial software, CD-ROM,
online information services, consulting and systems integration industries. Ms.
Sweeney received her B.S. degree in Engineering from the University of Arizona
and her M.B.A. from the University of Phoenix.
Peter H. Cheesbrough. Mr. Cheesbrough has been Senior Vice President,
Finance and Chief Financial Officer of XCare.net since September 1999. From
April 1993 until August 1999, Mr. Cheesbrough was Senior Vice President of
Finance and Chief Financial Officer of Echo Bay Mines, Ltd., a gold mining and
exploration company. Mr. Cheesbrough is a director of HealthGrades.com, Inc., an
Internet company that provides online health care ratings and information. Mr.
Cheesbrough was educated in England and qualified as a Chartered Accountant
(equivalent to the CPA designation) in the United Kingdom in 1974 and in Canada
in 1977.
Lawrence S. Dike. Mr. Dike was one of three founders of Reilly Dike Dosher
Corporation, XCare.net's predecessor company. From April 1989 until April 1999,
Mr. Dike was Senior Vice President of Technology Platforms and a director of
Reilly Dike Dosher Corporation. Mr. Dike received his B.S. degree in Mathematics
and his M.S. degree in Computing Science from the University of New Mexico.
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Mark Rangell. Mr. Rangell has been Senior Vice President, Marketing and
Product Management since December 1999 and was previously Senior Vice President
of Sales and Marketing of XCare.net since January 1998. From May 1997 until
December 1997, Mr. Rangell was Vice President of Marketing at GreenPages Data
Services, LLC, a development stage organization focused on building an
electronic commerce network for pharmaceutical contracting and negotiation. From
January 1996 until May 1997, Mr. Rangell was Director of Marketing for the
Ultimedex Business Unit of Micromedex, Inc. From November 1992 until December
1995, Mr. Rangell was Product Manager at Medical Economics Co., a
publisher/database supplier to pharmaceutical, medical device and health care
delivery sectors. Mr. Rangell received his B.S. degree in Computer Information
Systems and Economics at New York University and his M.S. degree in Marketing
and Corporate Strategy at the MIT Sloan School of Management.
Thomas M. Pianko. Mr. Pianko has been Senior Vice President, Sales and
Business Development of XCare.net since December 1999. From December 1998 to
December 1999 Mr. Pianko was Vice President of Sales, Information Technology
Business, Enterprise Sales -- Intermountain Region and from February 1996 to
December 1998 he was Regional Director and Sales Executive with McKesson HBOC
Inc., a health information technology and supply services corporation. Mr.
Pianko was the Regional Accounts Manager for Eli Lilly & Co., a company engaged
in the business of ethical pharmaceutical development and sales. Mr. Pianko
received his M.B.A. in finance and marketing from the Simon School of Business
at the University of Rochester and his B.S. degree in physiology and immunology
from Cornell University.
Tammy McLaren. Ms. McLaren has been Vice President, Professional Services
of XCare.net since July 1998. From January 1998 until June 1998, Ms. McLaren was
a Manager in the management consulting branch of Ernst & Young, L.L.P. From May
1996 until January 1998, Ms. McLaren was a Program Manager for Commercial
Software at Micromedex, Inc. From January 1989 until May 1996, Ms. McLaren was a
Manager of Business Systems at AtlanticRichfield Corporation, a natural resource
company. Ms. McLaren received her B.A. in Computer Information Systems from the
University of Texas.
Jon B. Wisda. Mr. Wisda has been Vice President, Product Development of
XCare.net since February 1999. From February 1995 until February 1999, Mr. Wisda
was Director of Information Technology for Toxicology and Environmental Health
at Micromedex, Inc. From August 1994 until February 1995, Mr. Wisda was a Senior
Consultant at Raymond James Consulting Inc., an information systems consulting
firm. Mr. Wisda received his B.S. in Engineering and Mathematics from Colorado
School of Mines.
Jeffrey M. Krauss. Mr. Krauss has been Chairman of the Board of Directors
of XCare.net since March 1997. Since May 1990, Mr. Krauss has been a General
Partner of Nazem & Company, a venture capital firm. From January 1983 until
April 1990, Mr. Krauss was an attorney with the law firm of Simpson Thatcher &
Bartlett. Mr. Krauss is a director of Tegal Corporation, a publicly traded
company engaged in the manufacture of semi-conductor capital equipment. Mr.
Krauss received his B.S. in Accounting from the State University of New York and
his J.D. from Harvard Law School.
Fred L. Brown. Mr. Brown has been a director of XCare.net since December
30, 1999. Since January 1999, Mr. Brown has been Chairman of the American
Hospital Association, a public policy advocate and educational think tank for
the American hospital industry. From June 1993 until December 1998, Mr. Brown
was the founding President and Chief Executive Officer of BJC Health System, a
healthcare organization comprised of a comprehensive health network featuring
200 care sites, 30,000 care givers and physicians, and health plans covering
more than 200,000 patients. From January 1986 until February 1993, Mr. Brown was
President of Christian Hospital Northeast-Northwest. Mr. Brown is also currently
a director of Citation Computers, Inc., a publicly traded company that designs,
develops, markets and supports patient-centered clinical information systems for
health care providers; Superior Consultant Company, a publicly traded company
that consults for a broad cross-section of the health care industry; the
Advisory Board of American's Doctor.com, a privately held
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company; the Healthcare Research and Development Institute, a research institute
comprised of 35 chief executives who direct hospitals and major health care
systems that undertake research studies; and Morrison Management Specialists,
Inc., a publicly traded company that provides food, nutrition and dining
services to the health care senior living industries. He is also a Visiting
Professor at George Washington University in Washington, D.C., and has been a
member of President Clinton's Council of Year 2000 Conversion since January
1999. Mr. Brown received his B.A. in 1962 from Northwestern University, his M.A.
in 1966 from George Washington University, and a doctorate of humane letters
from the University of Missouri-St. Louis.
J. Andrew Cowherd. Mr. Cowherd has been a director of XCare.net since March
1997. Since July 1996, Mr. Cowherd has been a Managing Member of the general
partner of Atlantic Medical Capital, L.P., a venture capital firm that is
managed by Atlantic Medical Management, L.L.C. From April 1991 until January
1993, Mr. Cowherd was a Managing Director in the Global Merchant Banking Group
at BT Securities, a division of Bankers Trust Company. From September 1977 until
March 1991, Mr. Cowherd was an investment banker at Salomon Brothers, where he
served as Managing Director in Corporate Finance from January 1989 until March
1991. Mr. Cowherd is a director of Nursefinders, Inc., a privately-held company
providing health care staffing and home health care services and NotifyMD, a
privately-held company providing unified messaging and other communications
services to physicians. Mr. Cowherd received his A.B. in History from Princeton
University and his M.B.A. from the Graduate School of Business at Stanford
University.
James B. Hoover. Mr. Hoover has been a director of XCare.net since June
1999. Mr. Hoover is the Managing Member of Dauphin Capital Partners I, L.P., a
venture capital firm that he founded in June 1998. From November 1992 until June
1998, Mr. Hoover was a General Partner of Welsh, Carson, Anderson & Stowe, a
private equity firm specializing in the acquisition of healthcare and
information services businesses. Prior to joining Welsh, Carson, Anderson &
Stowe, Mr. Hoover was a General Partner of Robertson, Stephens & Company from
February 1984 until October 1992. From June 1977 until February 1984, Mr. Hoover
was a Vice President of Citibank N.A. Mr. Hoover is a director of Centennial
Healthcare, New American Healthcare and U.S. Physical Therapy, three publicly
traded health care companies. Mr. Hoover received his B.S. in Business
Administration from Elizabethtown College and his M.B.A. from the Graduate
School of Business at Indiana University.
L. Ben Lytle. Mr. Lytle has been a director of XCare.net since January 11,
2000. Since 1992, Mr. Lytle has been the Chairman of the Board of Anthem, Inc.,
a mutual insurance company that provides a wide range of managed care products
including health maintenance organizations, preferred provider organizations and
point of service organizations and integrated health networks. From 1982 to
1989, Mr. Lytle also served as Anthem, Inc.'s Chief Operating Officer. He served
as President and CEO of Anthem, Inc. from 1989 to October 1999. Mr. Lytle serves
on the boards of directors of IPALCO Enterprises, a publicly traded energy
company; Central Newspapers, Inc., a publicly traded media company; CID Equity
Partners, a venture capital firm; Duke REIT, a publicly traded real estate
investment firm; and AllScripts, Inc., a publicly traded electronic
pharmaceutical dispensing firm. Mr. Lytle is a Fellow with the American
Enterprise Institute of Washington, D.C., and a guest lecturer at the University
of Arizona School of Business. He also served on President Clinton's Commission
on Consumer Protection and Quality in the Health Care Industry. Mr. Lytle
received his B.A. in 1970 from East Texas University, and his J.D. in 1980 from
Indiana University.
Daniel J. Mitchell. Mr. Mitchell has been a director of XCare.net since
August 1999. Since January 1997, Mr. Mitchell has been a Manager of Sequel
Venture Partners, LLC, a venture capital firm. Since June 1992, Mr. Mitchell has
been a General Partner of Capital Health Venture Partners, a venture capital
firm. From July 1981 until August 1985, Mr. Mitchell was an investment officer
at Institutional Venture Capital Fund at the First National Bank of Chicago. Mr.
Mitchell received his B.S. degree in Finance from the University of Illinois at
Urbana-Champaign and his M.B.A. in Finance from the Haas School of Business at
the University of California -- Berkeley.
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William F. Reilly. Mr. Reilly has been a director of XCare.net since May
1989. Mr. Reilly was one of the three founders of Reilly Dike Dosher
Corporation, XCare.net's predecessor company. From May 1989 until October 1997,
Mr. Reilly was President and Chief Executive Officer of XCare.net. Since June
1998, Mr. Reilly has been an independent consultant. Mr. Reilly received his
A.B. degree in Philosophy from Stonehill College and his M.B.A. from Harvard
University.
Robert Tsao. Mr. Tsao has been a director of XCare.net since June 1999.
Since August 1997, Mr. Tsao has been an Investment Manager at Vertex Management,
Inc., a venture capital firm. From July 1995 until July 1997, Mr. Tsao was a
Corporate Finance Analyst at SoundView Technology Group, Inc., an investment
banking firm. Mr. Tsao received his B.A. degree in Physics and Economics from
the University of California -- Berkeley.
BOARD OF DIRECTORS AND COMMITTEES
XCare.net's board of directors consists of nine directors divided into
three classes with each class serving for a term of three years. At each annual
meeting of stockholders, directors will be elected to succeed those directors
whose terms are expiring. Daniel J. Mitchell, Fred L. Brown, and L. Ben Lytle
are the Class I directors whose terms expire in 2000. William F. Reilly, James
B. Hoover and Robert Tsao are Class II directors whose terms will expire in
2001. Jeffrey M. Krauss, J. Andrew Cowherd and Lorine R. Sweeney are Class III
directors whose terms will expire in 2002.
The board of directors has a compensation committee and an audit committee.
The compensation committee, which is comprised of James B. Hoover, J. Andrew
Cowherd and Robert Tsao, administers the stock option plan and all matters
concerning executive compensation. The audit committee, which is comprised of
Daniel J. Mitchell, Jeffrey M. Krauss and William F. Reilly, approves the
selection of XCare.net's independent auditors, reviews the results and scope of
annual audits and other accounting related services, and evaluates our internal
audit and control functions. Each of these committees was established in July
1999.
DIRECTOR COMPENSATION
We do not pay any cash compensation to directors for serving in that
capacity. The board has the discretion to grant options to non-employee
directors pursuant to the director plan. In September 1999, each director then
in office other than Lorine R. Sweeney, our President and Chief Executive
Officer, was granted an option to purchase 10,000 shares of common stock. In
December 1999, Fred L. Brown was granted an option to purchase 25,000 shares of
common stock. In January, 2000, L. Ben Lytle was granted an option to purchase
25,000 shares of common stock. See "Management -- 1999 Director Option Plan" and
"Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is currently comprised of Messrs. Hoover,
Cowherd and Tsao. None of these individuals has at any time been an officer or
employee of XCare.net. Prior to formation of the compensation committee, all
decisions regarding executive compensation were made by the full board. No
interlocking relationship exists between the board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has any such interlocking relationship existed in the past.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be held personally liable for monetary damages for
breach of their fiduciary duties as directors, except for breaches of the
director's duty of loyalty to XCare.net or its stockholders, acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, unlawful payments of dividends or
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unlawful stock repurchases, redemptions or other distributions, and transactions
from which a director derives an improper personal benefit.
Our bylaws provide that we must indemnify our directors and executive
officers and may indemnify our other officers and employees and agents to the
fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to obtain insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and officers, in
addition to indemnification provided for in our bylaws. These agreements, among
other things, provided that we will indemnify each of our directors and officers
for various expenses, including attorneys' fees, judgments, fines and settlement
amounts incurred by them in any action or proceeding, including any action by or
arising out of their services as one of our directors or officers, any
subsidiaries or any other company or enterprise to which he or she provides
services at our request. In addition, we intend to obtain directors' and
officers' insurance providing indemnification for our directors and officers. We
believe that these provisions, agreements and insurance are necessary to attract
and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation that
we paid during the year ended December 31, 1999, for services rendered during
1999, to our Chief Executive Officer and the only other executive officers whose
salary and bonus exceeded $100,000 during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
--------------------------- --------- -------- ---------------
<S> <C> <C> <C>
Lorine R. Sweeney.................................. $175,000 $2,815
President and Chief Executive Officer
Lawrence S. Dike................................... 135,000 -- 3,909
Senior Vice President and Chief Scientist
Mark Rangell....................................... 135,000 2,814
Senior Vice President, Sales and Marketing
Tammy McLaren...................................... 113,462 $1,500 2,665
Vice President, Professional Services
Jon Wisda.......................................... 106,154 -- 2,123
Vice President, Product Development
</TABLE>
- -------------------------
(1) Consists of premiums we paid for life insurance, dental insurance, health
insurance and long-term disability insurance for each executive officer.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted in 1999 to each of the officers named in the above table,
including the potential realizable value over the ten-year term of the options,
based on assumed rates of stock appreciation of 5% and 10%, compounded annually.
These assumed rates of appreciation comply with the rules of the Securities and
Exchange Commission and do not represent our estimate of our future stock price.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS EXERCISE OPTION TERM
OPTIONS GRANTED TO PRICE PER EXPIRATION -----------------------
NAME GRANTED EMPLOYEES SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lorine R. Sweeney........... 151,100 12.9% $0.25 03/16/09 $ 23,756 $ 60,204
285,726 24.3 2.70 09/01/09 485,167 1,229,509
Lawrence S. Dike............ -- -- -- -- -- --
Mark Rangell................ 60,300 5.1 0.25 03/16/09 9,481 24,026
66,800 5.7 2.70 09/01/09 113,427 287,447
Tammy McLaren............... 50,000 4.3 0.25 02/08/09 7,861 19,922
44,000 3.7 2.70 09/01/09 74,713 189,337
Jon Wisda................... 50,000 4.3 0.25 02/08/09 7,861 19,922
30,000 2.6 2.70 09/01/09 50,940 129,093
</TABLE>
In 1999, we granted options to purchase an aggregate of 1,175,276 shares to
employees, directors and consultants. All options were granted under our stock
option plan at exercise prices equal to the fair market value of our common
stock on the date of grant, as determined in good faith by our board of
directors, based on our financial results and prospects and at the share prices
paid in arms-length transactions. All options typically vest over four years and
are exercisable for up to ten years. In July 1999, we amended our option
agreements so that all options are immediately exercisable upon grant; however,
any unvested shares are subject to repurchase by us at their cost in the event
of the optionee's termination of employment.
OPTION EXERCISES AND HOLDINGS
The following table sets forth for each of the named officers information
concerning exercisable and unexercisable options held as of December 31, 1999.
The value of in-the-money options is based on a value of $10.00 per share, the
fair market value of our common stock at December 31, 1999, as determined by our
board, and net of the option exercise price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lorine R. Sweeney......... 80,000 216,000 788,726 -- $6,990,050 --
Lawrence S. Dike.......... -- -- -- -- -- --
Mark Rangell.............. 22,800 61,560 277,200 -- $2,539,040 --
Tammy McLaren............. 20,000 54,000 80,000 -- $ 672,200 --
John Wisda................ -- -- 80,000 $ 706,500 --
</TABLE>
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The number of unexercised options at December 31, 1999 which are
exercisable reflects that all options are immediately exercisable upon grant,
although the shares issued upon exercise are subject to our right to repurchase
them upon termination of employment, which right lapses progressively over time.
EMPLOYMENT AGREEMENTS
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. In addition, the agreements generally provide that upon termination
the employee will not work for a competitor and may not solicit our customers
and employees. At the time of commencement of employment, our employees also
generally sign offer letters specifying basic terms and conditions of
employment. Each of Lorine R. Sweeney, Mark Rangell and Tammy McLaren have
signed offer letters with of this type, see "Certain Transactions -- Offers of
Employment."
1997 STOCK PLAN
Our stock plan provides for the grant of incentive stock options to
employees, including officers and employee directors, and for the grant of
nonstatutory stock options and stock purchase rights to employees, officers,
directors and consultants. The stock plan was adopted by our board of directors
in March 1997 and approved by the stockholders in March 1997. The board of
directors approved amendments to the stock plan to increase the number of shares
reserved under the stock plan in December 1997, April 1998, July 1998, May 1999
and September 1999. The stockholders also approved these amendments to the stock
plan in December 1997, April 1998, July 1998, May 1999 and September 1999.
As of September 30, 1999 a total of 2,200,000 shares of our common stock
has been reserved for issuance under the stock plan. As of September 30, 1999,
options to purchase 1,491,492 shares of common stock were outstanding under the
stock plan and 541,345 were available for future issuance. In the fourth quarter
ended December 31, 1999, we granted options to purchase 145,451 shares of common
stock, leaving a total of 400,444 shares reserved for future issuance; and
options to purchase a total of 20,500 shares were exercised.
Unless terminated sooner, the stock plan terminates in 2007.
The administrator of our stock plan has the power to determine among other
things:
- the terms of the options or stock purchase rights granted, including
exercise price;
- the number of shares subject to each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
In addition, the administrator has the authority to amend, suspend or
terminate the stock plan, so long as no such action affects any shares
previously issued or any option previously granted under the stock plan. During
any fiscal year, no optionee may be granted options to purchase more than
1,050,000 shares, although, in connection with an optionee's initial employment
with us, such optionee may be granted an option covering an additional 1,050,000
shares.
Options and stock purchase rights granted under our stock plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the stock plan must generally be exercised within three
months after the end of the optionee's status as an employee, director or
consultant of XCare.net, or within 12 months after termination by death or
disability, but in no event later than the expiration of the option's term.
In the case of stock purchase rights, unless the administrator determines
otherwise, we retain a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's
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employment or consulting relationship with XCare.net for any reason, including
death or disability. The repurchase price is the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to XCare.net. The repurchase option shall lapse at a rate determined by the
administrator.
The exercise price of all incentive stock options granted under the stock
plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options and stock
purchase rights is determined by the administrator, but for nonstatutory stock
options intended to qualify as "performance-based compensation" under Section
162(m) of the Internal Revenue Code, the exercise price must be at least equal
to the fair market value of our common stock on the date of grant. For any
participant who possesses more than 10% of the voting power of all classes of
the our outstanding stock, the exercise price of any incentive stock option must
be at least equal to 110% of the fair market value on the grant date and the
term of the incentive stock option must not exceed five years. The term of all
other options granted under the stock plan may not exceed ten years.
The stock plan provides that if we merge with another corporation, or sell
substantially all our assets, each option and stock purchase right will be
assumed or an equivalent option will be substituted by the successor
corporation. If the outstanding options and stock purchase rights are not
assumed or substituted for, the optionees will become fully vested in and have
the right to exercise their options or stock purchase rights in full. In such
case, the administrator will notify the optionees that their options or stock
purchase rights are fully exercisable for a period of 15 days from the date of
the notice, and the options or stock purchase rights will terminate upon the
expiration of that period.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our employee stock purchase plan was adopted by our board of directors in
October 1999, and approved by our stockholders in January 2000, although it will
not become effective until the date of this offering. A total of 500,000 shares
of our common stock has been reserved for issuance under the 1999 purchase plan.
The employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains consecutive, overlapping, 12
month offering periods. Each offering period includes two six-month purchase
periods. The offering periods generally start on the first trading day on or
after November 1 and May 1 of each year, except for the first offering period,
which commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before April 30, 2001.
Employees are eligible to participate if they are customarily employed by
us for at least 20 hours per week and more than five months in any calendar
year. However, employees may not participate in the employee stock purchase plan
if at the beginning of a purchase period, they own 5% or more of the total
combined voting power or value of all classes of our stock. In addition, no
employee may participate in the employee stock purchase plan at a rate which
would exceed $25,000 worth of stock in any calendar year.
The employee stock purchase plan permits employees to purchase our common
stock through payroll deductions of up to 15% of the employee's "compensation."
Compensation is defined as the employee's base straight time gross earnings and
commissions, but excluding payments for overtime, profit sharing payments, shift
premium payments, incentive compensation and bonuses. The maximum number of
shares a participant may purchase during a single purchase period is 10,000
shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased is generally 85% of the lower of the fair market value of our common
stock either at the beginning of the offering period or at the end of that
purchase period. In the event the fair market value at the end of a purchase
period is less than the fair market value at the beginning of the offering
period, all participants will be withdrawn from the
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current offering period following exercise and automatically re-enrolled in a
new offering period. The new offering period will use the lower fair market
value as of the first date of the new offering period to determine the purchase
price for future purchase periods.
Participants may end their participation at any time during an offering
period, and they will be paid their payroll deductions to date. Participation
ends automatically upon termination of employment.
Rights granted under the employee stock purchase plan are not transferable
by a participant other than by will, the laws of descent and distribution, or as
otherwise provided under the employee stock purchase plan. The employee stock
purchase plan provides that, in the event we merge with another corporation or
sell substantially all of our assets, each outstanding option may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened and a new exercise date will be set.
The employee stock purchase plan will terminate in 2009. Our board of
directors has the authority to amend or terminate the employee stock purchase
plan, except that no such action may adversely affect any outstanding rights to
purchase stock under the employee stock purchase plan.
1999 DIRECTOR OPTION PLAN
All non-employee directors are entitled to participate in our director
option plan. The director option plan was adopted by our board of directors in
October 1999 and approved by our stockholders in January 2000, although it will
not become effective until the date of this offering. The director option plan
has a term of ten years, unless terminated sooner by our board of directors. A
total of 250,000 shares of our common stock have been reserved for issuance
under the 1999 director option plan.
The director option plan generally provides for an automatic initial grant
of an option to purchase 25,000 shares of our common stock to each non-employee
director on the date that person first becomes a non-employee director. After
the initial grant, a non-employee director will automatically be granted
subsequent options to purchase 10,000 shares of our common stock each year on
the date of our annual stockholder's meeting, if on such date he or she has
served on our board of directors for at least six months. Each initial option
grant and each subsequent option has a term of 10 years. Each initial option,
vests as to 25% of the shares subject to the option on each anniversary of the
date of grant, and each subsequent option grant vests as to 100% of the shares
subject to the option on the first anniversary of the date of grant. The
exercise price of all options will be 100% of the fair market value of our
common stock on the date of grant.
The director option plan provides that if we merge with another
corporation, or sell substantially all our assets, each option will become fully
vested and exercisable for a period of thirty days from the date our board of
directors notifies the optionee of the option's full exercisability, after which
period the option will terminate. Options granted under the director option plan
must be exercised within three months of the end of the optionee's tenure as a
director of the Company, or within 12 months after termination by death or
disability, but in no event later than the expiration of the option's ten year
term. Options granted under the director option plan are not transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable, during the lifetime of the optionee, only by the
optionee.
401(k) PLAN
We have a 401(k) plan covering full-time employees located in the United
States who are at least 21 years of age. The 401(k) plan is intended to qualify
under Section 401(k) of the Internal Revenue Code. Contributions to the 401(k)
plan by employees or by us, and the investment earnings on these contributions,
are not taxable until withdrawn from the 401(k) plan. Employees may elect to
reduce their pre-tax earnings up to a statutorily prescribed annual limit, which
was $10,000 in 1999, and to have the amount of that reduction contributed to the
401(k) plan. The 401(k) plan permits, but does not require, additional matching
contributions by us on behalf of all participants in the 401(k) plan. To date,
we have not made any contributions to the 401(k) plan.
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CERTAIN TRANSACTIONS WITH RELATED PARTIES
During the fourth quarter ended December 31, 1999, the Company entered into
a professional services agreement with munshee.com LLC, whose managing member is
a general partner of Nazem & Company IV, L.P. and of Transatlantic Venture Fund
C.V., which hold preferred stock in XCare net. Jeffrey M. Krauss, one of our
directors, is also a general partner of Nazem & Company IV, L.P. and an
investment manager of Transatlantic Venture Fund C.V. We recognized $453,000 in
revenue under this agreement during the fourth quarter ended December 31, 1999.
With the exception as described above since January 1996, there has not
been nor is there currently proposed any transaction or series of similar
transactions to which we were or are to be a party in which the amount involved
exceeds $60,000 and in which any of our directors, executive officers, holders
of more than five percent of our stock or any member of their immediate families
had or will have a direct or indirect material interest other than compensation
agreements and other arrangements, which are described where required in
"Management," and the transactions described below.
EQUITY INVESTMENT TRANSACTIONS
On March 12, 1997, we sold an aggregate of 2,450,000 shares of our Series A
convertible preferred stock at a price per share of $2.86. In June and July
1999, we sold an aggregate of 63,053,144 shares of our Series B convertible
preferred stock at a price per share of $0.27, including 11,867,959 shares of
Series B convertible preferred stock issued upon conversion of convertible
promissory notes. Upon the closing of this offering, all shares of preferred
stock will be converted into shares of common stock. The holders of Series A
convertible preferred stock are entitled to convert their shares into an
aggregate of 2,802,800 shares of common stock, based on a conversion price of
$2.50 per common share. The holders of Series B convertible preferred stock are
entitled to convert their shares into an aggregate of 6,305,322 shares of common
stock, based on a conversion price of $2.70 per common share. Listed below are
those directors, executive officers and stockholders who beneficially own five
percent or more of our securities who participated in the preferred stock
financings. We believe that the shares issued in these transactions were sold at
the then fair market value and that the terms of these transactions were no less
favorable than we could have obtained from unaffiliated third parties.
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE AGGREGATE
STOCKHOLDER PREFERRED PREFERRED CONSIDERATION
----------- -------------------- -------------------- --------------
<S> <C> <C> <C>
Atlantic Medical Capital, L.P. ............. 1,225,000 6,401,921 $5,232,019
C.B. Healthcare Fund, L.P. ................. -- 11,111,111 3,000,000
Dauphin Capital Partners I, L.P. ........... -- 9,259,259 2,500,000
Entities Affiliated with Nazem & Company IV,
L.P. ..................................... 1,225,000 11,422,335 6,587,530
Entities affiliated with Sequel Venture
Partners II, LLC.......................... -- 11,111,111 3,000,000
Vertex Technology Fund (II) Ltd. ........... -- 11,111,111 3,000,000
</TABLE>
J. Andrew Cowherd, one of our directors, is a member of Atlantic Medical
Management LLC. Atlantic Medical Management LLC is the Management Services
Company for Atlantic Medical Capital L.P. James B. Hoover, one of our directors,
is a Managing Member of Dauphin Capital Partners I, L.P. The shares purchased by
entities affiliated with Nazem & Company IV, L.P. include 5,555,556 shares of
Series B convertible preferred stock purchased by Transatlantic Venture Fund
C.V. Jeffrey M. Krauss, one of our directors, is a general partner of Nazem &
Company IV, L.P. Mr. Krauss is also an investment manager of Transatlantic
Venture Fund C.V. The Series B convertible preferred stock purchased by entities
affiliated with Sequel Venture Partners II, LLC includes 10,740,741 shares
purchased by Sequel Limited Partnership II and 370,370 shares purchased by
Sequel Entrepreneurs Fund II, L.P. Daniel J. Mitchell, one of our directors, is
a manager of Sequel Venture Partners II, LLC. Robert Tsao, one of our directors,
is an investment manager with Vertex Technology Fund.
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Holders of preferred stock are entitled to registration rights with respect
to the common stock issued or issuable upon conversion of these shares. See
"Description of Capital Stock -- Registration Rights."
LOAN AND WARRANT AGREEMENTS
On December 29, 1997, we entered into a loan agreement pursuant to which,
during 1997 and 1998, we borrowed $750,000 from Atlantic Medical Capital, L.P.
at an interest rate of 12% per year. In connection with the loan, Atlantic
Medical Capital, L.P. received warrants to purchase 131,119 shares of Series A
convertible preferred stock at an exercise price of $0.50 per share. On April
10, 1998, we entered into a loan agreement pursuant to which we borrowed
$500,000 from Atlantic Medical Capital, L.P. at an interest rate of 12% per
year. In connection with the loan, Atlantic Medical Capital, L.P. received
warrants to purchase 87,412 shares of Series A convertible preferred stock at an
exercise price of $0.25 per share. Also in connection with the April 10, 1998
loan, the exercise price of the warrants issued on December 29, 1997 was
decreased from $0.50 to $0.25 per share. On November 20, 1998, we entered into a
loan agreement pursuant to which we borrowed $150,000 from Atlantic Medical
Capital, L.P. at an interest rate of 12% per year. In connection with the loan,
Atlantic Medical Capital, L.P. received warrants to purchase 100,000 shares of
common stock at an exercise price of $0.10 per share. On June 4, 1999, Atlantic
Medical Capital, L.P. converted all principal and accrued interest into
6,001,180 shares of Series B convertible preferred stock. J. Andrew Cowherd, one
of our directors, is a member of Atlantic Medical Management LLC, the management
services company of Atlantic Medical Capital, L.P.
On December 29, 1997, we entered into a loan agreement pursuant to which,
during 1997 and 1998, we borrowed $750,000 from Nazem & Company IV, L.P. at an
interest rate of 12% per year. In connection with the loan, Nazem & Company IV,
L.P. received warrants to purchase 131,119 shares of Series A convertible
preferred stock at an exercise price of $0.50 per share. On April 10, 1998, we
entered into a loan agreement pursuant to which we borrowed $500,000 from Nazem
& Company IV, L.P. at an interest rate of 12% per year. In connection with the
loan, Nazem & Company IV, L.P. received a warrant to purchase 87,412 shares of
Series A convertible preferred stock at an exercise price of $0.25 per share.
Also in connection with the April 10, 1998 loan, the exercise price of the
warrants issued on December 29, 1997 was decreased from $0.50 to $0.25 per
share. On November 20, 1998, we entered into a loan agreement pursuant to which
during 1998 and 1999 we borrowed $115,000 from Nazem & Company IV, L.P. at an
interest rate of 12% per year. In connection with the loan, Nazem & Company IV,
L.P. received a warrant to purchase 100,000 shares of common stock at an
exercise price of $0.10 per share. On June 4, 1999, Nazem & Company IV, L.P.
converted all principal and accrued interest into 5,866,779 shares of Series B
convertible preferred stock. Jeffrey M. Krauss, one of our directors, is a
general partner of Nazem & Company IV, L.P.
OPTION GRANTS TO DIRECTORS
On September 1, 1999, we granted an option to purchase 10,000 shares of
common stock to each of Jeffrey M. Krauss, Robert Tsao, and William F. Reilly,
each of whom is one of our directors. In addition, on September 1, 1999, we
granted an option to purchase 10,000 shares of common stock to each of Atlantic
Medical Management LLC, with which J. Andrew Cowherd, one of our directors, is
affiliated; to Sequel Venture Partners II, LLC, with which Daniel J. Mitchell,
one of our directors, is affiliated; and to Dauphin Management L.L.C., with
which James B. Hoover, one of our directors, is affiliated. The options each
have an exercise price of $2.70 per share. Twenty-five percent of the shares
subject to each option vests on September 7, 2000, and 1/48th of the shares
subject to each option vests at the end of each month after September 7, 2000,
subject to the continued services of the particular individual as a director. On
December 30, 1999, we granted an option to purchase 25,000 shares of common
stock to Fred L. Brown, a director appointed to our board on that date. The
option has an exercise price of $10.00 per share. Twenty-five percent of the
shares subject to the option vest on December 30, 2000, and 1/48th of the shares
vest at the end of each month after December 30, 2000,
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subject to the continued service of Mr. Brown as a director. On January 11,
2000, we granted an option to purchase 25,000 shares of common stock to L. Ben
Lytle, a director appointed to our board on that date. The option has an
exercise price of $10.00 per share. Twenty-five percent of the shares subject to
the option vest on February 10, 2002, and 1/48th of the shares vest at the end
of each month after January 10, 2000, subject to the continued service of Mr.
Lytle as a director.
OFFERS OF EMPLOYMENT
Ms. Lorine R. Sweeney, our President and Chief Executive Officer, is a
party to an offer letter dated September 27, 1997. Pursuant to the offer letter,
Ms. Sweeney received an annual salary of $175,000, a bonus of $30,000 payable on
the first anniversary of her employment with XCare.net, and an option to
purchase 3% of our then outstanding shares.
Mr. Mark Rangell, our Senior Vice President of Sales and Marketing, is a
party to an offer letter dated December 12, 1997. Pursuant to the offer letter,
Mr. Rangell received an annual salary of $135,000, sales commissions based on
achieving planned sales objectives and an option to purchase 2.5% of our then
outstanding shares.
Ms. Tammy McLaren, our Vice President of Professional Services, is a party
to an offer letter dated June 12, 1998. Pursuant to the offer letter, Ms.
McLaren received an annual salary of $95,000, which has since been increased to
$115,000.
OTHER TRANSACTIONS
We have entered into an indemnification agreement with each of our
executive officers and directors.
We have granted options to certain of our executive officers. See
"Management -- Option Grants in Last Fiscal Year."
------------------------------
XCare.net believes that all related-party transactions described above were
on terms no less favorable than could have been otherwise obtained from
unrelated third parties. All future transactions between XCare.net and its
principal officers, directors and affiliates will be approved by a majority of
the independent and disinterested members of the Board and will be on terms no
less favorable that could be obtained from unrelated third parties.
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<PAGE> 69
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of September 30, 1999, as adjusted to reflect
the sale of common stock in this offering, the conversion of our outstanding
convertible preferred stock, including convertible preferred stock issuable upon
the assumed cashless exercise of all outstanding convertible preferred stock
warrants, and the cashless exercise of all outstanding common stock warrants.
Information is given for:
- each person who is known by us to beneficially own more than five percent
of our common stock;
- each of our directors;
- each of our officers; and
- all of our directors and officers as a group.
Percentages of the outstanding shares of common stock are based on
10,366,346 shares outstanding as of September 30, 1999, plus all shares of
common stock issuable on exercise of options within 60 days of September 30,
1999 held by the particular beneficial owner.
All percentages assume no exercise of the underwriter's over-allotment
option. The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the individual or entity has voting power or investment power and any shares
which the individual has the right to acquire within 60 days of September 30,
1999 through the exercise of any stock option or other right. Except pursuant to
applicable community property laws or as indicated in the footnotes to this
table, to our knowledge, each stockholder identified in the table possesses sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by such stockholder.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o XCare.net, Inc., 6400 South Fiddler's Green Circle,
Suite 14000, Englewood, Colorado 80111.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OWNED BENEFICIALLY OWNED
PRIOR TO THE ---------------------------------
NAME OF BENEFICIAL OWNER OFFERING BEFORE OFFERING AFTER OFFERING
------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
Entities affiliated with Nazem & Company IV,
L.P.(1)....................................... 2,899,325 27.9% 18.9%
Jeffrey M. Krauss
645 Madison Avenue, 12th Floor
New York, New York 10022-1010
Atlantic Medical Capital, L.P.(2)............... 2,397,284 23.1 15.6
J. Andrew Cowherd
156 West 56th Street, Suite 1605
New York, New York 10019-3800
Entities affiliated with Sequel Venture
Partners II, LLC(3)........................... 1,121,112 10.8 7.3
Daniel J. Mitchell
4430 Arapahoe Avenue, Suite 220
Boulder, Colorado 80303
Vertex Technology Fund (II) Ltd.(4)............. 1,121,112 10.8 7.3
Robert Tsao
3 Lagoon Drive, Suite 220
Redwood City, California 94065
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OWNED BENEFICIALLY OWNED
PRIOR TO THE ---------------------------------
NAME OF BENEFICIAL OWNER OFFERING BEFORE OFFERING AFTER OFFERING
------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
CB Healthcare Fund, L.P......................... 1,111,112 10.7 7.2
One Boston Place, Suite 4010
Boston, MA 02108
Dauphin Capital Partners I, L.P.(5)............. 935,926 9.0 6.1
James B. Hoover
108 Forest Avenue
Locust Valley, New York 11560
Lorine R. Sweeney(6)............................ 868,726 7.8 5.4
Peter H. Cheesbrough(7)......................... 100,000 1.0 *
Lawrence S. Dike................................ 120,000 1.2 *
Tammy McLaren(8)................................ 100,000 1.0 *
Mark Rangell(9)................................. 300,000 2.8 1.9
William F. Reilly(10)........................... 205,000 2.0 1.3
Jon B. Wisda(11)................................ 80,000 * *
All directors and officers as a group (12
persons)(12).................................. 10,248,485 87.2 61.2
</TABLE>
- -------------------------
* Represents less than one percent of the total.
(1) Represents 2,333,769 shares held by Nazem & Company IV, L.P., 555,556
shares held by Transatlantic Venture Fund C.V. and 10,000 shares subject to
stock options exercisable within 60 days of September 30, 1999 held by
Jeffrey M. Krauss. Mr. Krauss, one of our directors, is a general partner
of Nazem & Company IV, L.P. Nazem & Company IV, L.P. has four general
partners, each of whom shares voting and investment power over the shares
held by Nazem & Company IV, L.P. Mr. Krauss is also an investment manager
of Transatlantic Venture Fund C.V. Transatlantic Venture Fund C.V.'s
investment managers each shares voting and investment power over the shares
held by Transatlantic Venture Fund C.V. Mr. Krauss disclaims beneficial
ownership of the shares held by these entities except to the extent of his
proportionate pecuniary interest.
(2) Represents 2,387,284 shares held by Atlantic Medical Capital, L.P. and
10,000 shares subject to stock options exercisable within 60 days of
September 30, 1999 held by Atlantic Medical Management, LLC. J. Andrew
Cowherd, one of our directors, is a member of Atlantic Medical Management
LLC. Atlantic Medical Management LLC is the management services company of
Atlantic Medical Capital L.P. Atlantic Medical Management LLC has three
members, each of whom shares voting and investment power over the shares
held by Atlantic Medical Capital, L.P. Mr. Cowherd disclaims beneficial
ownership of the shares held by that entity except to the extent of his
proportionate pecuniary interest.
(3) Represents 1,074,075 shares held by Sequel Limited Partnership II, 37,037
shares held by Sequel Entrepreneurs Fund II, L.P. and 10,000 shares subject
to stock options exercisable within 60 days of September 30, 1999 held by
Sequel Venture Partners II, L.L.C. Sequel Venture Partners II, L.L.C., the
general partner of Sequel Limited Partnership II and Sequel Entrepreneurs
Fund II, L.P., has five managers, including Daniel J. Mitchell, one of our
directors. Each of these managers shares voting and investment power over
the shares held by Sequel Limited Partnership II and Sequel Entrepreneurs
Fund II, L.P. Mr. Mitchell disclaims beneficial ownership of the shares
held by these entities except to the extent of his proportionate pecuniary
interest.
(4) Represents 1,111,112 shares held by Vertex Technology Fund (II) Ltd. and
10,000 shares subject to stock options exercisable within 60 days of
September 30, 1999 held by Robert Tsao. Mr. Tsao, one of our directors, is
an Investment Manager with Vertex Technology Fund. Mr. Tsao disclaims
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<PAGE> 71
beneficial ownership of the shares held by that entity except to the extent
of his proportionate pecuniary interest.
(5) Represents 925,926 shares held by Dauphin Capital Partners I, L.P. and
10,000 shares subject to stock options exercisable within 60 days of
September 30, 1999 held by Dauphin Management, L.L.C. James B. Hoover, one
of our directors, is a Managing Member of Dauphin Capital Partners I, L.P.
Mr. Hoover disclaims beneficial ownership of the shares held by that entity
except to the extent of his proportionate pecuniary interest.
(6) Includes 788,726 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(7) Includes 100,000 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(8) Includes 80,000 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(9) Includes 277,200 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(10) Includes 10,000 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(11) Includes 80,000 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(12) Includes 1,385,926 shares subject to stock options exercisable within 60
days of September 30, 1999, as described in the above footnotes.
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<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of
preferred stock, $0.01 par value.
The following summary of provisions of the common stock and preferred stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of our certificate of incorporation, which is included as an
exhibit to the registration statement of which this prospectus is a part, and by
the provisions of Delaware law.
COMMON STOCK
After giving effect to the conversion of all previously outstanding
preferred stock into shares of common stock, the assumed cashless exercise of
all outstanding common stock warrants and convertible preferred stock warrants,
and the conversion into common stock of the convertible preferred stock issued
upon the assumed exercise of the latter warrants, as of September 30, 1999,
there were 10,366,346 shares of common stock outstanding held of record by
approximately 36 stockholders. There will be 15,366,346 shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options after September 30, 1999, after giving effect
to the sale of common stock in this offering.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably any dividends
declared by the board of directors out of funds legally available for the
payment of dividends. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of XCare.net, the holders of common stock are entitled
to share ratably in all assets, subject to prior distribution rights of the
preferred stock, if any, then outstanding. Holders of common stock have no
preemptive rights or rights to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued in the offering will
be fully paid and non-assessable.
PREFERRED STOCK
Upon the consummation of the offering, each share of convertible preferred
stock outstanding prior to this offering will automatically convert into common
stock. The Series A convertible preferred stock will each convert into 1.144
shares of common stock. The Series B convertible preferred stock will each
convert into one share of common stock. Pursuant to our certificate of
incorporation, after the offering our board of directors has the authority,
without further action by the stockholders, to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the designations, powers,
preferences, privileges, which may be greater than the rights of the common
stock. The board, without stockholder approval, can issue preferred stock with
voting, conversion or other rights that could adversely affect the voting power
and other rights of the holders of common stock. Preferred stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
XCare.net or to make removal of management more difficult. Additionally, the
issuance of preferred stock may have the effect of decreasing the market price
of the common stock. At present, we have no plans to issue any preferred stock.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of an aggregate of
approximately 9,808,540 shares of common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act
of 1933. Under the terms of the registration rights agreements, if we propose to
register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, the holders of registration rights are entitled to notice of such
registration and are entitled to include shares of common stock in the
registration. The rights are
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<PAGE> 73
subject to conditions and limitations, among them the right of the underwriters
of the offering subject to the registration to limit the number of shares
included in such registration. Holders of these rights may also require us to
file a registration statement under the Securities Act at our expense with
respect to their shares of common stock, and we are required to use our best
efforts to effect that registration, subject to conditions and limitations.
Furthermore, stockholders with registration rights may require us to file
additional registration statements on Form S-3, subject to conditions and
limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Delaware Anti-Takeover Statute. We are subject to Section 203 of the
Delaware General Corporation Law. In general, these provisions prohibit a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder, unless the transaction in which
the person became an interested stockholder is approved in a manner presented in
Section 203 of the Delaware General Corporation Law. Generally, a "business
combination" is defined to include mergers, asset sales and other transactions
resulting in financial benefit to a stockholder. In general, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years, did own, 15% or more of a corporation's voting stock.
Certificate of Incorporation. In October 1999, our board approved
amendments to our certificate of incorporation, to provide:
- That the board of directors may issue, without further action by the
stockholders, up to 5,000,000 shares of undesignated preferred stock
- That any action to be taken by our stockholders must be effected at a
duly called annual or special meeting and not by a consent in writing
- For the division of the board of directors into three classes, with each
class serving for a term of three years
- That vacancies on the board, including newly created directorships, can
be filled only by a majority of the directors then in office
- That directors may be removed only for cause
Bylaws. In October 1999, our board approved amendments to our bylaws to
provide that special meetings of our stockholders may be called only by the
chairman of the board, the president or the board.
Our stockholders approved these amendments in January 2000. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of the board and in the policies formulated by the board and to
discourage certain types of transactions that may involve an actual or
threatened change of control of XCare.net. These provisions also are designed to
reduce our vulnerability to an unsolicited proposal for a takeover of XCare.net
that does not contemplate the acquisition of all of its outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of XCare.net.
These provisions, however, could discourage potential acquisition proposals and
could delay or prevent a change in control of XCare.net. They may also have the
effect of preventing changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services L.L.C.
LISTING
Application has been made to have our common stock approved for quotation
on the Nasdaq National Market under the trading symbol "XCAR." We have not
applied to list our common stock on any other exchange or quotation system.
70
<PAGE> 74
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect the prevailing market price from time to time. Furthermore,
because only a limited number of shares will be available for sale shortly after
this offering as a result of contractual and legal restrictions on resale, sales
of substantial amounts of common stock in the public market after the
restrictions lapse could cause the prevailing market price of our common stock
to fall and impede our ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding an aggregate of
15,366,346 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options after September 30,
1999. Of these outstanding shares, the 5,000,000 shares sold in the offering
will be freely tradable without restriction or further registration under the
Securities Act of 1933 unless purchased by "affiliates" of XCare.net as that
term is defined in Rule 144 under the Securities Act. The remaining 10,366,346
shares of common stock outstanding upon completion of the offering will be
"restricted shares," as that term is defined in Rule 144 under the Securities
Act. Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below, or
another exemption. Sales of the restricted shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
our common stock.
We have agreed not to sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of FleetBoston Robertson Stephens Inc. In addition, all officers,
directors and certain other holders of common stock have entered into
contractual "lock-up" agreements providing that they will not offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of shares
of common stock owned by them or that could be purchased by them through the
exercise of options for a period of 180 days after the date of this prospectus
without the prior written consent of FleetBoston Robertson Stephens Inc. As a
result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
- No shares of common stock will be eligible for sale as of the effective
date of the offering
- No additional shares will be eligible for sale beginning 90 days after
the effective date of the offering
- 10,366,346 additional shares will be eligible for sale beginning 180 days
after the effective date of the offering, subject in some cases to
certain volume limitations
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 154,000 shares immediately after this offering; or
- the average weekly trading volume of our common stock on the Nasdaq Stock
Market's National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale.
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<PAGE> 75
Sales under Rule 144 are also subject to certain other requirements regarding
the manner of sale, notice filing and the availability of current public
information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally including the holding period of any prior owner other than an
"affiliate," is entitled to sell such shares without complying with the manner
of sale, notice filing, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell such shares 90 days after
the date of this offering in reliance on Rule 144, without having to comply with
certain restrictions, including the holding period, contained in Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of these options (including exercises after this offering). Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 90 days after the date of
this offering, may be sold by persons other than "affiliates," as defined in
Rule 144, subject only to the manner of sale provisions of Rule 144. Securities
issued in reliance on Rule 701 may be sold by "affiliates" under Rule 144
without compliance with its one year minimum holding period requirement.
Registration on Form S-8
We intend to file a registration statement under the Securities Act
covering the shares of common stock subject to outstanding options or reserved
for issuance under the 1997 stock option plan, employee stock purchase plan and
the director option plan. This registration statement is expected to be filed as
early as the effectiveness of the registration statement covering the shares of
common stock offered in this offering and will automatically become effective
upon filing. Shares registered under this registration statement will, subject
to Rule 144 volume limitations applicable to affiliates and the expiration of
any 180-day contractual lockup period, be available for sale in the open market,
except to the extent that these shares are subject to vesting restrictions.
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<PAGE> 76
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., SG Cowen Securities Corporation, E*OFFERING
Corp. and Advest, Inc., have severally agreed with us, subject to the terms and
conditions set forth in the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all shares if any are
purchased.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
SG Cowen Securities Corporation.............................
E*OFFERING Corp. ...........................................
Advest, Inc. ...............................................
----------
Total............................................. 5,000,000
==========
</TABLE>
We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the representatives. No reduction shall change the amount of proceeds to be
received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the common stock
offered under this prospectus will be determined through negotiations between us
and the representatives. Among the factors to be considered in such negotiations
are prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential and the present state of
our development.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option
We have granted to the underwriters an option, exercisable during the
30-day period after the date of this prospectus, to purchase up to 750,000
additional shares of common stock at the same price per share as we will receive
for the shares that the underwriters have agreed to purchase. To the extent that
the underwriters exercise this option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of shares of common stock to be purchased by it shown in
the above table represents as a percentage of the shares offered under this
prospectus. If purchased, such additional shares will be sold by the
underwriters on the same terms as those on which the shares are being sold. We
will be obligated, pursuant to the option, to sell shares to the extent the
option is exercised. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered under this
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<PAGE> 77
prospectus. If such option is exercised in full, the total public offering
price, underwriting discounts and commissions and proceeds to us will be
$ , $ and $ , respectively.
Discounts and Commissions
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
PER WITHOUT WITH
SHARE OPTION OPTION
-------- -------- --------
<S> <C> <C> <C>
Public offering price......................................
Underwriting discounts and commissions.....................
Proceeds, before expenses, to us...........................
</TABLE>
The underwriting fee will be an amount equal to the offering price to the
public of the common stock, less the amount paid by the underwriters to
XCare.net per share of common stock. The underwriting fee will be determined
through an arms length negotiation between XCare.net and the representatives.
The expenses of the offering are estimated at $1,550,000 and are payable
entirely by us. FleetBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on , 2000.
Indemnity
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements
Each of our executive officers, directors and shareholders and
substantially all of optionholders have agreed with the representatives, for a
period of 180 days after the date of this prospectus, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock,
any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or, with certain exceptions, thereafter acquired
directly by such holders or with respect to which they have or hereafter acquire
the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc. may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to the lock-up agreements. There are no agreements
between the representatives and any of our shareholders providing consent by the
representatives to the sale of shares prior to the expiration of the period of
180 days after this prospectus.
Future Sales
In addition, we have agreed that during the period of 180 days after this
prospectus, we will not, subject to certain exceptions, without the prior
written consent of FleetBoston Robertson Stephens Inc.:
- consent to the disposition of any shares held by shareholders prior to
the expiration of the period of 180 days after this prospectus; or
- issue, sell, contract to sell or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock.
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<PAGE> 78
Directed Share Program
The underwriters have reserved up to 375,000 shares of our common stock to
be issued by us and offered for sale in this offering, at the initial public
offering price, to directors, officers, employees, business associates and
persons otherwise connected to XCare.net. The number of shares of common stock
available for sale to the general public will be reduced to the extent these
individuals purchase reserved shares. Any reserved shares which are not
purchased will be offered by the underwriters to the general public on the same
bases as the other shares offered in this offering.
Listing
We have applied for approval for quotation of our common stock on the
Nasdaq National Market under the symbol "XCAR."
Stabilization
The representatives have advised us that, pursuant to Regulation M under
the Securities Act, certain persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with this offering. The representatives may also impose a "penalty
bid" on underwriters and selling group members if the representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our common stock. The representatives may
reclaim the amount of the selling concession from the underwriters and selling
group members who sold those shares. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
Electronic Prospectuses
E*OFFERING Corp. is the exclusive Internet underwriter for this offering.
E*OFFERING Corp. has agreed to allocate a portion of the shares that it
purchases to E*TRADE Securities, Inc. E*OFFERING Corp. and E*TRADE Securities
Inc. will allocate shares to their respective customers in accordance with usual
and customary industry practices. A prospectus in electronic format, from which
you can link to a "Meet the Management" Presentation through an embedded
hyperlink, Iclick here for "Meet the Management" PresentationJ, is being made
available on the Web site maintained by E*OFFERING Corp., www.eoffering.com.
Other than the prospectus in electronic format, the information that is
identified as being a part of the prospectus and any other information that
references XCare.net, the information on E*OFFERING Corp.'s Web site and any
information provided in any other Web site maintained by E*OFFERING Corp. is not
part of this prospectus and has not been approved or endorsed by XCare.net and
should not be relied upon by prospective investors.
Certain Definitions
In this prospectus, references to "underwriters" means any person who
purchases shares of common stock directly from us in connection with the
distribution of shares in this offering. References to "representatives" means
FleetBoston Robertson Stephens Inc., SG Cowen Securities Corporation, E*Offering
Corp., and Advest, Inc. who will enter into an agreement with us and are acting
on behalf of the underwriters in the offering. In connection with this offering,
a "dealer" is an agent, broker or principal who buys our common stock from the
underwriters to sell to others. Dealers will not buy directly from us. "Selling
group members" and "syndicate members" are the group of dealers who sell our
securities to the public.
75
<PAGE> 79
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Arthur F. Schneiderman and Rachel S. Lovejoy, a member and
associate, respectively, of Wilson Sonsini Goodrich & Rosati, beneficially own
an aggregate of 15,483 shares of our common stock. Legal matters in connection
with this offering will be passed upon for the underwriters by Brobeck, Phleger
& Harrison LLP, San Francisco, California.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective September 1, 1999, PricewaterhouseCoopers LLP was engaged as our
independent accountants and replaced KPMG LLP, who were dismissed as our
independent accountants on August 25, 1999. The decision to change accountants
was approved by our Board of Directors. The audit reports of KPMG LLP for the
years ended December 31, 1997 and 1996 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle, except that the audit report issued by KPMG
LLP for the year ended December 31, 1997 included an explanatory paragraph
citing factors that raised substantial doubt surrounding our ability to continue
as a going concern. In connection with its audits through December 31, 1997 and
through August 25, 1999, there were no disagreements with KPMG LLP on any matter
of accounting principles or practices, financial statements disclosure or
auditing scope or procedures, which disagreements, if not resolved to their
satisfaction would have caused them to make reference in connection with their
opinion to the subject matter of the disagreement. KPMG LLP has not audited or
reported on any of the financial statements or information included in this
prospectus. For purposes of this filing, the financial statements for the years
ended December 31, 1997 and 1996 as well as the financial statements for the
year ended December 31, 1998 have been audited by PricewaterhouseCoopers LLP.
Prior to September 1, 1999, we had not consulted with PricewaterhouseCoopers LLP
on items that involved our accounting principles or the form of audit opinion to
be issued on our financial statements.
EXPERTS
The financial statements as of December 31, 1997 and 1998, and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
76
<PAGE> 80
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act of 1933, a registration statement on Form S-1
relating to the common stock offered hereby. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules thereto. For further information with respect to XCare.net and the
shares we are offering pursuant to this prospectus you should refer to the
registration statement, including the exhibits and schedules thereto. You may
inspect a copy of the registration statement without charge at the Public
Reference Section of the Securities and Exchange Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 or at the Securities and Exchange
Commission's regional offices at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036. The Securities and Exchange Commission maintains an
Internet site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The Securities and Exchange Commission's World Wide Web
address is www.sec.gov. The Securities and Exchange Commission's phone number is
1-800-SEC-0330.
We intend to furnish holders of our common stock annual reports containing,
among other information, audited financial statements certified by an
independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish such other reports as we may determine or as may be
required by law.
77
<PAGE> 81
XCARE.NET, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Changes in Stockholders' Equity (Deficit)...... F-5
Statement of Cash Flows..................................... F-6
Notes to the Financial Statements........................... F-7
</TABLE>
F-1
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of XCare.net, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of XCare.net,
Inc. at December 31, 1997 and 1998 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Broomfield, Colorado
October 22, 1999, except for the last two paragraphs
of note 9 which are as of January 10, 2000
F-2
<PAGE> 83
XCARE.NET, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 697 $ 198 $ 11,031
Accounts receivable, net of allowance of $0, $50 and $75
at December 31, 1997 and 1998 and September 30, 1999
(unaudited), respectively............................... 453 703 275
Income taxes receivable................................... 617 -- --
Other current assets...................................... 177 78 1,179
------- -------- --------
Total current assets.................................... 1,944 979 12,485
Property and equipment, net................................. 2,082 691 401
Purchased software, net..................................... -- 850 637
Deferred contract costs..................................... -- 285 --
------- -------- --------
$ 4,026 $ 2,805 $ 13,523
======= ======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 239 $ 727 $ 887
Accrued liabilities....................................... 1,117 1,590 1,150
Unearned revenue.......................................... 188 500 144
Current portion of long-term debt and capital lease
obligations............................................. 1,352 3,497 82
------- -------- --------
Total current liabilities............................... 2,896 6,314 2,263
Long-term debt.............................................. 939 284 25
------- -------- --------
Total liabilities....................................... 3,835 6,598 2,288
------- -------- --------
Commitments and contingencies (Note 8)
Series A mandatorily redeemable convertible preferred stock,
$.01 par value; 5,000,000, 6,000,000 and 6,000,000 shares
authorized as of December 31, 1997, 1998 and September 30,
1999, respectively; 2,450,000 shares issued and
outstanding............................................... 6,677 6,743 6,793 $ --
Series B mandatorily redeemable convertible preferred stock,
$.01 par value; 0, 0 and 75,000,000 shares authorized as
of December 31, 1997, 1998 and September 30, 1999,
respectively; 63,053,144 issued and outstanding at
September 30, 1999........................................ -- -- 16,944 --
Value ascribed to mandatorily redeemable convertible
preferred stock warrants.................................. 51 84 84 --
------- -------- -------- --------
6,728 6,827 23,821 --
------- -------- -------- --------
Stockholders' equity (deficit):
Common stock, $.01 par value; 3,500,000, 5,000,000 and
12,500,000 shares authorized as of December 31, 1997,
1998 and September 30, 1999, respectively; 390,000
shares issued and outstanding as of December 31, 1997
and 1998, respectively; 557,163 shares issued and
outstanding as of September 30, 1999; 10,366,346 pro
forma shares issued and outstanding (unaudited)......... 4 4 6 104
Additional paid-in capital................................ 530 529 3,120 26,843
Unearned compensation..................................... -- -- (2,383) (2,383)
Accumulated deficit....................................... (7,071) (11,153) (13,329) (13,329)
------- -------- -------- --------
Total stockholders' equity (deficit).................... (6,537) (10,620) (12,586) $ 11,235
------- -------- -------- --------
Total liabilities and stockholders' equity (deficit).... $ 4,026 $ 2,805 $ 13,523
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 84
XCARE.NET, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue............................... $ 9,726 $ 5,984 $ 2,270 $ 1,564 $ 2,654
------- ------- ------- ------- -------
Costs and expenses:
Cost of revenue..................... 3,744 4,575 2,086 1,440 2,421
Sales and marketing................. 1,369 2,531 965 792 545
General and administrative.......... 2,220 2,436 2,194 1,389 1,185
Research and development............ 3,190 4,212 670 594 417
Impairment of long-lived assets and
abandonment of operating lease... -- 887 -- -- --
Stock compensation expense.......... -- -- -- -- 112
------- ------- ------- ------- -------
10,523 14,641 5,915 4,215 4,680
------- ------- ------- ------- -------
Loss from operations.................. (797) (8,657) (3,645) (2,651) (2,026)
Settlements received from contract
terminations........................ 2,250 250 -- -- --
Interest income (expense), net........ -- 5 (437) (306) (150)
------- ------- ------- ------- -------
Income (loss) before income taxes..... 1,453 (8,402) (4,082) (2,957) (2,176)
Income tax (benefit) expense.......... 1,200 (1,078) -- -- --
------- ------- ------- ------- -------
Net income (loss)..................... $ 253 $(7,324) $(4,082) $(2,957) $(2,176)
======= ======= ======= ======= =======
Net income (loss) per common
share -- basic and diluted.......... $ 0.53 $(18.92) $(10.64) $ (7.71) $ (5.09)
======= ======= ======= ======= =======
Weighted average common shares
outstanding -- basic and diluted.... 476 390 390 390 438
======= ======= ======= ======= =======
Pro forma net loss per common share
basic and diluted (unaudited)....... $ (1.00) $ (0.32)
======= =======
Pro forma weighted average common
shares basic and
diluted -- (unaudited).............. 4,069 6,727
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 85
XCARE.NET, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
---------------- PAID-IN UNEARNED EARNINGS
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) TOTAL
------ ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.... 1 $-- $ 20 -- $ 1,750 $ 1,770
Repurchase and retirement of
common stock.................. (0) -- (7) -- (1,096) (1,103)
Dividends declared.............. -- -- -- -- (78) (78)
Reclassification of accumulated
earnings upon conversion from
non-taxable to taxable
status........................ -- -- 576 -- (576) --
Net income...................... -- -- -- -- 253 253
--- --- ------ ------- -------- --------
Balance at December 31, 1996.... 1 -- 589 -- 253 842
Stock split..................... 389 4 (4) -- -- --
Accretion of mandatorily
redeemable convertible
preferred stock............... -- -- (55) -- -- (55)
Net loss........................ -- -- -- -- (7,324) (7,324)
--- --- ------ ------- -------- --------
Balance at December 31, 1997.... 390 4 530 -- (7,071) (6,537)
Accretion of mandatorily
redeemable convertible
preferred stock............... -- -- (66) -- -- (66)
Other........................... -- -- 65 -- -- 65
Net loss........................ -- -- -- -- (4,082) (4,082)
--- --- ------ ------- -------- --------
Balance at December 31, 1998.... 390 4 529 -- (11,153) (10,620)
Common stock issued upon
exercise of options
(unaudited)................... 167 2 40 -- 42
Accretion of mandatorily
redeemable convertible
preferred stock (unaudited)... -- -- (54) -- -- (54)
Unearned compensation, net...... -- -- 2,495 $(2,383) -- 112
Other........................... 110 -- -- 110
Net loss (unaudited)............ -- -- -- -- (2,176) (2,176)
--- --- ------ ------- -------- --------
Balance at September 30, 1999
(unaudited)................... 557 $ 6 $3,120 $(2,383) $(13,329) $(12,586)
=== === ====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 86
XCARE.NET, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................... $ 253 $(7,324) $(4,082) $(2,957) $(2,176)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 733 918 815 695 535
(Gain) loss on impairment and disposal of assets...... 914 408 (11) 5
Deferred income tax provision......................... 451 (451) -- -- --
Stock options issued for services..................... -- -- -- -- 110
Amortization of unearned compensation................. -- -- -- -- 112
Other................................................. -- -- 99 113 119
Change in assets and liabilities:
Accounts receivable, net............................ 986 756 (250) (109) 428
Other current assets................................ (91) (17) 99 92 (1,101)
Income taxes receivable............................. -- (617) 617 617 --
Purchased software.................................. -- -- (850) -- --
Long-term deferred contract costs................... -- -- (285) (312) 285
Accounts payable.................................... (198) (367) 488 284 160
Accrued liabilities................................. 691 (565) 473 (425) (1)
Unearned revenue.................................... -- 188 312 (72) (356)
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities................................... 2,825 (6,565) (2,156) (2,085) (1,880)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment...................... (330) (348) (19) (18) (113)
Proceeds from sale of property and equipment............ -- 30 186 49 4
------- ------- ------- ------- -------
Net cash provided by (used in) investing
activities................................... (330) (318) 167 31 (109)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt.......................... 363 533 2,230 1,967 205
Principal payments on debt.............................. (1,128) (618) (166) (164) (425)
Principal payments under capital leases................. (49) (351) (574) (424) (740)
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net...................... -- 6,622 -- -- 13,740
Proceeds from issuance of common stock.................. -- -- -- -- 42
Cash paid for repurchase of common stock................ (381) -- -- -- --
Dividends paid.......................................... (78) -- -- -- --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities................................... (1,273) 6,186 1,490 1,379 12,822
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents.... 1,222 (697) (499) (675) 10,833
Cash and cash equivalents at beginning of period........ 172 1,394 697 697 198
------- ------- ------- ------- -------
Cash and cash equivalents at end of period.............. $ 1,394 $ 697 $ 198 $ 22 $11,031
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid........................................... $ 83 $ 148 $ 127 $ 97 $ 73
Income taxes paid (refunded)............................ 213 -- (615) -- --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING TRANSACTIONS
Capital lease obligations for purchase of equipment..... $ 378 $ 1,217 $ -- $ -- $ --
Note issued for repurchase of common stock.............. 722 -- -- -- --
Conversion of convertible promissory notes and accrued
interest to Series B mandatorily redeemable
convertible preferred stock........................... -- -- -- -- 3,204
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 87
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
XCare.net, Inc. (the "Company") develops, deploys and supports
business-to-business software solutions for the health care industry. The
Company's proprietary XML-based platform and professional services allow it to
create customizable transaction-based application solutions that are designed to
address the complex administrative processing requirements of health care
companies. In addition, the Company provides outsourcing and transaction hosting
services that improve workflow processes and reduce administrative costs for
customers.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
For contracts entered into subsequent to January 1, 1998, the Company
recognizes revenue in accordance with the provisions of Statement of Position
97-2, "Software Revenue Recognition". The Company derives revenue from license
fees and related services under the terms of fixed price contracts. Maintenance
revenue is derived from agreements for supporting and providing periodic updates
to licensed software. Consulting revenue consists of revenue from consulting
services provided pursuant to time and materials contracts. Transaction
processing revenue is derived from outsourcing and transaction hosting services
and is recognized on a per-transaction basis as services are performed.
License fees and related services revenue is generally recognized from
fixed price contracts using the percentage-of-completion method of accounting
where collectibility of fees is probable. Where collectibility of fees is not
probable, the Company defers revenue and related costs as deferred contract
costs and recognizes revenue and cost of revenue as cash is collected.
The Company may encounter budget and schedule overruns on fixed price
contracts caused by increased material, labor or overhead costs. Adjustments to
cost estimates are made in the periods in which the facts requiring such
revisions become known. Estimated losses, if any, are recorded in the period in
which current estimates of total contract revenue and contract costs indicate a
loss. The Company does not require collateral for its receivables and an
allowance is maintained for potential credit losses.
Maintenance revenue is recorded as unearned revenue and is recognized
ratably over the service period, which is generally 12 months. When maintenance
is bundled with the original license fee arrangement, its fair value is deferred
and recognized during the period such services are provided.
Revenue from consulting services provided pursuant to time-and-materials
contracts is recognized as the services are performed.
For contracts entered into prior to January 1, 1998, the Company recognized
revenue in accordance with Statement of Position 91-1, "Software Revenue
Recognition." The Company's revenue recognition for such pre-1998 contracts was
substantially the same as that discussed above.
F-7
<PAGE> 88
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. All cash equivalents are
carried at cost, which approximates fair value.
Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable,
prepaids, accounts payable and accrued liabilities. The carrying amounts of
financial instruments approximate fair value due to their short maturities.
Additionally, based upon the borrowing rates currently available to the Company
for debt agreements with similar terms and average maturities, management
believes the carrying amount of its debt approximates fair value.
Concentration of Credit Risk
The Company performs ongoing evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. All such
customers operate in the health care industry.
The Company had the following customers which accounted for greater than
10% of each respective period's revenue:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
CUSTOMER 1996 1997 1998
- -------- ------ ------ ------
<S> <C> <C> <C>
A 67% -- --
B 10% 74% --
C -- -- 29%
D -- -- 20%
E -- -- 12%
F -- -- 11%
</TABLE>
At December 31, 1998, customer's D, E and F accounted for 20%, 23% and 10%
of accounts receivable, respectively. Two other customers accounted for 27% and
13% of accounts receivable at December 31, 1998.
Property and Equipment
Property and equipment are recorded at cost and depreciated using
straight-line methods over the estimated useful lives of the related assets,
ranging from two to five years. Equipment under capital lease arrangements as
well as leasehold improvements are amortized over the shorter of their useful
lives or the terms of the related leases.
Long-Lived Assets and Impairments
The Company periodically evaluates the carrying value of long-lived assets,
including, but not limited to, purchased software, property and equipment, and
other assets, when events and circumstances warrant such a review. The carrying
value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately indentifiable and is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair value of the long-lived asset. Fair
value is determined primarily using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Loss on long-lived assets to be
F-8
<PAGE> 89
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
disposed of is determined in a similar manner, except that fair values are
reduced for the cost to dispose.
Unaudited Pro Forma Stockholders' Equity
In accordance with the requirements of the Securities and Exchange
Commission ("SEC"), which provide that the total redemption value of Series A
and B mandatorily redeemable convertible preferred stock (the "Convertible
Preferred Stock") be excluded from stockholders' equity (deficit), the
redemption value of the Convertible Preferred Stock has been reflected in the
accompanying balance sheet as mandatorily redeemable convertible preferred
stock.
The board of directors has authorized management of the Company to file a
registration statement with the SEC permitting the Company to sell shares of its
common stock to the public. If the Company's initial public offering (the "IPO")
is consummated under the terms currently anticipated, all outstanding shares of
Convertible Preferred Stock will convert into 9,108,115 shares of common stock
of the Company. Unaudited Pro Forma Stockholders' Equity as of September 30,
1999, as set forth in the accompanying balance sheet, is adjusted to reflect
such conversion, the assumed "cashless exercise" of all outstanding common stock
warrants and Series A mandatorily redeemable convertible preferred stock
warrants, and the conversion of the Series A mandatorily redeemable convertible
preferred stock issued upon the assumed exercise of the latter warrants into
common stock, resulting in the issuance of 9,809,183 additional shares of common
stock.
Research and Development
Research and development expense includes costs incurred by the Company to
develop and enhance the Company's software. Research and development costs are
charged to expense as incurred.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses
for the years ended December 31, 1996, 1997 and 1998 were approximately $98,000,
$433,000 and $66,000, respectively.
Software Development Costs
Software development costs are required to be expensed until the point that
technological feasibility of the product is established, after which time such
costs are capitalized until general availability of the product. The period
between achieving technological feasibility and the general availability of such
software has historically been short. Consequently, costs otherwise
capitalizable after technological feasibility have historically been immaterial
and therefore expensed as incurred.
Purchased software
Purchased software is held for resale under an exclusive license and is
capitalized and amortized ratably over a three-year estimated life. Accumulated
amortization was $0 and $213,000 (unaudited) as of December 31, 1998 and
September 30, 1999, respectively. See Note 8.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce
F-9
<PAGE> 90
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the tax payable for the period and the change during the period
in deferred tax assets and liabilities.
Stock Option Compensation
Stock option compensation expense is recognized in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.
Net Income (Loss) Per Share
Net income (loss) per common share is calculated in accordance with SFAS
No. 128, "Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB
98"). Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss)
per common share is computed by dividing the net income (loss) for the period by
the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is computed by dividing the net
income (loss) for the period by the weighted average number of common and
potential shares outstanding during the period if their effect is dilutive.
Potential common shares consist of incremental common shares issuable upon the
exercise of stock options and warrants and upon conversion of the Convertible
Preferred Stock and convertible promissory notes.
Unaudited Pro Forma Net Income (Loss) Per Common Share
The Company has computed unaudited pro forma basic net loss per common
share in accordance with the methodology in SFAS No. 128. The Company's
historical capital structure is not indicative of its prospective structure due
to the automatic conversion of all shares of Convertible Preferred Stock into
common stock concurrent with the closing of the Company's anticipated IPO.
Accordingly, historical basic net income (loss) per common share should not be
used as an indicator of future earnings per common share.
Unaudited pro forma basic net loss per common share is computed using the
weighted average number of common shares outstanding during the period. The
Company has assumed the conversion of all outstanding Convertible Preferred
Stock issued into common stock for all periods presented on a weighted average
share basis and the assumed "cashless exercise" of all outstanding common stock
warrants and Series A mandatorily redeemable convertible preferred warrants, and
the conversion of the Series A mandatorily redeemable convertible preferred
stock issued upon the assumed exercise of the latter warrants into common shares
as if such transactions occurred at the beginning of the respective period or at
the date of original issuance, if later.
F-10
<PAGE> 91
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of the numerators and
denominators in the basic, diluted and pro forma net income (loss) per common
share calculations for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)........................ $ 253 $(7,324) $(4,082) $(2,957) $(2,176)
Accretion of mandatorily redeemable
convertible preferred stock........... -- (55) (66) (50) (54)
------ ------- ------- ------- -------
Net income (loss) available to common
stockholders.......................... $ 253 $(7,379) (4,148) $(3,007) (2,230)
====== ======= =======
Effect of pro forma conversion of
securities:
Accretion of mandatorily redeemable
convertible preferred stock......... 66 54
------- -------
Pro forma net loss available to common
stockholders (unaudited)............ $(4,082) $(2,176)
======= =======
Denominator
Weighted average common shares
outstanding -- basic and diluted...... 476 390 390 390 438
====== ======= ------- ======= -------
Weighted average effect of pro forma
securities:
Series A mandatorily redeemable
convertible preferred stock......... 2,823 3,296
Series B mandatorily redeemable
convertible preferred stock......... 824 2,785
Common stock warrants................. 32 208
------- -------
Pro forma weighted average common shares
outstanding -- basic and diluted
(unaudited).............................. 4,069 6,727
======= =======
</TABLE>
Potentially dilutive securities totaling 1,782,855 and 5,737,092 for the
years ended December 31, 1997 and 1998, respectively, and 5,421,062 and
11,311,864 for the nine month periods ended September 30, 1998 and 1999,
respectively, were excluded from historical basic and diluted loss per common
share because of their anti-dilutive effect.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income includes all changes in equity during a period from
non-owner sources. During each of the three years ended December 31, 1998, and
the nine-month periods ended September 30, 1998 and 1999, the Company has not
had any significant transactions that are required to be reported as adjustments
to determine comprehensive income.
Unaudited Interim Financial Statements
The accompanying interim financial statements as of and for the nine-month
periods ended September 30, 1998 and 1999 are unaudited. In the opinion of the
Company, the unaudited interim financial statements have been prepared on the
same basis as the audited financial statements and reflect all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of
F-11
<PAGE> 92
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
the results of the interim periods. The financial data and other information
disclosed in these notes to financial statements for the related periods are
unaudited. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for any future periods.
Stock Split
On March 15, 1997, the Company effected a 600-for-one split of its common
stock. All references to shares, share prices and per share amounts have been
adjusted to reflect the stock split.
Recent Accounting Pronouncements
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, "Software Revenue Recognition," which provides guidance on
recognizing revenue from software transactions, as amended by SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition." The Company applied the provisions of SOP 97-2 on a prospective
basis for new software transactions entered into as of January 1, 1998. The
adoption of this guidance did not have a material impact on the Company's
financial condition or results of operations.
Further guidance was published during 1998 in SOP 98-9 "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions."
Additionally, the AICPA issued technical questions and answers on financial and
reporting issues related to SOP 97-2 in January 1999. The adoption of this
guidance will not have a material impact on the Company's financial condition or
results of operations.
2. BALANCE SHEET COMPONENTS
Certain balance sheet components are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
ACCRUED LIABILITIES
Accrued payroll.................................... $ 518 $ 171 $ 183
Operating lease obligation payable................. 461 203 74
Accrued interest................................... 18 269 10
Accrued license fee payable........................ -- 850 650
Other.............................................. 120 97 233
------ ------ ------
$1,117 $1,590 $1,150
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment......................... $ 879 $ 301
Computer hardware......................................... 2,241 1,435
Computer software......................................... 755 257
------- -------
3,875 1,993
Less accumulated depreciation and amortization.............. (1,793) (1,302)
------- -------
$ 2,082 $ 691
======= =======
</TABLE>
F-12
<PAGE> 93
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Assets underlying capital leases included above were approximately
$1,525,000 and $1,192,000 as of December 31, 1997 and 1998, respectively.
Accumulated amortization of assets under capital leases was approximately
$322,000 and $614,000 as of December 31, 1997 and 1998, respectively.
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Unsecured convertible promissory notes payable to preferred
stockholders, net of debt discount of $51 and $50 at
December 31, 1997 and 1998, respectively; interest rate at
12%; principal and interest due at maturity on September
30, 1999.................................................. $ 449 $ 2,680
Note payable to bank, as modified on April 22, 1997;
principal and interest payable in monthly installments of
$11,165 until December 22, 1998; interest on the note is
at the prime rate plus 1.0% (9.5% as of December 31,
1997); secured by equipment and intellectual property
rights.................................................... 62 --
Unsecured notes payable to former employees; interest rates
ranging from 5.73% to 6.84%; principal and interest due in
equal annual installments with maturity dates through
2000...................................................... 290 246
Unsecured notes payable to software vendors for software
licenses; interest rate at 10.5%; principal and interest
were payable on January 1, 1998........................... 86 44
Unsecured notes payable to landlord for leasehold
improvements; interest rate at 9.5%; principal and
interest payable in monthly installments of $1,207 until
February 1, 2000.......................................... 33 16
Capitalized lease obligations............................... 1,371 795
------- -------
Total long-term debt................................... 2,291 3,781
Less current portion........................................ (1,352) (3,497)
------- -------
Long-term debt, excluding current portion.............. $ 939 $ 284
======= =======
</TABLE>
Maturities of long-term debt, including future minimum lease payments under
capitalized lease obligations, at December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITALIZED OTHER TOTAL LONG-TERM
LEASES DEBT DEBT COMMITMENTS
----------- ------ -----------------
<S> <C> <C> <C>
1999....................................... $614 $2,984 $3,598
2000....................................... 242 52 294
---- ------ ------
856 $3,036 $3,892
====== ======
Less: Amount representing interest......... (61)
----
Present value of capitalized lease
obligations (including $564 classified as
current)................................. $795
====
</TABLE>
Certain equipment financing agreements recorded as capital lease
obligations are subject to restrictive covenants contained in the credit
agreement that require XCare.net to maintain certain financial ratios. XCare.net
was not in compliance with the covenants as of December 31, 1998 and obtained a
waiver of compliance for all covenants through September 30, 1999. The capital
lease obligations under the financing agreements that included the restrictive
covenants were paid off during September 1999.
F-13
<PAGE> 94
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
On December 29, 1997 and April 10, 1998, the Company entered into bridge
loan agreements with related parties who were the holders of all the Company's
then outstanding preferred stock. There were two related party lenders, each of
which is represented by one of its general partners on our board of directors.
One of those directors is the chairman of the board. The loan agreements
provided for commitments for $2,500,000 of financing (the "1997 Convertible
Promissory Notes"), of which $500,000 was received in 1997. The remaining
$2,000,000 was received throughout 1998. In June 1999, the 1997 Convertible
Promissory Notes plus accrued interest aggregating approximately $2,924,000
converted at $0.27 per share into 10,831,800 shares of Series B mandatorily
redeemable convertible preferred stock in conjunction with the sale of Series B
mandatorily redeemable convertible preferred stock. In connection with the 1997
Convertible Promissory Notes, the Company issued warrants to purchase 437,062
shares of the Company's Series A mandatorily redeemable convertible preferred
stock at $0.25 per share. The warrants expire in 2002 through 2003 or upon an
IPO, if earlier. The value assigned to the warrants of $84,000, determined using
a Black-Scholes option pricing model, resulted in additional debt discount which
is being amortized to interest expense over the period that the Convertible
Promissory Notes are outstanding.
In November 1998, the Company entered into a second bridge loan agreement
with related parties who were the holders of all the Company's then outstanding
preferred stock. There were two related party lenders, each of which is
represented by one of its general partners on our board of directors. One of
those directors is the chairman of the board. These were the same related
parties that invested in the December 29, 1997 and April 10, 1998 bridge loans
described above. The loan agreement provided for $265,000 financing of which
$230,000 was received in 1998 and $35,000 was received in 1999 (the "1998
Convertible Promissory Notes"). In June 1999, the 1998 Convertible Promissory
Notes plus accrued interest aggregating approximately $280,000 converted at
$0.27 per share into 1,036,159 shares of Series B mandatorily redeemable
convertible preferred stock in conjunction with the sale of Series B mandatorily
redeemable convertible preferred stock. In connection with the 1998 Convertible
Promissory Notes, the Company issued warrants to purchase 200,000 shares of the
Company's common stock at $0.10 per share. The warrants expire in 2003 or upon
an IPO, if earlier. The value assigned to the warrants of $43,000 resulted in
additional debt discount which is being amortized to interest expense over the
period that the Convertible Promissory Notes are outstanding.
4. STOCKHOLDERS' EQUITY
Mandatorily Redeemable Convertible Preferred Stock
In March 1997, the Company issued 2,450,000 shares of $.01 par value Series
A mandatorily redeemable convertible preferred stock and received proceeds net
of issuance costs totaling approximately $6,622,000.
In June 1999, the Company issued 27,111,111 shares of $.01 par value Series
B mandatorily redeemable convertible preferred stock and received proceeds
totaling $7,320,000. Concurrently, outstanding Convertible Promissory Notes plus
accrued interest of approximately $3,204,000 in the aggregate were converted
into an additional 11,867,959 shares of Series B mandatorily redeemable
convertible preferred stock.
In July 1999, the Company issued 24,074,074 shares of $.01 par value Series
B mandatorily redeemable convertible preferred stock and received proceeds net
of issuance costs totaling $6,420,000.
F-14
<PAGE> 95
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The holders of the Convertible Preferred Stock have the following rights
and preferences:
Voting Rights
The holders of the Convertible Preferred Stock and the common stock, voting
together as a single class, are entitled to vote upon any matter submitted to
the shareholders. The holders of the Convertible Preferred Stock are entitled to
one vote for each share of common stock that such holder would be entitled to
receive if the Convertible Preferred Stock were converted into common stock. The
holders of common stock have one vote per share of common stock.
Dividends
The holders of the Series A mandatorily redeemable convertible preferred
stock are entitled to receive, out of funds legally available, dividends payable
at amounts equal to the equivalent per share dividend declared on the common
stock. Holders of Series B mandatorily redeemable convertible preferred stock
are entitled to receive noncumulative dividends at the per annum rate of
$0.00216 per share, when and if declared by the board of directors. No dividends
have been declared to date.
Liquidation
In the event of any sale, liquidation, dissolution or winding up of the
Company, the holders of Series A and Series B mandatorily redeemable convertible
preferred stock are entitled to receive up to five times their original cost.
The holders of Series A mandatorily redeemable convertible preferred stock are
entitled to receive an amount of $2.86 per share plus any declared but unpaid
dividends prior to and in preference to any distribution to the holders of
common stock. The holders of the Series B mandatorily redeemable convertible
preferred stock are entitled revise to receive an amount of $0.27 per share plus
any declared but unpaid dividends prior to and in preference to any distribution
to the holders of common stock. The remaining assets, if any, shall be
distributed ratably among the holders of common stock and the holders of
Convertible Preferred Stock on an as-converted basis. The holders of the
Convertible Preferred Stock stop participating in the remaining assets once they
have recovered five times their original cost.
Conversion
The 2,450,000 outstanding shares of Series A mandatorily redeemable
convertible preferred stock are convertible at the option of the holder into
2,802,800 shares of common stock. The original conversion ratio of the Series A
mandatorily redeemable convertible preferred stock into common stock was
one-for-one. This conversion ratio was adjusted during 1997 and 1998 to 1.144
shares of common stock for each share of Series A mandatorily redeemable
convertible preferred stock. The 63,053,144 shares of Series B mandatorily
redeemable convertible preferred stock are convertible at the option of the
holders into 6,305,322 shares of common stock, reflecting the rounding upwards
of all resulting fractional shares. Each share of Convertible Preferred Stock
automatically converts into common stock upon the closing of a public offering
at a per share price of at least $9.50 with gross proceeds of greater than
$15,000,000.
Redemption Rights
As of January 1, 2002, 2003 and 2004, each holder of the Convertible
Preferred Stock has the individual right to require the Company to redeem the
holder's shares by paying in cash $2.86 per share of Series A Convertible
Preferred Stock and $0.27 per share of Series B Convertible Preferred Stock, for
up to a maximum on each such date of one-third of the total shares of
Convertible Preferred Stock
F-15
<PAGE> 96
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
outstanding. The difference between the recorded value and the redemption value
of the mandatorily redeemable convertible preferred stock is being accreted
ratably over the period from issuance to redemption dates which approximates the
effective interest method.
Stock Warrants
In conjunction with the Series A mandatorily redeemable convertible
preferred stock offering, the Company issued warrants to purchase a total of
12,250 shares of common stock for $31.46 per share. The value assigned to these
warrants using a Black-Scholes option pricing model was immaterial. The warrants
are exercisable immediately and expire in 2005 or upon an IPO, if earlier.
In connection with the issuance of the 1997 Convertible Promissory Notes,
warrants to purchase 437,062 shares of the Company's Series A mandatorily
redeemable convertible preferred stock at $0.25 per share were issued to the
promissory noteholders. The exercise price of 262,238 of these warrants was
repriced from $0.50 to $0.25 in April 1998. The warrants expire December 2002
through April 2003 or upon an IPO, if earlier.
In connection with the issuance of the 1998 Convertible Promissory Notes,
warrants to purchase 200,000 shares of the Company's common stock at $0.10 per
share were issued to the promissory noteholders. The warrants expire November
and December of 2003 or upon IPO, if earlier.
As of September 30, 1999, all warrants remain outstanding.
5. CONTRACT TERMINATIONS AND RELATED CHARGES
During 1996, a major customer terminated its contract with the Company and
paid $2.3 million to settle all claims arising from the termination. During
1997, another major customer terminated its contract with the Company and paid
$250,000 to settle all claims associated with the termination.
As a result of these contract terminations, during 1997, the Company
abandoned an operating lease and incurred impairment charges for related fixed
assets aggregating $887,000.
6. EMPLOYEE BENEFIT PLANS
Stock Options
During 1997, the Company adopted a stock option plan (the "Plan") which
provides for the grant of stock options to directors, key employees, and
consultants. As of September 30, 1999, a total of 2,200,000 shares of common
stock are reserved for issuance under the Plan. The Plan provides for the
granting of incentive stock options to employees and nonqualified options to
employees, directors and consultants.
Stock options are granted with an exercise price not less than fair market
value of the common stock on the date of the grant, as determined by the board
of directors. The vesting period is determined by the board of directors and is
generally four years. The options generally expire ten years after the date of
grant. During February 1998, the board of directors reduced the exercise price
of 14,026 options from $2.80 to $0.50 and in July 1998, they reduced the
exercise price for 1,850 options from $0.50 to $0.25.
The Company records compensation expense related to stock options granted
to employees using the intrinsic value based method and includes a pro forma
disclosure in the footnotes for compensation value measured using the fair value
accounting treatment. Options granted to consultants are accounted for based on
the fair value of the consideration received or the fair value of the options
issued, whichever is more reliably measurable. For the fair value disclosure
below, compensation value is estimated for each option grant under the Plan on
the date of grant using a Black-Scholes-type option
F-16
<PAGE> 97
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
pricing model. The following assumptions were used for grants in 1997 and the
1998: risk-free rates corresponding to government securities with original
maturities similar to the expected option lives of 6.3% to 6.8% in 1997 and 4.5%
to 5.6% for 1998; expected dividend yield of 0% for both periods; volatility
factor of zero; and expected lives of approximately one year beyond vesting
dates for all periods.
Based on calculations using a Black-Scholes-type minimum value option
pricing model, the weighted-average fair value of options at grant date was
$0.79, $0.06 and $0.46 in 1997 1998, and for the nine months ended September 30,
1999, respectively. The pro forma impact on the Company's net loss and net loss
per share had compensation cost been recorded as determined in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation" is shown below (in
thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Net loss:
As reported............................................... $(7,324) $(4,082)
Pro forma................................................. (7,333) (4,089)
Net loss per common share:
As reported............................................... $(18.92) $(10.64)
Pro forma................................................. (18.94) (10.65)
</TABLE>
Total stock options outstanding and exercisable under the Plan as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- ---------------------------------------------------------------- ---------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER OF CONTRACTUAL AVERAGE NUMBER OF AVERAGE
EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICES SHARES EXERCISE PRICES
- --------------- --------- ---------------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.25 1,118,450 9.5 $0.25 413,218 $0.25
2.80 11,667 8.3 2.80 11,667 2.80
--------- -------
$0.25 - 2.80 1,130,117 9.5 $0.28 424,885 $0.32
========= =======
</TABLE>
Total stock options outstanding and exercisable under the Plan as of
September 30, 1999 are as follows (unaudited):
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- ---------------------------------------------------------------- ---------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER OF CONTRACTUAL AVERAGE NUMBER OF AVERAGE
EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- --------- ---------------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.25 820,400 9.2 $0.25 820,400 $0.25
2.70 659,425 9.9 2.70 659,425 2.70
2.80 11,667 7.5 2.80 11,667 2.80
---------
$0.25 - 2.80 1,491,492 1.35
=========
</TABLE>
F-17
<PAGE> 98
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Activity of the Plan is summarized in the following table:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER OF AVERAGE OPTIONS AVERAGE
SHARES EXERCISE PRICE EXERCISABLE EXERCISE PRICE
---------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Options outstanding, December 31, 1996...... -- $ -- -- $ --
Options granted............................. 94,701 2.80
Less: options forfeited..................... (62,833) 2.80
----------
Options outstanding, December 31, 1997...... 31,868 2.80 12,967 2.80
Options granted............................. 1,120,600 0.25
Less: options forfeited..................... (22,351) 1.10
----------
Options outstanding, December 31, 1998...... 1,130,117 0.28 424,885 0.32
Options granted (unaudited)................. 1,029,825 1.82
Less: options exercised (unaudited)......... (167,163) 0.25
Less: options forfeited (unaudited)......... (501,287) 0.25
----------
Options outstanding, September 30, 1999
(unaudited)............................... 1,491,492 1.35 1,491,492 1.35
==========
</TABLE>
401(k) Plan
The Company has adopted an employee savings and retirement plan (the
"401(k) Plan") covering substantially all of the Company's employees. Pursuant
to the 401(k) Plan, eligible employees may elect to reduce their current
compensation by up to the statutory prescribed limit and have the amount of such
reduction contributed to the 401(k) Plan. The Company may make contributions to
the 401(k) Plan on behalf of eligible employees. The Company has not made any
contributions to the 401(k) Plan.
7. INCOME TAXES
Prior to January 1, 1996, the Company elected to be taxed under Subchapter
S of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly the
stockholders were responsible for payment of taxes on income earned by the
Company, and the Company distributed to stockholders annually an amount equal to
the estimated tax liability arising from operations. On January 1, 1996, the
Company revoked its election to be taxed under Subchapter S of the Code and
elected to be taxed under Subchapter C of the Code. In connection with the
change in status, the Company reclassified accumulated earnings of $576,000 to
additional paid-in capital to reduce accumulated earnings to zero as of the date
of the conversion. At December 31, 1998, the Company had net operating loss
("NOL") carryforwards of approximately $9.4 million which may be used to offset
future taxable income. These carryforwards expire beginning in 2012. The Code
contains provisions that may limit the NOL available for use in any given year
upon the occurrence of certain events, including significant changes in
ownership interest. A change in ownership of a company of greater than 50%
within a three-year period results in an annual limitation on the Company's
ability to utilize its NOL carryforwards from tax periods prior to the ownership
change. The Company's NOL carryforwards as of September 30, 1999 are subject to
annual limitations due to changes in ownership occurring in March 1997 and in
June 1999. Approximately $1,080,000 are limited to annual utilization of
approximately $60,000 and NOL carryforwards of approximately $9,000,000 are
limited to annual utilization of approximately $600,000, subject to adjustment
for realization of any built-in gains or losses. Future ownership changes could
further limit the utilization of the Company's NOLs.
F-18
<PAGE> 99
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The provision for (benefit from) income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $ 623 $ (627) $ --
State............................................. 126 -- --
Deferred:
Federal........................................... 374 (383) --
State............................................. 77 (68) --
------ ------- -------
Total............................................... $1,200 $(1,078) $ --
====== ======= =======
</TABLE>
The components of the Company's deferred income tax assets and liabilities
under FAS 109 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Deferred revenue.......................................... $ -- $ 50
Impairment and exit cost accruals......................... 339 355
Employee benefits......................................... 77 57
Other..................................................... -- 35
Net operating loss carryforwards.......................... 2,122 3,681
Deferred tax liabilities:
Cash to accrual Section 481(a)............................ (375) (281)
Fixed asset sale and depreciation......................... (27) (187)
Amortization.............................................. -- (57)
Less: Valuation allowance................................... (2,136) (3,653)
------- -------
Net deferred tax asset.................................... $ -- $ --
======= =======
</TABLE>
The Company's deferred tax assets represent unrecognized future tax
benefit. A valuation allowance has been established for the entire tax benefit,
and no benefit for income taxes has been recognized in the accompanying
statement of operations as the realization of the potential assets is not more
likely than not.
The benefit for income taxes differs from the amount computed by applying
the U.S. federal income tax rate of 34% to loss before income taxes as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Federal income tax benefit at 34%................... $ 494 $(2,856) $(1,388)
State income tax, net of federal benefit............ 135 (381) (166)
Effect of conversion to taxable status.............. 600 -- --
Change in valuation allowance....................... -- 2,136 1,517
Other............................................... (29) 23 37
------ ------- -------
Income tax expense (benefit)........................ $1,200 $(1,078) $ --
====== ======= =======
</TABLE>
F-19
<PAGE> 100
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and office space under various long-term
non-cancelable operating leases that expire in 2002. The following is a schedule
by year of future minimum lease payments under operating leases, at December 31,
1998 (in thousands):
<TABLE>
<S> <C>
1999..................................... $ 542
2000..................................... 106
2001..................................... 100
2002..................................... 100
-----
848
Less: sublease income.................... (169)
-----
$ 679
=====
</TABLE>
Total rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $288,000, $356,000 and $438,000, respectively.
In December 1998, the Company purchased an exclusive license for certain
software to be resold. This arrangement requires the Company to pay a royalty of
17.5% of all of its sales of the software. In the event the Company does not
satisfy specified minimum sales levels through June 30, 2000, the Company may
forfeit the exclusive rights to resell this software.
The Company has entered into another arrangement with a customer that
provides for a 10% royalty payment to the customer in the event the Company
resells the proprietary module developed for this customer.
9. SUBSEQUENT EVENTS
In July 1999, the board of directors amended all existing stock option
agreements under the Plan. The amendment provided that all options are
immediately exercisable. However, any shares acquired upon exercise are subject
to repurchase by XCare.net over a reverse vesting period that entitles the
optionee to exactly the same vesting schedule as the original grant. The
repurchase price is equal to the exercise price of the options.
During the nine months ended September 30, 1999, the Company issued stock
options to certain employees under the Plan with exercise prices below the
deemed fair value of the Company's common stock at the date of grant. The
Company has recorded unearned stock compensation for the difference between the
exercise price of the stock options and the deemed fair value of the Company's
common stock at the date of grant. This unearned stock compensation will be
amortized to expense over the period during which the options or common stock
subject to repurchase vest, generally four years, using an accelerated method as
described in Financial Accounting Standards Board Interpretation No. 28. As of
September 30, 1999, the Company has recorded unearned compensation related to
these options in the amount of $2,400,000, of which $112,000 has been amortized
to expense during the nine months ended September 30, 1999. Subsequent to
September 30, 1999, the Company granted additional options, certain of which had
exercise prices below the deemed fair value of the Company's common stock at the
date of grant and will record unearned compensation of approximately $233,000 in
the fourth quarter of 1999 to be amortized over the period of vesting.
Additionally, during September 1999, the Company granted an option to a
non-employee for 20,000 common shares with a strike price of $2.70 which vests
over twelve months or upon occurrence of an IPO, if earlier. The Company expects
to record a charge related to this option during the vesting
F-20
<PAGE> 101
XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
period or at the time of closing the IPO. As of September 30, 1999, the Company
has recorded unearned compensation of $96,000 which will be amortized during the
aforementioned vest period and is subject to variable stock option accounting.
In September 1999, the board of directors increased the number of common
shares reserved for issuance under the Plan to 2,200,000.
In October 1999, the board of directors adopted an employee stock purchase
plan (the "Employee Stock Purchase Plan,") subject to shareholder approval which
will become effective immediately on the effective date of the IPO. A total of
500,000 shares of common stock have been reserved for issuance under the
Employee Stock Purchase Plan. The Employee Stock Purchase Plan permits eligible
employees to purchase common stock totaling up to 15% of an employee's
compensation through payroll deductions. The Employee Stock Purchase Plan for
U.S. employees is intended to qualify under Section 423 of the Internal Revenue
Code and contains consecutive overlapping twelve-month offering periods. Each
offering period includes two six month purchase periods. The price of common
stock to be purchased will be 85% of the lower of the fair market value of the
common stock either at the beginning of the offering period or at the end of
that purchase period.
In October 1999, the board of directors adopted the Director Option Plan,
subject to shareholder approval, which will become effective immediately on the
effective date of the IPO. A total of 250,000 shares of common stock have been
reserved for issuance under the Director Option Plan. Members of the board of
directors who are not employees of XCare.net are eligible to participate in the
Director Option Plan. The Director Option Plan provides for an automatic initial
grant of an option to purchase 25,000 shares of common stock (the "Initial
Grant") upon the later of the effective date of the Director Option Plan or the
date a person first becomes a non-employee director. After the Initial Grant, a
non-employee director will automatically be granted options to purchase 10,000
shares of common stock ("Subsequent Grant") each year on the date of XCare.net's
annual stockholder's meeting, if such director has served as a member of the
board for at least six months. The term of such options is ten years, provided
that they will terminate three months following the date the director ceases to
be a director of XCare.net or twelve months if the termination is due to death
or disability. Each Initial Grant will vest as to 25% of the shares on each
anniversary date of the date of grant and each Subsequent Grant will vest as to
100% of the shares on the anniversary date of the date of grant.
In October 1999, the board of directors approved an amendment to the
Company's certificate of incorporation, subject to shareholder approval,
whereby, after the IPO, the board of directors will have the authority, without
further action by the stockholders, to issue up to 5,000,000 shares of preferred
stock in one or more series and to fix the designations, powers, preferences,
privileges, which may be greater than the rights of the common stock.
In October 1999, the board of directors approved an amendment to the
Company's certificate of incorporation, subject to shareholder approval, to
increase the number of authorized common shares to 100,000,000, as adjusted for
the pending one-for-ten reverse stock split.
During the fourth quarter ended December 31, 1999, the Company entered into
a professional services agreement with an entity whose managing member is a
general partner of one of the holders of the Company's preferred stock. The
Company recognized $453,000 in revenue under such agreement during the fourth
quarter ended December 31, 1999, and accounts receivable from this entity was
$453,000 at December 31, 1999.
The Company effected a one-for-ten reverse stock split of its common stock
in January 2000. All references in the financial statements to shares, share
prices, and per share amounts have been adjusted retroactively for all periods
presented to reflect the stock split.
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XCARE.NET, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
In January 2000, in order to settle a dispute, the board of directors
agreed to revise the exercise price of a warrant to purchase 12,250 shares of
common stock from $31.46 per share to $3.146 per share. As a result the Company
expects to record a charge of $132,000 during the first quarter of 2000.
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"MEET THE MANAGEMENT" PRESENTATION FOR
XCARE.NET
Prospective investors will be able to log on to a Web site maintained by
E*OFFERING Corp. at www.eoffering.com, where a prospectus is available for
review. Within designated sections of the prospectus, including the Underwriting
Section of the prospectus, an embedded hyperlink Iclick here for "Meet the
Management" PresentationJ will provide exclusive access to the "Meet the
Management" Presentation. This presentation highlights selected information
contained elsewhere in the prospectus. This presentation does not contain all of
the information that you should consider before investing in our common stock.
You should read the entire prospectus carefully, including the "Risk Factors"
and our financial statements and notes to those financial statements, before
making an investment decision.
Visual 1: Disclaimer
Imagery: Company logo.
Visual Text: The "Meet the Management" Presentation is part of our
prospectus. This presentation highlights selected information contained
elsewhere in this prospectus. This presentation does not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, including the "Risk Factors" and
our financial statements and notes to those financial statements, before making
an investment decision.
Script: (Lorine Sweeney) The "Meet the Management" Presentation is part of
our prospectus. This presentation highlights selected information contained
elsewhere in this prospectus. This presentation does not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, including the "Risk Factors" and
our financial statements and notes to those financial statements, before making
an investment decision.
Visual 2: Introduction
Imagery: See Description of Artwork on page 110 of the Registration
Statement for a description of the image located on the inside front cover of
the prospectus.
Script: (Lorine Sweeney) Welcome to the "Meet the Management" Presentation
for XCare.net. I'm Lorine Sweeney, President and CEO. I would like to introduce
you to Peter Cheesbrough, our Chief Financial Officer. We would like to talk to
you about XCare.net, an electronic commerce service provider for health care
businesses. At XCare.net, we have developed an Internet-based technology
platform using extensible mark-up language, or XML, that processes health care
transactions and provides related services for payers, providers and other
health care industry participants. We process transactions such as eligibility
checking, claims submission, referral processing, physician credentialing and
appointment scheduling.
Visual 3: Health Care: Market Opportunities
Imagery: Border and Company logo. There is a horizontal bar chart depicting
growth in U.S. health care expenditures.
Visual Text: Title: Health Care: Market Opportunity. Subheading: "Total
U.S. Health Care Expenditures." Footnote at the bottom with the caption,
"Source: U.S. Health Care Finance Administration."
Script: (Lorine Sweeney) (see "Business--Overview--Health Care Market
Overview"): The U.S. Health Care Finance Administration estimates that health
care expenditures currently represent $1.2 trillion, or 14% of the U.S. economy,
and that these expenditures will increase to $2.0 trillion by 2007 due both to
rising health care costs and an aging population. Health care claims, which
totaled approximately 4.4 billion in 1998, generally are processed through
antiquated computer systems via paper, fax or phone. These systems can be
inefficient and lead to unnecessary and duplicative costs.
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Visual 4: Health Care: Industry Participants
Imagery: Border and Company logo. See Description of Artwork on page 109
of the Registration Statement for a description of the image located on page 35
of the prospectus.
Visual Text: Title: Health Care: Industry Participants.
Script: (Lorine Sweeney) (see "Business -- Overview -- Health Care Market
Overview"): The health care industry is currently one of the most complex
markets due to the numerous interrelationships among health care participants.
The payment for and delivery of health care requires that consistent, accurate
information be shared confidentially among health care participants across a
large and fragmented industry. For instance, individuals compare medical plans,
choose physicians and submit claims for reimbursement. Physicians, hospitals and
other providers verify patient eligibility, collect patient histories, order
diagnostic tests and x-rays, render diagnoses and submit claims to payers. And
payers manage referrals, establish medical care protocols and reimbursement
policies and process claims. These health care transactions all are highly
dependent on the collection and communication of information, and each
participant is dependent on the others for portions of that information.
Visual 5: Market Characteristics and Issues
Imagery: Border and Company logo. On the top left there will be a box with
the caption "Market Fragmentation" with bulleted text underneath.
Visual Text: Title: Health Care: Market Characteristics and Issues. Within
the "Market Fragmentation" box, bullets will read:
- Geographic fragmentation
- Technological fragmentation
Script: (Lorine Sweeney) (see "Business -- Overview -- Market
Characteristics"): The health care market is highly fragmented with wide
geographic dispersion, a larger number of participants and significant
differences in technology infrastructure. Because health care is delivered
locally, there are hundreds of thousands of market participants in different
locations. In addition, current technology infrastructure in health care is
characterized by numerous incompatible and, in many cases, antiquated computer
systems.
Visual 6: Market Characteristics and Issues (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. On the top left there will be a box with the caption "Market
Fragmentation" with bulleted text underneath. On the bottom left there will be a
box with the caption "Complex Processes" with bulleted text underneath.
Visual Text: Title: Health Care: Market Characteristics and Issues. Within
the "Market Fragmentation" box, bullets will read:
- Geographic fragmentation
- Technological fragmentation
Within the "Complex Processes" box, bullets will read:
- Transition to managed care
- Intensive data management
- No standard data format or business rules
- Complexity of procurement, purchasing and payment processes
- Increasing government regulation
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Script: (Lorine Sweeney) (see "Business -- Overview -- Market
Characteristics"): Furthermore, health care is delivered in a marketplace which
has become increasingly complex. As managed care has become more prevalent and
the number of payers has increased, provider reimbursement and general
administration has become increasingly burdensome. Adding to the complexity are
the data-intensive nature of health care transactions, the lack of standard data
formats, the complicated procurement process and the pervasiveness of government
regulation.
Visual 7: Market Characteristics and Issues (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. On the top left there will be a box with the caption "Market
Fragmentation" with bulleted text underneath. On the bottom left there will be a
box with the caption "Complex Processes" with bulleted text underneath. An arrow
connecting the two boxes on the left side of the slide will point to the right
side of the slide, which will have a box with the caption "Inefficiencies" with
bulleted text underneath.
Visual Text: Title: Health Care: Market Characteristics and Issues. Within
the "Market Fragmentation" box, bullets will read:
- Geographic fragmentation
- Technological fragmentation
Within the "Complex Processes" box, bullets will read:
- Transition to managed care
- Intensive data management
- No standard data format or business rules
- Complexity of procurement, purchasing and payment processes
- Increasing government regulation
Within the "Inefficiencies" box, bullets will read:
- Inability to manage and exchange data
- Lack of real-time and secure communication
- Rising costs
Script: (Lorine Sweeney) (see "Business -- Overview -- Current Health Care
Market Issues" and "-- Health Care Market Overview"): As a result of the
fragmentation and complexity of the health care market, participants are unable
to cost-effectively manage, communicate and exchange information in real-time.
This fragmentation and complexity has resulted in increasing dissatisfaction
among health care participants. We believe that the provision of new,
Internet-based, business-to-business information exchange and electronic
commerce services that effectively address processing inefficiencies is one of
the significant market opportunities in health care today.
Visual 8: XCare.net Solution
Imagery: Border and Company logo. See Description of Artwork on page 110
of the Registration Statement for a description of the image located on the
inside front cover of the prospectus labeled "Solution Model."
Visual Text: Title: XCare.net Solution.
Script: (Lorine Sweeney) (see "Summary" and "Business -- Our Solution"):
Utilizing our proprietary technology platform, which we call the XCare.net
platform, we design and develop custom health care Web sites, known as portals.
Through these portals we link health care providers, payers and other industry
participants into an Internet exchange to create a community. We use the
XCare.net platform to deliver a broad range of applications, services and
electronic product offerings that
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streamline and automate high-volume, data-intensive transactions and processes.
This automation reduces the need for information exchange by telephone,
facsimile or mail and redundant manual data entry into multiple computer
systems. Our portal applications are designed to improve workflow efficiencies,
reduce administrative costs and enhance efficiency of the health care delivery
and payment system. Our approach to the market is based on the following:
Visual 9: XCare.net Solution (con't)
Imagery: Border and Company logo. One arrow on the left of the page
pointing to the right.
Visual Text: Title: XCare.net Solution. To the right of the arrow will
appear the caption "Use of new standard for information exchange".
Script: (Lorine Sweeney) (see "Business -- Our Solution"): The XCare.net
platform and associated applications and services are based on extensible
mark-up language, or XML. Extensible mark-up language provides a document
structure that allows complex data from multiple sources to be dynamically
processed and displayed to users in personalized ways. We will review extensible
mark-up language in greater detail when we discuss technology on slide 18. We
believe that these capabilities are particularly applicable to the health care
industry because extensible mark-up language can process data trapped in
pre-existing computer systems, allow for automation of health care processes and
integrate a wide array of health care data including audio, video and text.
Visual 10: XCare.net Solution (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. Two arrows on the left of the page pointing to the right.
Visual Text: Title: XCare.net Solution. To the right of the first arrow
will appear the caption "Use of new standard for information exchange". To the
right of the second arrow will appear the caption "Ability to develop
comprehensive customer strategies".
Script: (Lorine Sweeney) (see "Business -- Our Solution"): We have
developed a step by step approach to assist our customers in designing a health
care Internet strategy, creating a customized portal and hosting their Internet
offerings and transactions in a secure and reliable data operations
infrastructure. The XCare.net platform is designed to provide a comprehensive
set of applications, services and product offerings while preserving previous
technology investments by integrating diverse multimedia content, including data
and information from large, existing and usually incompatible computer systems.
Visual 11: XCare.net Solution (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. Three arrows on the left of the page pointing to the right.
Visual Text: Title: XCare.net Solution. To the right of the first arrow
will appear the caption "Use of new standard for information exchange". To the
right of the second arrow will appear the caption "Ability to develop
comprehensive customer strategies". To the right of the third arrow will appear
the caption "Solution Channels" that provide value to other health care industry
participants.
Script: (Lorine Sweeney) (see "Business -- Our Solution"): We use our
XCare.net platform as the central element for a network of business
relationships among health care industry participants who use our technology,
thus creating collaborative electronic communities for the exchange of
healthcare data, products and services. We call these communities our Solution
Channels, and use them to distribute our applications, services and product
offerings. In addition, our Solution Channels are designed to provide a means
for our customers, vendors, distributors, co-marketers and others to offer their
own related products and services to each other, as well as to their own
customers.
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Visual 12: XCare.net Strategy
Imagery: Border and Company logo. XCare.net logo along with the word
"Strategy" in center of page. A circle filled with a text heading will be
connected to the logo as a spoke.
Visual Text: Title: XCare.net Strategy. The surrounding circle will include
the following caption:
- Cross-sell applications, services and electronic commerce product
offerings in our Solution Channels
Script: (Lorine Sweeney) (see "Business -- Strategy"): Our strategy to grow
the Company focuses on the following initiatives. First, our Solution Channels
distribution model is designed to promote new applications, services and
electronic commerce product offerings that are either internally developed or
obtained through our growing number of customer and vendor relationships. This
cross-selling approach is designed to simplify the sales process, and may
shorten our sales cycle and reduce our cost of sales.
Visual 13: XCare.net Strategy (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. XCare.net logo along with the word "Strategy" in center of page.
Two circles filled with text headings will be connected to the logo as spokes.
Visual Text: Title: XCare.net Strategy. Each of the two surrounding circles
will include one of the following captions:
- Cross-sell applications, services and electronic commerce product
offerings in our Solution Channels
- Penetrate target market segments
Script: (Lorine Sweeney) (see "Business -- Strategy"): We will continue to
target the more than 12,000 entities in the payer/third-party administrator,
at-risk provider and health care supplier market segments. These potential
customers have the influence to drive change in health care processes, and have
the incentive to lower their operating costs by adopting new process improvement
technologies such as the Internet.
Visual 14: XCare.net Strategy (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. XCare.net logo along with the word "Strategy" in center of page.
Three circles filled with text headings will be connected to the logo as spokes.
Visual Text: Title: XCare.net Strategy. Each of the three surrounding
circles will include one of the following captions:
- Cross-sell applications, services and electronic commerce product
offerings in our Solution Channels
- Penetrate target market segments
- Develop new applications, services and product offerings
Script: (Lorine Sweeney) (see "Business -- Strategy"): We will continue to
develop a variety of applications, services and product offerings to address
operational inefficiencies in the health care industry. As Internet strategies
in the health care and other industries evolve and new relationships between
organizations are formed, we intend to continue to identify new development
opportunities.
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Visual 15: XCare.net Strategy (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. XCare.net logo along with the word "Strategy" in center of page.
Four circles filled with text headings will be connected to the logo as spokes.
Visual Text: Title: XCare.net Strategy. Each of the four surrounding
circles will include one of the following captions:
- Cross-sell applications, services and electronic commerce product
offerings in our Solution Channels
- Penetrate target market segments
- Develop new applications, services and product offerings
- Leverage existing applications, services and product offerings
Script: (Lorine Sweeney) (see "Business -- Strategy"): We seek to identify
key functions that are critical to particular industry participants and develop
solutions supporting these functions. We intend to regularly review existing
applications, services and product offerings to extend their functionality,
transaction capabilities and features as customer needs dictate.
Visual 16: XCare.net Strategy (con't)
Imagery: Border and Company logo. The slide imagery will "lay over" the
previous slide. XCare.net logo along with the word "Strategy" in center of page.
Five circles filled with text headings will be connected to the logo as spokes.
Visual Text: Title: XCare.net Strategy. Each of the five surrounding
circles will include one of the following captions:
- Cross-sell applications, services and electronic commerce product
offerings in our Solution Channels
- Penetrate target market segments
- Develop new applications, services and product offerings
- Leverage existing applications, services and product offerings
- Form customer, vendor, distributor and co-marketing relationships with
leading health care participants
Script: (Lorine Sweeney) (see "Business -- Strategy"): We are aggressively
pursuing relationships with leaders in key health care industry segments to
increase our portfolio of applications, services and product offerings, to
increase the scope of our XCare.net community of users and to provide
specialized industry expertise for new solutions. These relationships are
intended to accelerate market awareness and demand for our applications,
services and product offerings.
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Visual 17: Applications, Services and Product Offerings
Imagery: Border and Company logo. Three vertical rectangles with the
titles "Applications," "Services" and "Product Offerings."
Visual Text: Title: Applications, Services and Product Offerings. Includes
three rectangles for Applications, Services and Product Offerings. Each
rectangle will include captions listing the following names of the Company's
applications, services and product offerings. Footnote will read, "* We are
currently marketing these applications and product offerings but have not yet
recognized revenue from sales."
- --------------------------------------------------------------------------------
APPLICATIONS
eXtensible CARE System
eXtensible CARE Transactions
MatchNet Staffing & Scheduling*
Physician Credentialing*
Electronic Medical Record*
Medication and Medical
Assessment Inquiry Systems*
Physician Practice Management*
Provider and Payer Profiling and
Report Cards*
Document Management*
Decision Support System*
Remote Patient Monitoring*
SERVICES
eHealth Development Discipline
Custom Portal Integration & Hosting
Third-Party Administration/
Management Service Organization
Outsourcing Services
eHealth Operations Management
PRODUCT OFFERINGS
MDPay Accelerator*
Online Drug Store*
Medical Supply Product*
- --------------------------------------------------------------------------------
Script: (Lorine Sweeney) (see "Business -- Applications, Services and
Product Offerings"): We provide a range of applications, services and product
offerings that support the management of health care data and facilitate health
care business connectivity, information exchange and electronic commerce among
health care industry participants. Our applications, services and product
offerings, which may incorporate licensed components, are designed to enable our
customers to preserve investments in existing computer systems while integrating
new Internet-based products and services. For example, the eXtensible CARE
Transactions application facilitates submission, adjudication, remittance and
verification transactions for a variety of managed care functions such as
claims, capitation, authorizations, referrals, eligibility, enrollment and
benefits. The eHealth Operations Management service provides a secure, 24 hours
a day, seven days a week environment for Internet hosting of transactions and
multi-media content. And, the Online Drug Store facilitates the purchase of
brand-name pharmaceutical and personal health care products, as well as access
to decision making resources.
Visual 18: Technology
Imagery: Border and Company logo. See Description of Artwork on page 109
of the Registration Statement for a description of the image located on page 40
of the prospectus.
Visual Text: Title: Technology
Script: (Lorine Sweeney) (see "Summary" and "Business -- Technology"): Our
XCare.net platform is based on an extensible mark-up language, or XML-based
infrastructure in conjunction with the Topic Navigation Mapping standard. The
enhanced capabilities of this platform are designed to meet the demands of
health care industry participants. We expect extensible mark-up language to be a
predominant protocol for exchanging multimedia data for information exchange and
electronic commerce in the future. Unlike the current Internet standard,
hypertext mark-up language, or HTML, extensible mark-up language in combination
with the Topic Navigation Mapping standard allows a higher degree of flexibility
for customized data exchange between health care participants. Extensible
mark-up language enables us to attach meaning to a piece of data. For example,
information in numerical format acquires meaning once it is defined as
representing a healthcare plan number, a social security number, birth date or a
zip code. Topic Navigation Mapping provides a standard format for indexing and
structuring the
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extensible mark-up language formatted content. We call the resulting indices and
structures Topic Maps. We take advantage of the benefits of both extensible
mark-up language and Topic Navigation Mapping technologies to process data
previously trapped in usually incompatible computer systems, allow for
automation of health care processes and integrate a wide variety of health care
data including data in audio, video and text form. We use a set form of software
applications, known as brokering components, to find, integrate and present
relevant, customized information to individual users.
Visual 19: Customers
Imagery: Border and Company logo. Three vertical rectangles with the titles
"Health Care Providers", "Health Care Payers" and "Health Care Suppliers."
Visual Text: Title: Customers. Rectangles include captions listing the
following customers:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS HEALTH CARE PAYERS HEALTH CARE SUPPLIERS
- --------------------------------------------------------------------------------------------------------
- - American Medical Pathways, - Advica Health Resources - ADIS International Ltd
Inc., a subsidiary of American - Community Health Electronic - Clinical Solutions LLC
Medical Response Clearing House - Expert Practice Inc.
- - Breathnet LLC - Employers Mutual, Inc., a - NotifyMD, Inc.
- - Delta Health Systems wholly owned subsidiary of - Nursefinders, Inc.
- - Methodist Care, Inc. Florida Physicians Insurance
- - Quest Diagnostics Incorporated Company, and Brokerage Services,
- - University of Southern Inc., a division of Employers
California -- Doheny Eye Mutual, Inc.
Institute - Provider Services,
Incorporated
</TABLE>
------------------------------------------------------------------------------
Script: (Lorine Sweeney) (see "Business -- Customers" and "-- Our
Solution"): The following is a representative list of our customers that have
purchased applications or services. Customers and vendors can utilize our
Solution Channels as distribution channels for existing as well as new products
and services that allow them to generate new sources of incremental revenue. For
example, we package our eXtensible CARE applications system with medical
management and third party administration services provided by Employers Mutual,
Inc. These transactions are then distributed to members of the XCare.net
community such as American Medical Pathways, Inc., a subsidiary of American
Medical Response, Inc.
Visual 20: Competition
Imagery: Border and Company logo. Page with three arrows on the left of the
page pointing to the right.
Visual Text: Title: Competition. Subheading: "Potential competitors fall
primarily into three categories." To the right of the first arrow will appear
the caption, "Health care Internet companies." To the right of the second arrow
will appear the caption, "Traditional health care information system vendors."
To the right of the third arrow will appear the caption, "Traditional managed
care information system and outsourcing vendors."
Script: (Lorine Sweeney) (see "Business -- Competition"): Potential
competitors fall primarily into three categories. First, health care Internet
companies focused on providing connectivity and transactions within
business-to-business and business-to-consumer frameworks. Second, traditional
health care information system vendors who seek to extend the services of their
core products using Internet-based technology. And third, traditional managed
care information system and outsourcing vendors who are focusing on extending
the services of their core products to the Internet.
And with that, I will turn it over to Peter for an overview of our
financial results. Peter . . .
Visual 21: Financial Summary
Imagery: Border and Company logo. Selected Quarterly Results of Operations
(March 31, 1998 -- September 30, 1999). See table on page 30 of the Registration
Statement.
Visual Text: Title: Financial Summary. "Quarterly Results of Operations"
table.
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Script: (Peter Cheesbrough) (See "Summary -- Recent Results,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "-- Quarterly Results of Operations"):
We commenced operations in March 1989, but we did not begin to focus on
Internet-based health care solutions until mid-1998. We have historically
derived a significant portion of revenue from sales of mainframe and
client-server software for managed health care systems and from providing
services to health care organizations seeking to outsource administrative
functions. We intend to derive an increasing portion of our future revenue from
our Internet-based applications, services and product offerings. Accordingly, we
believe that our historical financial results are not necessarily indicative of
our future financial performance.
We have experienced quarterly fluctuations in our operating and financial
results due to the timing and relative size of new custom software development
projects, cancellations of contracts, and fluctuations in costs, including
personnel, equipment and facilities costs. We expect quarterly results to
fluctuate in the future due to the timing and introduction of new applications
and services and other market factors.
The following table sets forth unaudited statement of operations data for
each of the seven quarters ended September 30, 1999. This information has been
derived from our unaudited financial statements. These unaudited quarterly
results should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in the prospectus.
Revenue increased significantly during the quarter ended March 31, 1999 due
to the progress made in completing several custom software development projects.
Revenue for the quarter ended June 30, 1999 decreased relative to the prior
quarter as limited working capital available during the six months ended June
30, 1999 resulted in a reduction in our sales force personnel and other
promotional marketing activities, which impeded our ability to generate new
sales leads. Revenue for the quarter ended September 30, 1999 included $240,000
for the settlement of outstanding amounts owed by a customer relating to work
that had been performed in a prior quarter and for which the revenue had not
previously been recognized because collectibility of fees was not probable.
Cost of revenue as a percentage of revenue has varied from quarter to
quarter due to fluctuations in quarterly revenue and changes in associated
personnel costs. During the quarter ended March 31, 1999, cost of revenue
decreased as a percentage of revenue due to increased revenue from the
completion of several custom software development projects during the quarter.
During the quarter ended June 30, 1999, the increase in cost of revenue as a
percentage of revenue reflects the decreased revenue recognized during the
quarter, the utilization of third party consultants for license implementation
contracts and custom development projects, and the amortization of purchased
software.
During the quarter ended December 31, 1998, general and administrative
expense increased in absolute dollars and as a percentage of revenue due to an
approximate $360,000 loss on disposal of fixed assets. During the quarter ended
March 31, 1999, sales and marketing and general administrative expense declined
in both dollars and as a percentage of revenue due to substantial reductions of
personnel costs. During the quarter ended September 30, 1999 we increased
general and administrative personnel by 68%, and recruiting and relocation costs
increased by $192,000 reflecting costs associated with recruiting new employees.
Research and development expenses sharply declined following the quarter
ended March 31, 1998 due to reduction of research and development personnel
caused by limited working capital. During the quarter ended September 30, 1999,
we increased research and development employees by 266% reflecting our
commitment to enhance the XCare.net platform.
In closing, although we have not yet completed the audit for the year ended
December 31, 1999, our results of operations for the three months ended December
31, 1999 are expected to reflect approximately $2.0 million of revenue
(unaudited), an increase of 146% from $813,000 (unaudited) for the three months
ended September 30, 1999.
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<PAGE> 112
Lorine . . .
Visual 22: End of Presentation
Imagery: See Description of Artwork on page 110 of the Registration
Statement for a description of the image located on the inside front cover of
the prospectus.
Script: (Lorine Sweeney): We hope that this presentation was helpful in
understanding the business model of XCare.net and the strategy that our
management team intends to execute. We encourage you to refer back to the
prospectus for additional support and disclosure as well as to look at the "Risk
Factors" in detail. Again, thank you for your interest in XCare.net.
A-10
<PAGE> 113
DESCRIPTION OF ARTWORK
[Artwork on page 35]
In the middle of the artwork are pictures of an envelope, with the caption
"U.S. Mail" on it, a telephone, a fax machine, with the caption "Fax" on it,
and a computer with the caption "Legacy System" on it.
Surrounding these pictures are pictures depicting health care participants
as follows:
On the top left is a picture of a person, with the caption "Employer" to
the left of it. Under the caption are the phrases "Enroll employees," "Select
plans," "Choose benefit levels" and "maintain eligibility data."
On the bottom left is a picture of a person with the caption "Consumer" to
the left of it. Under the caption are the phrases "Compare plans," "Choose
physicians" and "Submit claims."
On the bottom center is a picture of a person with a stethoscope holding a
piece of paper with "Rx" written on it and with the caption "Providers
(Physicians' Offices, Hospitals, Clinics)" below and to the left of the
picture. Above the caption are the phrases "Verify patient eligibility,"
"Collect patient lists," "Order tests and x-rays," "Receive and interpret
tests," "Render diagnoses," "Issue referrals" and "Submit claims to payers."
On the bottom right is a picture of a laboratory flask and test tube with
the caption "Suppliers (Pharmacies, Clinical Labs, Pharmaceutical Companies,
Device Mfgs. and Distributors)" above and the right of the picture. Underneath
the caption are the phrases "Analyze and process patient samples and tests,"
"Provide test results," "Fill prescriptions" and "Submit claims to payers."
On the top right is a picture of an office building with the caption
"Payers (HMOs, PPOs, TPAs, Insurers)" above and to the rights of it. Underneath
the caption are the phrases "Establish protocols and reimbursement policy,"
"Manage referrals" and "Process claims."
Lines run from each of the captions to the pictures of the envelope,
telephone, fax machine and the computer and between each of these pictures.
[Artwork on p.40]
On the top left of the artwork is a picture of a person with a stethoscope
holding a piece of paper with "Rx" written on it. To the right of the picture
is the caption "1. User initiates request for information."
<PAGE> 114
To the right of this picture is a picture of a wall with two openings with
a conveyer belt running away from and into the openings in the wall.
The conveyer belt running away from the wall has two pictures of pieces of
paper on it. The first piece of paper is on the edge of the conveyer belt next
to the wall and has "Rx" written on it. The second piece of paper is in the
middle of the conveyer belt and has a graphic representing data. Standing next
to the conveyer belt is a picture of a person holding a piece of paper with "Rx"
written on it and shown to be saying "XML." Connected by a line to this person
is a caption placed underneath the conveyer belt which states "2. The Context
Broker describes the user's request and passes it to the Semantic Broker."
The conveyer belt runs into a six level structure with the caption "Topic
Navigation Mapping" on it. The levels have captions on them which alternate
between "Logic" and "Data." Connected by a line from the structure is a caption
to the right of the structure stating "3. The Semantic Broker queries the Logic
Fabric for the transaction that will satisfy the request."
On top of the structure is a picture of a robot with the caption "Semantic
Broker" on it show to be taking a piece of paper with "Rx" on it from the
picture of the person next to the conveyer belt.
The conveyer belt running into the opening in the wall begins at the
six-level structure. On the conveyer belt at the end next to the wall is a
picture of an open box with the word "XML" written on the inside of the box.
Standing next to the box to the side of the conveyer belt is a picture of a
person with the caption "5. Information is returned to the Context Broker, which
presents the information in a customized view for users."
Above this conveyer belt and to the right is a picture of a cloud with
"WWW" written on it. Conveyer belts run into and out of the cloud. The robot on
top of the structure is show to be placing pieces of paper on the conveyer belt
running into the cloud. The pieces of paper have graphics depicting data on
them. The conveyer belt running out of the cloud as a picture of a stack of
paper on it. In between these to conveyer belts is a picture of a person.
Connected to this person by a line a caption stating "4. The Semantic Broker
dispatches the Service Broker to obtain information from the Internet."
[Artwork on inside front cover]
There are three pictures, one on the far left is entitled "Solution
Model", one in the middle entitled "Technology Model", and one on the far right
entitled "Business Model".
"Solution Model"
<PAGE> 115
On the top left of the artwork is a picture of a person standing with the
word "Employer" written above the person. On the top right is a picture of a
person holding a large pill with the word "Consumer" written above the person.
On the bottom left is a picture of a building, with the words "Health Plan"
written above it. On the bottom right is a picture of a person wearing a
stethoscope and holding a piece of paper with "Rx" written on it. Above this
person is the word "Provider."
Connecting the pictures of the three person and the building is an
x-shape, with the words, "Community," "Connectivity," and "Commerce" in the
middle,with the words "An Internet Solution for Healthcare" above the
x-shape. On the top left part of the x-shape is a rectangle, inside of which is
a smaller picture of the building and a smaller picture of the person holding
the pill. Below that and closer to the center of the x-shape are two smaller
rectangles on top of an arrow pointing toward the center of the x-shape. Inside
the two smaller rectangles are a picture of a person holding a pill, and a
question mark.
On the top right of the x-shape is a rectangle, inside of which is a
smaller picture of the building, and a smaller picture of the person holding
the pill. Below that and closer to the center of the x-shape is a smaller
rectangle on top of an arrow pointing toward the center of the x-shape. Inside
the rectangle is a question mark.
On the bottom left of the x-shape is a rectangle, inside of which is a
smaller picture of the person standing, the person holding the pill and the
person wearing the stethoscope. Above that and closer to the center of the
x-shape are two smaller rectangles on top of an arrow pointing toward the
center of the x-shape. Inside the two rectangles are a picture of a pill and a
picture of a person holding a pill.
On the bottom right of the x-shape is a rectangle, inside of which is a
smaller picture of the building and a smaller picture of the person wearing a
stethoscope. Above that and closer to the center of the x-shape are two smaller
rectangles on top of an arrow pointing toward the center of the circle. Inside
the two rectangles are an "Rx" and a cross-shape.
"Technology Model"
On the top left of the artwork is a picture of a person with a
stethoscope. To the right of the picture is the caption "1. User."
To the right of this picture is a picture of a wall with two openings with
a conveyer belt running away from and into the openings in the wall.
The conveyer belt running away from the wall has two pictures of pieces of
paper on it. The first piece of paper is on the edge of the conveyer belt next
to the wall and has "Rx" written on it. The second piece of paper is in the
middle of the conveyer belt and has a graphic representing data. Standing next
to the conveyer belt is a picture of a
<PAGE> 116
person holding a piece of paper with "Rx" written on it and shown to be saying
"XML." Connected by a line to this person is a caption placed underneath the
conveyor belt which states "2. The Context Broker."
This conveyor belt runs into a six level structure with the caption "Topic
Navigation Mapping" on it. The levels have captions on them which alternate
between "Logic" and "Data." Connected by a line from the structure is a caption
to the right of the structure stating "3. The Semantic Broker."
On top of the structure is a picture of a robot with the caption "Semantic
Broker" on it shown to be taking a piece of paper with "Rx" on it from the
picture of the person next to the conveyor belt.
The conveyor belt running into the opening in the wall begins at the
structure. On the conveyor belt at the end next to the wall is a picture of an
open box with the word "XML" written on the inside of the box. Standing next to
the box to the side of the conveyor belt is a picture of a person with the
caption "5. Context Broker/Personalization."
Above this conveyor belt and to the right is a picture of a cloud with
"WWW" written on it. Conveyor belts run into and out of the cloud. The robot on
top of the structure is shown to be placing pieces of paper on the conveyor belt
running into the cloud. The pieces of paper have graphics depicting data on
them. The conveyor belt running out of the cloud has a picture of a stack of
paper on it. In between these two conveyor belts is a picture of a person.
Connected to this person by a line is a caption stating "4. The Semantic
Broker/Service."
"Business Model"
This picture is an x-shape, with a round, ball-shape in the middle, above
which is the caption "Applications, Products and Services." Connected to the
large ball-shape in the middle are five smaller ball-shapes. On the upper left
of the x-shape is a ball-shape, sitting above an arrow pointing toward the
center of the x-shape, with the caption "Xcare.net Products" to the left of
it. Connected to this ball-shape is one smaller ball-shape. Below that and
closer to the center of the x-shape is another ball-shape with the caption
"Customer Products" to the left of it. Attached to this ball-shape are
two smaller ball-shapes. Below that and closer to the center of the x-shape are
two smaller ball-shapes with no captions.
Coming out of the large ball-shape in the center is an arrow heading
toward the upper right of the x-shape. On top of the arrow is another ball-shape
with five smaller ball-shapes connected to it. Further up the upper right axis
of the x-shape is another ball-shape with five smaller balls connected to it,
inside a cylinder shape, and a smaller cylinder shape through which an arrow
points to a picture of a person.
<PAGE> 117
Coming out of the large ball-shape in the center is an arrow pointing
toward the lower right of the x-shape. On the top of the arrow is a ball-shape
with five smaller ball-shapes connected to it.
Coming toward the large ball-shape in the center from the lower left of
the x-shape is a ball-shape with two smaller ball-shapes connected to it, with
the caption "Vendor Products" to the left. To the right of that and
closer to the center of the x-shape is one small ball-shape.
To the left of the x-shape is the caption "Component Partners." To the
right of the x-shape is the caption "Solution Channels."
<PAGE> 118
LOGO
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Registration Fee............................................ 24,288
NASD Fee.................................................... 7,975
Nasdaq Listing Fee.......................................... 113,755
Legal Fees and Expenses..................................... 350,000
Accounting Fees and Expenses................................ 600,000
Printing Fees and Expenses.................................. 350,000
Blue Sky Fees and Expenses.................................. 3,000
Transfer Agent Fees......................................... 25,000
Miscellaneous............................................... 75,982
----------
Total.................................................. $1,550,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
registrant's certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach or
alleged breach of their duty of care. In addition, as permitted by Section 145
of the Delaware General Corporation Law, the bylaws of the registrant provide
that: (1) the registrant is required to indemnify its directors and executive
officers and persons serving in such capacities in other business enterprises
(including, for example, subsidiaries of the registrant) at the registrant's
request, to the fullest extent permitted by Delaware law, including in those
circumstances in which indemnification would otherwise be discretionary; (2) the
registrant may, in its discretion, indemnify employees and agents in those
circumstances where indemnification is not required by law; (3) the registrant
is required to advance expenses, as incurred, to its directors and executive
officers in connection with defending a proceeding (except that it is not
required to advance expenses to a person against whom the registrant brings a
claim for breach of the duty of loyalty, failure to act in good faith,
intentional misconduct, knowing violation of law or deriving an improper
personal benefit; (4) the rights conferred in the bylaws are not exclusive, and
the registrant is authorized to enter into indemnification agreements with its
directors, executive officers and employees; and (5) the registrant may not
retroactively amend the bylaw provisions in a way that it adverse to such
directors, executive officers and employees.
The registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the bylaws, as well as certain additional procedural
protections. In addition, such indemnity agreements provide that directors and
executive officers will be indemnified to the fullest possible extent not
prohibited by law against all expenses (including attorney's fees) and
settlement amounts paid or incurred by them in any action or proceeding,
including any derivative action by or in the right of the registrant, on account
of their services as directors or executive officers of the registrant or as
directors or officers of any other company or enterprise when they are serving
in such capacities at the request of the registrant. The registrant will not be
obligated pursuant to the indemnity agreements to indemnify or advance expenses
to an indemnified party with respect to proceedings or claims initiated by the
indemnified party and not by way of defense, except with respect to proceedings
specifically authorized by the registrant's board of
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<PAGE> 120
directors or brought to enforce a right to indemnification under the indemnity
agreement, the registrant's bylaws or any statute or law. Under the agreements,
the registrant is not obligated to indemnify the indemnified party (1) for any
expenses incurred by the indemnified party with respect to any proceeding
instituted by the indemnified party to enforce or interpret the agreement, if a
court of competent jurisdiction determines that each of the material assertions
made by the indemnified party in such proceeding was not made in good faith or
was frivolous; (2) for any amounts paid in settlement of a proceeding unless the
registrant consents to such settlement; (3) with respect to any proceeding
brought by the registrant against the indemnified party for willful misconduct,
unless a court determines that each of such claims was not made in good faith or
was frivolous; (4) on account of any suit in which judgment is rendered against
the indemnified party for an accounting of profits made from the purchase or
sale by the indemnified party of securities of the registrant pursuant to the
provisions of sec. 16(b) of the Securities Exchange Act of 1934 and related
laws; (5) on account of the indemnified party's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct or a knowing violation of the law; (6) an account
of any conduct from which the indemnified party derived an improper personal
benefit; (7) on account of conduct the indemnified party believed to be contrary
to the best interests of the registrant or its stockholders; (8) on account of
conduct that constituted a breach of the indemnified party's duty of loyalty to
the registrant or its stockholders; or (9) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
The indemnification provision in the bylaws and the indemnification
agreements entered into between the registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
registrant's officers and directors for liabilities arising under the 1933 Act.
Reference is made to the following documents filed as exhibits to this
registration statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Form of Underwriting Agreement.............................. 1.1
Certificate of Incorporation of Registrant, as amended...... 3.1
Form of Amended and Restated Certificate of Incorporation of
Registrant, to be filed upon closing of the offering...... 3.2
Bylaws of Registrant........................................ 3.3
Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers.................................................. 4.1
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since October 1, 1996, the Registrant has issued and sold the following
securities:
(a) From May 17, 1999 to September 16, 1999, XCare.net sold in the
aggregate of 167,662 shares of unregistered common stock to sixteen
directors, officers and employees at a price of $0.25 per share, for
aggregate consideration of $41,915.63. Such shares were sold pursuant to
the exercise of options granted by the board. As to each director, officer
and employee of XCare.net who was issued such securities, XCare.net relied
upon Rule 701 of the Securities Act of 1933. Each such person purchased
securities of XCare.net pursuant to a written contract between such person
and XCare.net. In addition, XCare.net met the conditions imposed under Rule
701(b).
(b) On March 12, 1997, XCare.net sold in the aggregate 2,450,000
shares of unregistered Series A Preferred Stock at a price per share of
$2.86 to Nazem & Company IV, L.P. and Atlantic Medical Capital, L.P. for
aggregate cash consideration of $7,007,000. XCare.net relied upon Section
4(2) of the Securities Act in connection with the sale of these shares.
Each investor who was not an accredited investor represented to XCare.net
that he or she had such knowledge and
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<PAGE> 121
experience in financial and business matters that he or she was capable of
evaluating the merits and risks of the investment.
(c) In June and July 1999, XCare.net sold in the aggregate 63,053,144
shares of unregistered Series B Preferred Stock at a price per share of
$0.27 to Atlantic Medical Capital, L.P., Canpartners Investments IV,
L.L.C., CB Healthcare Fund, L.P., Dauphin Capital Partners, L.P., Nazem &
Company IV, L.P., Sequel Entrepreneurs Fund II, L.P., Sequel Limited
Partnership II, Singapore Computer Systems, Ltd., The Transatlantic Venture
Fund C.V., Vertex Technology Fund (II) Ltd., Rachel S. Lovejoy, Arthur F.
Schneiderman, and Dennis Yong for aggregate consideration of
$17,024,348.88, including an aggregate of $3,204,348.93 representing the
principal and interest of convertible promissory notes converted into
shares of Series B Preferred Stock. XCare.net relied upon Regulation D,
Rule 506, of the Securities Act in connection with the sale of these
shares. The sale of the Series B Preferred Stock was made in compliance
with all of the terms of Rules 501 and 502 of Regulation D, there were no
more than 35 investors (as calculated pursuant to Rule 501(e) of Regulation
D) and each investor who was not an accredited investor represented to the
XCare.net that he or she had such knowledge and experience in financial and
business matters that he or she was capable of evaluating the merits and
risks of the investment.
(d) From December 29, 1997 to November 20 , 1998, XCare.net issued an
aggregate of 15 convertible promissory notes to Nazem & Company IV, L.P.
and Atlantic Medical Capital, L.P. for aggregate cash consideration of
$2,765,000. On June 4, 1999, the principal and accrued interest due on
these convertible promissory notes were converted into an aggregate of
11,867,959 shares of Series B Preferred Stock. XCare.net relied on Section
4(2) of the Securities Act in connection with the sales of these
securities. Each investor who was not an accredited investor represented to
XCare.net that he or she had such knowledge and experience in financial and
business matters that he or she was capable of evaluating the merits and
risks of the investment.
(e) From December 29, 1997 to June 9, 1998, XCare.net issued an
aggregate of 13 warrants to Nazem & Company IV, L.P. and Atlantic Medical
Capital, L.P. for the purchase of an aggregate of 437,062 shares of Series
A Preferred Stock at an exercise price per share of $0.25. Each warrant
expires 5 years from the date of issuance or upon the closing of our
initial public offering, if earlier. XCare.net relied on Section 4(2) of
the Securities Act in connection with the sales of these securities. Each
investor who was not an accredited investor represented to XCare.net that
he or she had such knowledge and experience in financial and business
matters that he or she was capable of evaluating the merits and risks of
the investment.
(f) On March 12, 1997 and November 20, 1998, XCare.net issued an
aggregate of 3 warrants to Nazem & Company IV, L.P., Atlantic Medical
Capital, L.P., and Counterpart Capital Corporation, a consultant, for the
purchase of an aggregate of 212,250 shares of common stock at exercise
prices per share ranging from $0.10 to $31.46. The exercise price of the
warrant issued on March 12, 1997 was revised from $31.46 per share to
$3.146 per share in January 2000 to settle a dispute. This warrant expires
on March 12, 2005 or upon the closing of our initial public offering if
earlier. The 2 warrants issued on November 20, 1998 expire on November 20,
2003 or upon the closing of our initial public offering, if earlier.
XCare.net relied on Section 4(2) of the Securities Act in connection with
the sales of these securities. Each investor who was not an accredited
investor represented to XCare.net that he or she had such knowledge and
experience in financial and business matters that he or she was capable of
evaluating the merits and risks of the investment.
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<PAGE> 122
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation of
Registrant.
3.2+ Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed upon the closing of the offering made
under the Registration Statement.
3.3+ Bylaws of Registrant.
3.4+ Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant effectuating a reverse stock
split.
4.1+ Form of Registrant's Common Stock Certificate.
4.2+ Second Amended and Restated Registration Rights Agreement,
dated as of July 27, 1999, between the Registrant and the
parties named therein.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1+ Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
10.2+ Amended and Restated 1997 Stock Option Plan.
10.3+ 1999 Employee Stock Purchase Plan and related agreements.
10.4+ 1999 Director Option Plan and related agreements.
10.5 Licensing Agreement, dated as of December 30, 1998, between
the Registrant and Match Health Care Services, Ltd.
10.6**+ Master Licensing Agreement, dated February 4, 1999, between
the Registrant and Methodist Care, Inc.
10.7+ Services Agreement Subcontract, dated December 17, 1998,
between the Registrant and PRC, Inc.
10.8**+ Master Licensing, Processing and Services Agreement, dated
February 16, 1997, between the Registrant and
Healthscope/United, Inc.
10.9**+ System Management Contract, dated April 1, 1999, between the
Registrant and Advica Health Resources.
10.10** Administration Services Agreement, dated March 29, 1999,
between the Registrant and American Medical Pathways, Inc.
10.11** Processing and Services Agreement, dated January 1, 1997,
between the Registrant and Brokerage Services Incorporated.
10.12** Addendum to Processing and Services Agreement, dated July
25, 1997, between the Registrant and Brokerage Services
Incorporated.
10.13**+ Supplemental Agreement, dated December 24, 1997, between the
Registrant and Brokerage Services Incorporated.
10.14**+ Employers Mutual, Inc. Assignment Letter, dated August 5,
1999, between the Registrant and Employers Mutual, Inc.
10.15** Master License and Services Agreement, dated June 24, 1998,
between Registrant and Employers Mutual, Inc.
10.16**+ Contractor Agreement, dated February 19, 1999, between the
Registrant and Employers Mutual, Inc.
10.17**+ Master Licensing and Services Agreement, dated February 20,
1998, between the Registrant and Provider Services,
Incorporated.
10.18**+ Contractor Agreement, dated April 27, 1999, between the
Registrant and Provider Services, Incorporated.
10.19** Master Licensing and Services Agreement, dated August 24,
1998, between the Registrant and Quest Diagnostics
Incorporated.
10.20+ Offer letter, dated September 22, 1997, with Lorine Sweeney.
10.21+ Offer letter, dated December 12, 1997, with Mark Rangell.
10.22+ Offer letter, dated June 12, 1998, with Tammy McLaren.
10.23+ Sublease, dated as of May 11, 1998, by and between the
Registrant and Echo Bay Management Corp.
</TABLE>
II-4
<PAGE> 123
<TABLE>
<S> <C>
10.24+ Sub-sublease Agreement, dated as of December 18, 1998, by
and between Registrant and Project Discovery, Inc.
10.25+ Office lease, dated May 2, 1997, between Registrant and MBL
Life Assurance Corporation.
10.26+ Office lease, dated September 29, 1995 between Registrant
and MBL Life Assurance Corporation.
10.27**+ Consulting Agreement, dated June 10, 1998, by and between
Registrant and ADIS International Ltd.
10.28**+ Consulting Agreement, dated September 16, 1998, by and
between Registrant and ADIS International Ltd.
10.29**+ Development Services Agreement, dated November 8, 1999, by
and between Registrant and Doheny Eye Medical Group, Inc.
10.30**+ Development Services Agreement, dated November 10, 1999, by
and between Registrant and Delta Health Services.
10.31**+ Hosting Services Agreement, dated November 10, 1999, by and
between Registrant and Delta Health Systems.
10.32+ Office Lease Agreement dated November 1, 1999, by and
between Registrant and Mountain States Mutual Casualty
Company.
10.33** Software License and Services Agreement, dated October 25,
1999, by and between Registrant and Oracle Corporation.
10.34** Professional Services Agreement, dated September 9, 1999, by
and between Registrant and Asthma Management Company.
10.35+ Consulting Services Agreement, dated November 29, 1999 by
and between Registrant and Decision Consultants, Inc.
10.36+ Sublease dated December 17, 1999 by and between Registrant
and The Pittsburgh & Midway Coal Mining Co.
16.1+ Letter regarding change in certifying accountant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers, LLP.
24.1+ Power of Attorney (See page II-7).
27.1+ Financial Data Schedule
</TABLE>
- -------------------------
* To be supplied by amendment.
** Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
+ Previously submitted.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions referenced in Item 14 of this registration Statement
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of
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<PAGE> 124
the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
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<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 registration statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Englewood, State of Colorado, on this 8th day of February 2000.
XCARE.NET, INC.
By: /s/ LORINE R. SWEENEY
---------------------------------------
Lorine R. Sweeney
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* President and Chief February 8, 2000
- ----------------------------------------------------- Executive Officer
Lorine R. Sweeney (Principal Executive
Officer)
* Senior Vice President, February 8, 2000
- ----------------------------------------------------- Finance and Chief Financial
Peter H. Cheesbrough Officer (Principal
Financial and Accounting
Officer)
* Chairman of the Board February 8, 2000
- -----------------------------------------------------
Jeffrey M. Krauss
* Director February 8, 2000
- -----------------------------------------------------
Fred L. Brown
* Director February 8, 2000
- -----------------------------------------------------
J. Andrew Cowherd
* Director February 8, 2000
- -----------------------------------------------------
James B. Hoover
* Director February 8, 2000
- -----------------------------------------------------
L. Ben Lytle
* Director February 8, 2000
- -----------------------------------------------------
Daniel J. Mitchell
* Director February 8, 2000
- -----------------------------------------------------
William F. Reilly
* Director February 8, 2000
- -----------------------------------------------------
Robert Tsao
*By: /s/ LORINE R. SWEENEY
------------------------------------------------
Lorine R. Sweeney
Attorney-in-fact
</TABLE>
II-7
<PAGE> 126
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation of
Registrant.
3.2+ Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed upon the closing of the offering made
under the Registration Statement.
3.3+ Bylaws of Registrant.
3.4+ Amendment to the Amended and Restated Certificate of
Incorporation of Registrant effecting a reverse stock split.
4.1+ Form of Registrant's Common Stock Certificate.
4.2+ Second Amended and Restated Registration Rights Agreement,
dated as of July 27, 1999, between the Registrant and the
parties named therein.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1+ Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
10.2+ Amended and Restated 1997 Stock Option Plan.
10.3+ 1999 Employee Stock Purchase Plan and related agreements.
10.4+ 1999 Director Option Plan and related agreements.
10.5 Licensing Agreement, dated as of December 30, 1998, between
the Registrant and Match Health Care Services, Ltd.
10.6** Master Licensing Agreement, dated February 4, 1999, between
the Registrant and Methodist Care, Inc.
10.7+ Services Agreement Subcontract, dated December 17, 1998,
between the Registrant and PRC, Inc.
10.8**+ Master Licensing, Processing and Services Agreement, dated
February 16, 1997, between the Registrant and
Healthscope/United, Inc.
10.9**+ System Management Contract, dated April 1, 1999, between the
Registrant and Advica Health Resources.
10.10** Administration Services Agreement, dated March 29, 1999,
between the Registrant and American Medical Pathways, Inc.
10.11** Processing and Services Agreement, dated January 1, 1997,
between the Registrant and Brokerage Services Incorporated.
10.12** Addendum to Processing and Services Agreement, dated July
25, 1997, between the Registrant and Brokerage Services
Incorporated.
10.13**+ Supplemental Agreement, dated December 24, 1997, between the
Registrant and Brokerage Services Incorporated.
10.14**+ Employers Mutual, Inc. Assignment Letter, dated August 5,
1999, between the Registrant and Employers Mutual, Inc.
10.15** Master License and Services Agreement, dated June 24, 1998,
between Registrant and Employers Mutual, Inc.
10.16**+ Contractor Agreement, dated February 19, 1999, between the
Registrant and Employers Mutual, Inc.
10.17**+ Master Licensing and Services Agreement, dated February 20,
1998, between the Registrant and Provider Services,
Incorporated.
10.18**+ Contractor Agreement, dated April 27, 1999, between the
Registrant and Provider Services, Incorporated.
10.19** Master Licensing and Services Agreement, dated August 24,
1998, between the Registrant and Quest Diagnostics
Incorporated.
10.20+ Offer letter, dated September 22, 1997, with Lorine Sweeney.
10.21+ Offer letter, dated December 12, 1997, with Mark Rangell.
</TABLE>
<PAGE> 127
<TABLE>
<S> <C>
10.22+ Offer letter, dated June 12, 1998, with Tammy McLaren.
10.23+ Sublease, dated as of May 11, 1998, by and between the
Registrant and Echo Bay Management Corp.
10.24+ Sub-sublease Agreement, dated as of December 18, 1998, by
and between Registrant and Project Discovery, Inc.
10.25+ Office lease, dated May 2, 1997, between Registrant and MBL
Life Assurance Corporation.
10.26+ Office lease, dated September 29, 1995 between Registrant
and MBL Life Assurance Corporation.
10.27**+ Consulting Agreement, dated June 10, 1998, by and between
Registrant and ADIS International Ltd.
10.28**+ Consulting Agreement, dated September 16, 1998, by and
between Registrant and ADIS International Ltd.
10.29**+ Development Services Agreement, dated November 8, 1999, by
and between Registrant and Doheny Eye Medical Group, Inc.
10.30**+ Development Services Agreement, dated November 10, 1999 by
and between Registrant and Delta Health Services.
10.31**+ Hosting Services Agreement, dated November 10, 1999, by and
between Registrant and Delta Health Services.
10.32+ Office Lease Agreement, dated November 1, 1999, by and
between Registrant and Mountain States Mutual Casualty
Company.
10.33** Software License and Services Agreement, dated October 25,
1999, by and between Registrant and Oracle Corporation.
10.34** Professional Services Agreement, dated September 9, 1999, by
and between Registrant and Asthma Management Company.
10.35+ Consulting Services Agreement, dated November 29, 1999, by
and between Registrant and Decision Consultants, Inc.
10.36+ Sublease dated December 17, 1999 by and between Registrant
and The Pittsburgh & Midway Coal Mining Co.
16.1+ Letter regarding change in certifying accountant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers, LLP.
24.1+ Power of Attorney (See page II-7).
27.1+ Financial Data Schedule.
</TABLE>
- -------------------------
* To be supplied by amendment.
** Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission. To be supplied by amendment.
+ Previously submitted.
<PAGE> 1
Exhibit 1.1
UNDERWRITING AGREEMENT
February____, 2000
BancBoston Robertson Stephens Inc.
E*OFFERING Corporation
S.G. Cowen Securities Corporation
Advest, Inc.
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. XCare.net, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares (the "Firm Shares")
of its Common Stock, par value $0.01 per share (the "Common Shares"). In
addition, the Company has granted to the Underwriters an option to purchase up
to an additional [___] Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "Shares". BancBoston Robertson
Stephens Inc., E*OFFERING Corporation, S.G. Cowen Securities Corporation and
Advest, Inc. have agreed to act as representatives of the several Underwriters
(in such capacity, the "Representatives") in connection with the offering and
sale of the Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-[___]), which contains a form of prospectus to be used in
connection with the public offering and sale of the Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of BancBoston Robertson
Stephens Inc., elected to rely upon Rule 434 under the Securities Act, the term
<PAGE> 2
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated [___](1) (such preliminary prospectus is called
the "Rule 434 preliminary prospectus"), together with the applicable term sheet
(the "Term Sheet") prepared and filed by the Company with the Commission under
Rules 434 and 424(b) under the Securities Act and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall include
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters
as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all subsequent times, complied and will comply in all material
respects with the Securities Act and did not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date and at all subsequent
times, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
- -----------------
(1) Complete with the date of the Company's most recent preliminary prospectus
that was circulated to prospective offerees.
2.
<PAGE> 3
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives four complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, or operations, whether or not arising from transactions
in the ordinary course of business, of the Company (any such change or effect,
where the context so requires, is called a "Material Adverse Change" or a
"Material Adverse Effect"); (ii) the Company has not incurred any material
liability or obligation, indirect, direct or contingent, not in the ordinary
course of business nor entered into any material transaction or agreement not in
the ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except for
dividends paid to the Company on any class of capital stock or repurchase or
redemption by the Company of any class of capital stock.
(h) Independent Accountants. Pricewaterhouse Coopers LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present
3.
<PAGE> 4
fairly the consolidated financial position of the Company as of and at the dates
indicated and the results of their operations and cash flows for the periods
specified. The supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. Such financial
statements and supporting schedules have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Summary--Summary Selected Financial
Data", "Selected Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement.
(j) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(k) Subsidiaries of the Company. The Company has no subsidiaries.
(l) Incorporation and Good Standing of the Company. The Company has been
duly organized and is validly existing as a corporation in good standing under
the laws of Delaware with full corporate power and authority to own its
properties and conduct its business as described in the prospectus, and is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction which requires such qualification.
(m) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Shares (including the Shares) conform in all material
respects to the description thereof contained in the Prospectus. All of the
issued and outstanding Common Shares have been duly authorized and validly
issued, are fully paid and nonassessable and have been issued in compliance with
federal and state securities laws. None of the outstanding Common Shares were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company other than those accurately described in the Prospectus. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set forth in
the Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(n) Stock Exchange Listing. The Shares have been approved for listing on
the Nasdaq National Market, subject only to official notice of issuance.
4.
<PAGE> 5
(o) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(p) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company pursuant to, (i) the
charter or by-laws of the Company, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the Company is
a party or bound or to which its property is subject or (iii) any statute, law,
rule, regulation, judgment, order or decree applicable to the Company of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or any of its properties,
except for such conflict, breach, violation, lien, change or encumbrance which
would not singley or in the aggregate have a Material Adverse Effect on the
Company.
(q) No Defaults or Violations. The Company is not in violation or
default of (i) any provision of its charter or by-laws, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument to
which it is a party or bound or to which its property is subject or (iii) any
statute, law, rule, regulation, judgment, order or decree of any court,
regulatory body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or any of its properties, as
applicable, except any such violation or default which would not, singly or in
the aggregate, result in a Material Adverse Change except as otherwise disclosed
in the Prospectus.
(r) No Actions, Suits or Proceedings. No action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator
involving the Company or its property is pending or, to the best knowledge of
the Company, threatened that (i) could reasonably be expected to have a Material
Adverse Effect on the performance of this Agreement or the consummation of any
of the transactions contemplated hereby or (ii) could reasonably be expected to
result in a Material Adverse Effect.
(s) All Necessary Permits, Etc. The Company possesses such valid and
current certificates, authorizations or permits issued by the appropriate state,
federal or foreign regulatory agencies or bodies necessary to conduct their
respective businesses, and the Company has received no notice of proceedings
relating to the revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could result in a
Material Adverse Change.
(t) Title to Properties. The Company has good and marketable title to
all the properties and assets reflected as owned in the financial statements
referred to in Section 1 above (or elsewhere in the Prospectus), in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially interfere with
the
5.
<PAGE> 6
use made or proposed to be made of such property by the Company. The real
property, improvements, equipment and personal property held under lease by the
Company are held under valid and enforceable leases, with such exceptions as are
not material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by the
Company.
(u) Tax Law Compliance. The Company has filed all necessary federal,
state and foreign income and franchise tax returns and has paid all taxes
required to be paid by it and, if due and payable, any related or similar
assessment, fine or penalty levied against it. The Company has made adequate
charges, accruals and reserves in the applicable financial statements referred
to in Section 1 above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company has
not been finally determined. The Company is not aware of any tax deficiency that
has been or might be asserted or threatened against the Company that could
result in a Material Adverse Change.
(v) Intellectual Property Rights. The Company owns or possesses adequate
rights to use all patents, patent rights or licenses, inventions, collaborative
research agreements, trade secrets, know-how, trademarks, service marks, trade
names and copyrights which are necessary to conduct its businesses as described
in the Registration Statement and Prospectus; the expiration of any patents,
patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not result in a Material Adverse Change that is not otherwise
disclosed in the Prospectus; the Company has not received any notice of, and has
no knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a Material
Adverse Change. The Company is not aware of any nor has it received notice of
any claim being made against the Company regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. The Company does not in
the conduct of its business as now or proposed to be conducted as described in
the Prospectus infringe or conflict with any right or patent of any third party,
or any discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company, which such
infringement or conflict is reasonably likely to result in a Material Adverse
Change.
(w) Year 2000 Preparedness. There are no issues related to the Company's
preparedness for the Year 2000 that (i) are of a character required to be
described or referred to in the Registration Statement or Prospectus by the
Securities Act which have not been accurately described in the Registration
Statement or Prospectus or (ii) might reasonably be expected to result in any
Material Adverse Change or that might materially affect its properties, assets
or rights. All internal computer systems and each Constituent Component (as
defined below) of those systems and all computer-related products and each
Constituent Component (as defined below) of those products of the Company fully
comply with Year 2000 Qualification Requirements. "Year 2000 Qualifications
Requirements" means that the internal computer systems and each Constituent
Component (as defined below) of those systems and all computer-related products
and each Constituent Component (as defined below) of those products of the
Company (i) have been reviewed to confirm that they store, process (including
sorting and performing mathematical operations, calculations and computations),
input and output data containing date and information correctly regardless of
whether the date contains
6.
<PAGE> 7
dates and times before, on or after January 1, 2000, (ii) have been designated
to ensure date and time entry recognition and calculations, and date data
interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and will not cause an abnormal ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (iv) accurately process any date rollover, and (v) accept and respond to
two-digit year date input in a manner that resolves any ambiguities as to the
century. "Constituent Component" means all software (including operating
systems, programs, packages and utilities), firmware, hardware, networking
components, and peripherals provided as part of the configuration. The Company
has inquired of material vendors as to their preparedness for the Year 2000 and
has disclosed in the Registration Statement or Prospectus any issues that might
reasonably be expected to result in any Material Adverse Change.
(x) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(y) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and after receipt of payment
for the Shares will not be, an "investment company" or an entity "controlled" by
an "investment company" within the meaning of the Investment Company Act and
will conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(z) Insurance. The Company is insured by recognized, financially sound
and reputable institutions with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for its businesses including, but not limited to, policies covering
real and personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and earthquakes, general liability and Directors
and Officers liability. The Company has no reason to believe that it will not be
able (i) to renew its existing insurance coverage as and when such policies
expire or (ii) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct its business as now conducted and at a cost
that would not result in a Material Adverse Change. The Company has not been
denied any insurance coverage which it has sought or for which it has applied.
(aa) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers that might be expected to result in
a Material Adverse Change.
(bb) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(cc) Lock-Up Agreements. Each officer and director of the company and
each beneficial owner of one or more percent of the outstanding issued share
capital of the Company has agreed to sign an agreement substantially in the form
attached hereto as Exhibit A (the "Lock-up Agreements"). The Company has
provided to counsel for the Underwriters a complete
7.
<PAGE> 8
and accurate list of all securityholders of the Company and the number and type
of securities held by each securityholder. The Company has provided to counsel
for the Underwriters true, accurate and complete copies of all of the Lock-up
Agreements presently in effect or effected hereby. The Company hereby represents
and warrants that it will not release any of its officers, directors or other
stockholders from any Lock-up Agreements currently existing or hereafter
effected without the prior written consent of BancBoston Robertson Stephens Inc.
(dd) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any other person required to
be described in the Prospectus which have not been described as required.
(ee) No Unlawful Contributions or Other Payments. Neither the Company
nor, to the best of the Company's knowledge, any employee or agent of the
Company, has made any contribution or other payment to any official of, or
candidate for, any federal, state or foreign office in violation of any law or
of the character required to be disclosed in the Prospectus.
(ff) Environmental Laws. (i) The Company is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
(gg) ERISA Compliance. The Company and any "employee benefit plan" (as
defined under the Employee Retirement Income Security Act of 1974, as amended,
and the regulations and published interpretations thereunder (collectively,
"ERISA")) established or maintained by the Company or its "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company is a member. No
"reportable event" (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established or
maintained by the Company or any of its ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company or any of its ERISA Affiliates,
if such "employee benefit plan" were terminated, would have any "amount of
unfounded benefit liabilities" (as defined under ERISA). Neither the Company nor
any of its ERISA Affiliates has incurred or reasonably expects to incur any
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or
4980B of the Code. Each "employee benefit plan" established or maintained by the
Company or any of its ERISA Affiliates that is intended to be qualified under
Section 401(a) of the Code is so qualified and nothing has occurred, whether by
action or failure to act, which would cause the loss of such qualification.
8.
<PAGE> 9
(hh) Any certificate signed by an officer of the Company and delivered
to the Representatives or to counsel for the Underwriters shall be deemed to be
a representation and warranty by the Company to each Underwriter as to the
matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Shares set forth opposite their names on Schedule A. The purchase price per
Firm Share to be paid by the several Underwriters to the Company shall be $[___]
per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of Wilson
Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California (or at such
other place as may be agreed upon among the Representatives and the Company),
(i) on the third (3rd) full business day following the first day that Shares are
traded, (ii) if this Agreement is executed and delivered after 1:30 P.M., San
Francisco time, the fourth (4th) full business day following the day that this
Agreement is executed and delivered or (iii) at such other time and date not
later that seven (7) full business days following the first day that Shares are
traded as the Representatives and the Company may determine (or at such time and
date to which payment and delivery shall have been postponed pursuant to Section
8 hereof), such time and date of payment and delivery being herein called the
"Closing Date;" provided, however, that if the Company has not made available to
the Representatives copies of the Prospectus within the time provided in Section
2(g) and 3(e) hereof, the Representatives may, in their sole discretion,
postpone the Closing Date until no later that two (2) full business days
following delivery of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [___] Option Shares from the Company at the
purchase price per share to be paid by the Underwriters for the Firm Shares. The
option granted hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm Shares.
The option granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on Schedule A opposite the name of such Underwriter bears to the total number of
Firm Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
9.
<PAGE> 10
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in its sole judgment, has determined
is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized,
for their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as the Representatives
of the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered, a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY.
The Company further covenants and agrees with each Underwriter as
follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of
10.
<PAGE> 11
the Securities Act and (iii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Securities Act. If the Company elects to rely on Rule 462(b)
under the Securities Act, the Company shall file a Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b) under the
Securities Act prior to the time confirmations are sent or given, as specified
by Rule 462(b)(2) under the Securities Act, and shall pay the applicable fees in
accordance with Rule 111 under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt of
any comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many
11.
<PAGE> 12
copies of the Prospectus and any amendments and supplements thereto as the
Representatives may request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending [___](2) that satisfies the provisions of Section 11(a) of the Securities
Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
on during the period of 180 days from the date that the Registration Statement
is declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of
- -----------------
(2) Date of the end of the Company's first quarter ending after one year
following the "effective date of the Registration Statement" (as defined in Rule
158(c) under the Securities Act).
12.
<PAGE> 13
any such Common Shares and (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at the
date of the Prospectus and described in the Prospectus.
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No
Objection from the National Association of Securities Dealers, LLC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel; and the National Association
of Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus.
13.
<PAGE> 14
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Wilson Sonsini Goodrich & Rosati, counsel for the Company, substantially in
the form of Exhibit B attached hereto, dated the First Closing Date, or the
Second Closing Date, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as
to questions of law not involving the laws of the United States or the State of
California and the State of Delaware upon opinions of local counsel, and as to
questions of fact upon representations or certificates of officers of the
Company and of government officials, in which case their opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
(e) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Brobeck, Phleger & Harrison LLP, substantially in the form of Exhibit
C hereto. The Company shall have furnished to such counsel such documents as
they may have requested for the purpose of enabling them to pass upon such
matters.
(f) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
Pricewaterhouse Coopers LLP addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and Regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the "Original
Letter"), but carried out to a date not more than four (4) business days prior
to the First Closing Date or the Second Closing Date, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the First Closing Date or the Second
Closing Date, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in the
Original Letter since the date of such letter, or to reflect the availability of
more recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. The
Original Letter from Pricewaterhouse Coopers LLP shall be addressed to or for
the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the consolidated
balance sheet of the Company as of December 31, 1998 and related consolidated
statements of operations, shareholders' equity, and cash flows for the twelve
(12) months ended December 31, 1998, [(iii) state that PricewaterhouseCoopers
LLP has performed the procedures set out in Statement on Auditing Standards No.
71 ("SAS 71") for a review of interim financial information and providing the
report of Pricewaterhouse Coopers LLP as described in SAS 71 on the financial
statements for each of the quarters in the ____-quarter period ended
________________, ___
14.
<PAGE> 15
(the "Quarterly Financial Statements"), (iv) state that in the course of such
review, nothing came to their attention that leads them to believe that any
material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in compliance with generally accepted
accounting principles consistently applied across the periods presented,] and
address other matters agreed upon by Pricewaterhouse Coopers LLP and you. In
addition, you shall have received from Pricewaterhouse Coopers LLP a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of December 31, 1999, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(g) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the First Closing Date
or the Second Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto contained all material information required to be
included therein by the Securities Act, and in all material respects
conformed to the requirements of the Securities Act, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
did not and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and, since the effective
date of the Registration Statement, there has occurred no event required
to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been (a) any
material adverse change in the condition (financial or otherwise),
earnings, operations or business of the Company considered as one
enterprise, (b) any transaction that is material to the Company, except
transactions entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the Company,
incurred by the Company, except obligations incurred in the ordinary
course of business, (d) any change in the capital stock or outstanding
indebtedness of the Company that is material to the Company, (e) any
dividend or distribution of any kind declared, paid or made on the
capital stock of the Company, or (f) any loss or damage (whether or not
insured) to the property of the Company which has been sustained or will
have been sustained which
15.
<PAGE> 16
has a material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company.
(h) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
Company, and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company.
(i) Stock Exchange Listing. The Shares shall have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(j) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(k) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expensesincurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable
16.
<PAGE> 17
fees and expenses of counsel for the Underwriters in connection with, the
National Association of Securities Dealers, LLC review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with listing the Common Shares
on the Nasdaq National Market, (ix) all costs and expenses incident to the
preparation and undertaking of "road show" preparations to be made to
prospective investors, and (x) all other fees, costs and expenses referred to in
[Item 13] [Item 14] of Part II of the Registration Statement. Except as provided
in this Section 5, Section 6, and Section 7 hereof, the Underwriters shall pay
their own expenses, including the fees and disbursements of their counsel.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 4 or Section 9, or if the
sale to the Underwriters of the Shares on the First Closing Date is not
consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as have terminated this Agreement with respect to
themselves), severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Representatives and the Underwriters in
connection with the proposed purchase and the offering and sale of the Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters.
(1) The Company agrees to indemnify and hold harmless each Underwriter,
its officers and employees, and each person, if any, who controls any
Underwriter within the meaning of the Securities Act and the Exchange Act
against any loss, claim, damage, liability or expense, as incurred, to which
such Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the Company
contained herein; or (iv) in whole or in part upon any failure of the Company to
perform its obligations hereunder or under law; or (v) any act or failure to act
or any alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Shares or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon any matter covered by clause
(i), (ii), (iii) or (iv) above, provided that the Company shall not be liable
under this clause (v) to the extent that a court of competent jurisdiction shall
have determined by a final judgment that such loss, claim,
17.
<PAGE> 18
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its bad faith
or willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that the foregoing indemnity agreement shall not apply to any loss, claim,
damage, liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto); and provided, further, that with respect to
any preliminary prospectus, the foregoing indemnity agreement shall not inure to
the benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The indemnity
agreement set forth in this Section 7(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use
18.
<PAGE> 19
in the Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) are the statements set forth in the
following paragraphs under the caption "Underwriting" in the Prospectus: the
first paragraph, including the table set forth therein, the second paragraph,
the seventh paragraph, including the table set forth therein, and the fourteenth
paragraph; and the Underwriters confirm that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (BancBoston Robertson Stephens Inc. in the case of Section
7(b) and Section 8), representing the indemnified parties who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than
19.
<PAGE> 20
30 days after receipt by such indemnifying party of the aforesaid request and
(ii) such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement, compromise or consent to the entry of judgment in
any pending or threatened action, suit or proceeding in respect of which any
indemnified party is or could have been a party and indemnity was or could have
been sought hereunder by such indemnified party, unless such settlement,
compromise or consent includes (i) an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such action,
suit or proceeding and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(f) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7(f) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (f), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 7(f)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
20.
<PAGE> 21
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Common Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase does not exceed 10% of the aggregate number of
the Shares to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the number of Firm Common Shares
set forth opposite their respective names on Schedule A bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the provisions of Section 4, and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representatives or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed
to include any person substituted for a defaulting Underwriter under this
Section 8. Any action taken
21.
<PAGE> 22
under this Section 8 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable or
inadvisable to market the Common Shares in the manner and on the terms described
in the Prospectus or to enforce contracts for the sale of securities; (iv) in
the judgment of the Representatives there shall have occurred any Material
Adverse Change; or (v) the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as in the
judgment of the Representatives may interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured. Any termination pursuant to this Section 9 shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to
the Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
XCare.net, Inc.
6400 S. Fiddler's Green Circle
22.
<PAGE> 23
Suite 540
Englewood, CO 80111
Facsimile: (303) 488-9705
Attention: Lorine Sweeney
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 7, and to their
respective successors, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Shares
as such from any of the Underwriters merely by reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not located in the
United States irrevocably appoints CT Corporation System, which currently
maintains a San Francisco office at 49 Stevenson Street, San Francisco,
California 94105, United States of America, as its agent to receive service of
process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City and
County of San Francisco.
(c) Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before
23.
<PAGE> 24
and after judgment) and execution to which it might otherwise be entitled in the
Specified Courts, and with respect to any Related Judgment, each party waives
any such immunity in the Specified Courts or any other court of competent
jurisdiction, and will not raise or claim or cause to be pleaded any such
immunity at or in respect of any such Related Proceeding or Related Judgment,
including, without limitation, any immunity pursuant to the United States
Foreign Sovereign Immunities Act of 1976, as amended.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
[The remainder of this page has been intentionally left blank.]
24.
<PAGE> 25
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company [and the Custodian] the
enclosed copies hereof, whereupon this instrument, along with all counterparts
hereof, shall become a binding agreement in accordance with its terms.
Very truly yours,
XCARE.NET, INC.
By:
-------------------------------------
Lorine Sweeney
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
E*OFFERING CORPORATION
S.G. COWEN SECURITIES CORPORATION
ADVEST, INC.
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
BY BANCBOSTON ROBERTSON STEPHENS INC.
By:
------------------------------------
Authorized Signatory
25.
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF FIRM COMMON
SHARES TO BE PURCHASED
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC..................................... [___]
E*OFFERING Corporation................................................ [___]
S.G. Cowen Securities Corporation.....................................
Advest, Inc...........................................................
[___]................................................................. [___]
[___]................................................................. [___]
[___]................................................................. [___]
Total......................................................... [___]
</TABLE>
S-B
<PAGE> 27
EXHIBIT A
LOCK-UP AGREEMENT
BancBoston Robertson Stephens Inc.
E*Offering Corporation
S.G. Cowen Securities Corporation
Advest, Inc.
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: XCare.net, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain
shares of Common Stock of the Company ("Common Stock") or securities convertible
into or exchangeable or exercisable for Common Stock. The Company proposes to
carry out a public offering of Common Stock (the "Offering") for which you will
act as the Representatives (the "Representatives") of the underwriters. The
undersigned recognizes that the Offering will be of benefit to the undersigned
and will benefit the Company by, among other things, raising additional capital
for its operations. The undersigned acknowledges that you and the other
underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees
that the undersigned will not offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners or
shareholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, (iii) with respect to
dispositions of Common Shares acquired on the open market, (iv) with respect to
sales or purchases of Common Stock acquired on the open market or (v) with the
prior written consent of BancBoston Robertson Stephens Inc., for a period
commencing on the date hereof and continuing to a date 180 days after the
Registration Statement is declared effective by the Securities and Exchange
Commission (the "Lock-up Period"). The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that included, relates to or derives any
A-1
<PAGE> 28
significant part of its value from Securities. The undersigned also agrees and
consents to the entry of stop transfer instructions with the Company's transfer
agent and registrar against the transfer of shares of Common Stock or Securities
held by the undersigned except in compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the
undersigned and the respective successors, heirs, personal representatives, and
assigns of the undersigned.
Dated
----------------------------------
----------------------------------
Printed Name of Holder
By:
------------------------------------
Signature
------------------------------------
Printed Name of Person Signing
(and indicate capacity of person
signing if signing as custodian,
trustee, or on behalf of an entity)
A-2
<PAGE> 29
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in
which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a Material Adverse
Effect. To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or other
entity;
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus under the caption "Capitalization" as
of the dates stated therein, the issued and outstanding shares of
capital stock of the Company have been duly and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, will not
have been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other
similar right;
(v) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been
duly authorized and, upon issuance and delivery against payment therefor
in accordance with the terms hereof, will be duly and validly issued and
fully paid and nonassessable, and will not have been issued in violation
of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right.
(vi) The Company has the corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally or by general equitable principles;
(viii) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act;
(ix) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm
Shares or the Option Shares have been
B-1
<PAGE> 30
validly registered under the Securities Act and the Rules and
Regulations of the Exchange Act and the applicable rules and regulations
of the Commission thereunder;
(x) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which
such counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects
with the requirements of the Act and the applicable Rules and
Regulations;
(xi) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by such counsel and is a fair
summary of such matters and conclusions; and the forms of certificates
evidencing the Common Stock and filed as exhibits to the Registration
Statement comply with Delaware law;
(xii) The description in the Registration Statement and the Prospectus
of the charter and bylaws of the Company and of statutes are accurate
and fairly present the information required to be presented by the
Securities Act;
(xiii) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character
required to be described or referred to in the Registration Statement or
Prospectus or any Incorporated Document or to be filed as an exhibit to
the Registration Statement or any Incorporated Document which are not
described or referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result
in a material breach or violation of any of the terms and provisions of,
or constitute a default under, any bond, debenture, note or other
evidence of indebtedness, or any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party or by
which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency or
body having jurisdiction over the Company, or over any of their
properties or operations;
(xv) No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body having
jurisdiction over the Company, or over any of its properties or
operations is necessary in connection with the consummation by the
Company of the transactions herein contemplated, except (i) such as have
been obtained under the Securities Act, (ii) such as may be required
under state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriters, (iii)
such as may be required by the National Association of Securities
Dealers, LLC and (iv) such as may be required under the federal or
provincial laws of Canada;
(xvi) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company of a character
required to be disclosed in
B-2
<PAGE> 31
the Registration Statement or the Prospectus by the Securities Act,
other than those described therein;
(xvii) To such counsel's knowledge, the Company is not presently (a) in
material violation of its respective charter or bylaws, or (b) in
material breach of any applicable statute, rule or regulation known to
such counsel or, to such counsel's knowledge, any order, writ or decree
of any court or governmental agency or body having jurisdiction over the
Company, or over any of its properties or operations; and
(xviii)To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Company Shares or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company
having rights known to such counsel to registration of such shares of
Company Shares or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent
to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full
satisfaction of such rights.
(xix) The Company is not and, after giving effect to the offering and
the sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended.
(xx) To such counsel's knowledge, the Company has not received any
notice of infringement or conflict with asserted Intellectual Property
Rights of others, which infringement or conflict, if the subject of an
unfavorable decision, would result in a Material Adverse Effect.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements including supporting schedules and
other financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the First Closing
Date or the Second Closing Date, as the case may be, the Registration Statement,
the Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
B-3
<PAGE> 32
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Firm Shares have been duly authorized and, upon issuance and
delivery and payment therefor in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and
non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement
has become effective under the Act and, to such counsel's knowledge, no
stop order proceedings with respect thereto have been instituted or
threatened or are pending under the Securities Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Shares
have been validly registered under the Securities Act and the Rules and
Regulations of the Exchange Act and the applicable rules and regulations
of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
Such counsel shall state that such counsel has reviewed the
opinion addressed to the Representatives from Wilson, Sonsini, Goodrich &
Rosati, dated the date hereof, and furnished to you in accordance with the
provisions of the Underwriting Agreement. Such opinions appear on their face to
be appropriately responsive to the requirements of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements including supporting schedules and
other financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the First Closing
Date or the Second Closing Date, as the case may be, the Registration Statement,
the Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
C-1
<PAGE> 1
EXHIBIT 5.1
February 8, 2000
XCare.net, Inc.
6400 S. Fiddler's Green Circle, Suite 500
Englewood, CO 80111
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission on November 2, 1999 (Registration No.
333-90165) (the "Registration Statement"), in connection with the registration
under the Securities Act of 1933, as amended, of up to 5,750,000 shares of your
Common Stock, par value $0.01 per share (the "Shares"). The Shares include an
over-allotment option granted to the underwriters of the offering to purchase
75,000 shares. We understand that the Shares are to be sold to the underwriters
of the offering for resale to the public as described in the Registration
Statement. As your legal counsel, we have examined the proceedings taken, and
are familiar with the proceedings proposed to be taken, by you in connection
with the sale and issuance of the Shares.
It is our opinion that the Shares have been duly authorized and that, upon
completion of the proceedings being taken or contemplated by us, as your
counsel, to be taken prior to the issuance of the Shares, including the
proceedings being taken in order to permit such transaction to be carried out in
accordance with applicable state securities laws, the Shares, when issued and
sold in the manner described in the Registration Statement and in accordance
with the resolutions adopted by the Board of Directors of the Company, legally
and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 10.5
DATED 30th December 1998
SOFTWARE LICENCE
MATCH HEALTH CARE (1)
SERVICES LIMITED
MPOWER SOLUTIONS INC (2)
LAWRENCE GRAHAM
190 Strand
London WC2R 11N
Tel: 0171-379 0000
Fax: 0171 379 6854
Ref: 0847658.01
<PAGE> 2
THIS AGREEMENT is made the 30th day of December 1998
BETWEEN:-
(1) MATCH HEALTHCARE SERVICES LIMITED whose registered office is at Jessica
House, Red Lion Square, 191 Wandsworth High Street, London, SW18 4LS
(the "Licensor"); and
(2) MPOWER SOLUTIONS INC, with its principal offices at 6400 South Fiddlers
Green Circle, Suite 540, Englewood, Colorado 80111 (the "Licensee")
WHEREAS:-
(A) The Licensor is the owner of a computer software product known as
Matchnet further details of which are set out in Schedule 1 (the
"Software").
(B) The Licensee wishes to acquire from the Licensor a licence to use modify
and sublicense the use of the Software in the Territory (as defined in
Schedule 3) and the Licensor is willing to grant such an agreement on
the terms of this agreement.
NOW IT IS HEREBY AGREED AS FOLLOWS:
1. GRANT OF LICENCE
1.1 In consideration of the payments to be made by the Licensor pursuant to
Clause 3 the Licensor hereby grants to the Licensee and the Licensee
hereby accepts the following exclusive licences in respect of the
healthcare market in the Territory (save as provided below) and
non-exclusive licences in respect of the non healthcare market in the
Territory each of which licences shall be non-transferable (the
"Licenses"):
1.1.1 a licence to use alter amend upgrade translate modify and enhance
the Software to integrate the Software with the Licensee's
software products;
1.1.2 a licence to market distribute and grant a sub-licence of the use
(but not to modify or further sub-licence the Software) of the
Software.
Provided that such exclusivity will forthwith cease and such licences shall
become non-exclusive on the expiry of 18 months from the Commencement Date if
the sales targets set out at Clause 5.1.1 are not achieved and where such sales
targets are achieved but the sales targets set out in Clause 5.1.2 are not
achieved then the
<PAGE> 3
exclusivity shall terminate at the end of 30 months from the Commencement Date.
Notwithstanding the above the exclusivity shall in any event forthwith terminate
on the expiry of 10 years from the Commencement Date.
1.2 The Licensor shall promptly following the signature of this Agreement
furnish the Licensee with one reproducible copy of the Software together
with its current (as at the date hereof) user manual written operating
instructions therefor.
2. TERM
The Agreements shall take effect on the date of the signature by the
parties of this Agreement ("the Commencement Date") and shall continue
thereafter until or unless terminated by either party pursuant to
Clause 11.
3. LICENCE FEE AND ROYALTIES
3.1 In consideration of the grant of the Licences the Licensee shall pay to
the Licensor:
3.1.1 the sum of US $850,000 (the "Initial Fee") in accordance with
Schedule 2; and
3.1.2 a sum equal to 17.5% of all sums received or paid to the Licensee
in respect of sales or licences granted by the Licensee of the
Software or any products sold or licences granted by the Licensee
in each year during the term of this Agreement (including in
respect of sales made prior to the termination of this Agreement,
and received after the termination of the Agreement) which
contain the Software (in whole or in part) ("Relevant Products)
such payments shall be made within 90 days of the date of the
Licensor's invoice therefor.
3.2 If any deduction or withholding is required by law in respect of any
payment due to the Licensor, the Licensee shall pay such additional
amounts as may be necessary to ensure that the Licensor receives a net
amount equal to the full amount which it would have received had the
payment not been subject to the withholding.
4. TECHNICAL ASSISTANCE
4.1 From the Commencement Date until the Licensee's first installation of
the Software with an end user the Licensor shall provide the Licensee
with all reasonable and necessary technical support (excluding
developmental programming) in connection with the operation of the
Software to facilitate the handover of an operational product ("the
Assistance") and shall during the 6
* Confidential Treatment Requested
<PAGE> 4
months following the signature of the Licensor's first licence of the
Software provide to the Licensee Assistance in connection with the
operation of the Software up to a maximum of 10 man days per month the
Assistance to be provided pursuant to this Clause 4.1 shall be free of
charge.
4.2 The Assistance to be provided pursuant to Clause 4.1 shall wherever
possible be provided remotely by or on behalf of the Licensor provided
that if in the reasonable opinion of the Licensor it is desirable or at
the request of the Licensee the Licensor may provide such assistance at
the premises of the Licensee in which case the Licensee shall pay all
costs reasonably incurred by the Licensor in respect of travel
subsistence and accommodation within 60 days of the date of the
Licensor's invoice in respect thereof.
4.3 If the Licensee requests any Assistance in excess of that to be provided
pursuant to Clause 4.1 then any such Assistance provided by the Licensor
will be at its then prevailing time and materials rates and otherwise on
terms to be agreed between the parties.
5. SALES TARGETS
5.1 The Licensee shall during the term of this Agreement attain the
following sales of the Relevant Products:-
5.1.1 during the first 18 months, from the Commencement Date the
Licensee shall achieve no less than $2,000,000 worth of sales of
the Relevant Products; thereafter
5.1.2 the Licensee shall achieve no less than $3,000,000 worth of sales
per year of the Relevant Products.
6. LICENCEES END-USERS
The Licensee shall ensure that the terms of its sub-licence to its
end-users contains a prohibition on granting any further licences or sub
licences in respect of the Software and to the maximum extent permitted
by applicable law not to modify or reverse engineer the Software and the
Licensee undertakes to the Licensor that it will not distribute any
copies of the Software (in whole or in part) to any end user prior to
receiving its written acceptance of such prohibition.
7. UNDERTAKINGS BY THE LICENCEE
The Licensee undertakes and agrees with the Licensor that it will at all
times
* Confidential Treatment Requested
<PAGE> 5
during the continuance in force of this Agreement and where applicable,
following termination hereof observe and perform the terms and
conditions set out in this Agreement and in particular;
7.1 will use at all times its best endeavours to promote and extend the
market for the Software to all potential licensees in the Territory and
work diligently to obtain the Sales Targets;
7.2 will at its own expense provide advertising and publicity for the
Software;
7.3 will not without the previous consent in writing of the Licensor be
concerned or interested either directly or indirectly in the production,
importation, sale, licensing or advertisement of any software which is
so like or similar to the Software as to be capable of restricting,
competing or otherwise interfering with or which might otherwise
restrict or interfere with the market for the Software;
7.4 will not incur any liability on behalf of the Licensor or in any way
pledge or purport to pledge the Licensor's credit or purport to make any
contract binding upon the Licensor;
7.5 will not alter, obscure, remove, conceal or otherwise interfere with any
eye-readable or machine-readable marking on the Software which refers to
the Licensor as author or developer of the Software or otherwise refers
to the Licensor's copyright or other intellectual property rights in the
software;
7.6 will permit any duly authorised representative of the Licensor upon
reasonable prior notice to enter into any of the Licensees' premises for
the purpose of ascertaining that the provisions of this Agreement are
being complied with by the Licensee;
7.7 will immediately bring to the attention of the Licensor any improper or
wrongful use of the Licensor's trade marks, intellectual or commercial
property rights which come to the notice of the Licensee and will in the
performance of its duties under this Agreement use every effort to
safeguard the property rights and interests of the Licensor and will at
the request and cost of the Licensor take all steps required by the
Licensor to defend such rights;
7.8 will during the continuance of the Agreement keep full accurate and
up-to-date details of the number of sales and the amount of revenue
payable and received and outstanding from sales of the Relevant Products
and shall on reasonable prior written notice permit an auditor or other
independent representative appointed by
<PAGE> 6
the Licensor to inspect such records at all reasonable times;
7.9 will on the Licensor's written request, provide to the Licensor a report
from the Licensee's external auditors certifying the accuracy of the
information submitted by the Licensee pursuant to Clause 7.8 provided
that the Licensor shall not request such a report more than once in any
period of 6 months during the Term.
7.10 will from time to time on request by the Licensor, supply to the
Licensor reports, returns and other information relating to the
Agreements; and
7.11 will at all times in good faith and not take any action which will
prejudice the prospects of the Licensor in relation to its entitlement
in respect of sale or licences of Relevant Products.
8. LIABILITY
Except to the extent that statute prevents liability from being lawfully
excluded in an Agreement of this nature and between the respective
parties hereto, any statement, representation, condition, warranty or
other term express or implied, statutory or otherwise, as to the
quality, merchantability, suitability or fitness for any particular
purpose of the Software is hereby excluded and the Licensor shall not be
liable to the Licensee or to any other persons by reason thereof or any
duty, statutory or otherwise, for any loss or damage (whether direct
indirect or consequential) arising directly or indirectly in connection
with the Software or any documentation manual provided by the licensor
to the licensee relating thereto.
9. COPYRIGHT, PATENTS, TRADE MARKS AND OTHER INTELLECTUAL PROPERTY RIGHTS
9.1 The Licensee acknowledges that any and all of the copyright trade marks
and other intellectual property rights subsisting in or used in
connection with the Software including all documentation and manuals
relating thereto are and shall remain the property of the Licensor and
the Licensee shall not during or at any time after the expiry or
termination of this Agreement in any way question or dispute the
ownership thereof by the Licensor.
9.2 The Licensee also acknowledges that such copyright trade marks and other
rights belonging to the Licensor may only be used by the Licensee with
the consent of the Licensor and during this Agreement.
9.3 The Licensee shall not during or after the expiry or termination of this
Agreement,
<PAGE> 7
without the prior written consent of the Licensor, use or adopt any
name, trade name, trading style or commercial designation that includes
or is similar to or may be mistaken for the whole or any part of any
trade mark trade name, trading style or commercial designation used by
the Licensor.
10. CONFIDENTIALITY
10.1 Except as provided by Clause 10.2 each party shall at all times during
the continuance of this Agreement and thereafter:
10.1.1 use its best endeavours to keep all Restricted Information
(which for the purpose of this Agreement means any confidential
information which is disclosed by either part to the other
pursuant to or in connection with this Agreement (whether orally
or in writing and whether or not such information is expressly
stated to be confidential or marked as such) of the other party
confidential and accordingly not to disclose any of the other
party's Restricted Information to any other person; and
10.1.2 not use any of the other party's Restricted Information for any
purpose other than the performance of its obligations under this
Agreement.
10.2 Any Restricted Information of each party may be disclosed by the other
party (the "Disclosing Party") to:
10.2.1 any governmental or other authority or regulatory body; and
10.2.2 any employees of the Disclosing Party or of any of the
aforementioned persons;
to such extent only as is necessary for the purposes contemplated by
this Agreement or as is required by law and subject in each case to the
Disclosing Party using all reasonable endeavours to ensure that the
person in question keeps the same confidential and does not use the same
except for the purposes for which the disclosure was made.
11. TERMINATION
11.1 Notwithstanding any provisions herein contained this Agreement may be
terminated forthwith by either party by notice in writing from the party
not at fault if any of the following events shall occur:-
11.1.1 if the other party shall at any time be in default under this
Agreement
<PAGE> 8
and shall fail to remedy such default (if capable of remedy) within
thirty (30) days from receipt of notice in writing from the first party
specifying such default;
11.1.2 if the other party shall commit any act of bankruptcy, shall
have a receiving order made against it, shall make or negotiate
for any composition or arrangement with or assignment for the
benefit of its creditors or if the other party being a body
corporate, shall present a petition or have a petition presented
by a creditor for its winding up or shall enter into any
liquidation (other than for the purpose of reconstruction or
amalgamation), shall call any meeting of its creditors, shall
have a receiver of all or any of its undertakings or assets
appointed, shall be deemed by virtue of the relevant statutory
provisions under the applicable law to be unable to pay its
debts, or shall cease to carry on business;
may be so terminated by the Licensor if any of the following events
shall occur:-
11.1.3 non-payment of any sum payable under this Agreement to the
Licensor by its due date for payment; and
11.1.4 the Licensee fails to meet the sales targets pursuant to Clause
5.
11.2 The expiry or termination of this Agreement shall be without prejudice
to the rights of the parties accrued up to the date of such expiry or
termination.
11.3 Upon the termination of this Agreement the Licensee shall at the request
of the Licensor and within 30 days thereof transfer or assign to the
Licensor all Licences with its end users relating to the Software.
12. INTEREST
The Licensee shall pay to the Licensor interest on any amount payable to
the other hereunder which is not paid within 30 days of the day on which
it falls due at a rate equal to 2% per annum over LIBOR (which for the
purposes of this Agreement shall mean (i) the rate for US dollar
deposits for that period which appears on the Telerate page 3750 (or
such other page as may replace that page for the purpose of displaying
offered rates of lending banks for London inter-bank deposits as
aforesaid) at or about 11 am on the first day of that period or (ii)
such other rate as may be agreed between the Licensor and the Licensee
both before and after judgement until the date of payment.
<PAGE> 9
13. WAIVER
Failure or neglect by the Licensor to enforce at any time any of the
provisions hereof shall not be construed nor shall be deemed to be a
waiver of the Licensor's rights hereunder nor in any way affect the
validity of the whole or any part of this Agreement nor prejudice the
Licensor's rights to take subsequent action.
14. ASSIGNMENT OR TRANSFER
This Agreement shall not be assigned by the Licensee in whole or in
part, to any party without the prior written consent of the Licensor not
to be unreasonably withheld.
15. AGREEMENT
This Agreement supersedes any arrangements, understandings, promises or
licences made or existing between the parties and constitutes the entire
understanding between the parties. Except as otherwise provided herein,
no addition, amendment to or modification of this Agreement shall be
effective unless it is in writing and signed by and on behalf of both
parties.
16. NOTICES
16.1 Any notice by either party to be given hereunder shall be delivered or
sent by first class post or by facsimile transmission (such facsimile
transmission notice to be confirmed by letter posted within 12 hours) to
the address or to the facsimile number of the party set out below (or
such other address or numbers as may have been notified) and any such
notice or other document shall be deemed to have been served (if
delivered) at the time of delivery (if sent by post) upon the expiration
of 48 hours after posting and (if sent by facsimile transmission) upon
the expiration of 12 hours after dispatch.
Notices to Licensor:
Address: Jessica House, Red Lion Square,
191 Wandsworth High Street,
London, SW18 4LS
Facsimile Number: 0181 875 9720
Attention of: Company Secretary
<PAGE> 10
Notices to Licensee:
Address: 6400 South Fiddlers Green Circle,
Suite 540, Englewood,
Colorado 80111
Facsimile Number: 001 303 488 9705
Attention of: Lorine Sweeney
The Licensee appoints Lorine Sweeney to accept service on its behalf of
any suit action or proceedings arising out of or in connection with the
Agreement which may be commenced pursuant to this Agreement.
17. ANNOUNCEMENTS/PRESS RELEASES
Save as required by law or any relevant regulatory authority, no
announcement or press release concerning this Agreement shall be made by
the Licensee without the prior written approval of the Licensor.
18. COSTS
Each of the Licensee and the Licensor shall bear its own costs incurred
in the negotiation or preparations of this Agreement.
19. HEADINGS
The headings of the paragraphs of this Agreement are inserted for
convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
20. SEVERABILITY
In the event that any or any part of the terms, conditions or provisions
contained in this Agreement shall be determined by any competent
authority to be invalid, unlawful or unenforceable to any extent such
term, condition or provision shall to that extent be severed from the
remaining terms, conditions and provisions which shall continue to be
valid and enforceable to the fullest extent permitted by law.
21. LAW
The parties hereby agree that this Agreement and the provisions hereof
shall be governed and construed in accordance with English Law and the
parties hereby submit to the non-exclusive jurisdiction of the English
courts in relation to any dispute arising in connection with the
Agreement.
<PAGE> 11
AS WITNESS the hands of the duly authorised representatives of the
parties hereto the day and year first before written
SIGNED by )
)
duly authorised )
for and on behalf of )
MATCH HEALTHCARE )
SERVICES LIMITED )
in the presence of: )
SIGNED by )
duly authorised ) /s/ Lorine Sweeney
for and on behalf of ) President and CEO
MPOWER SOLUTIONS INC. )
in the presence of: ) /s/ Jennifer A. Scott
<PAGE> 12
SCHEDULE 1
The Software
The Software consists of the Matchnet software.
<PAGE> 13
SCHEDULE 2
Initial Fee
1. Initial Payment
US $[*] on or before February 1999;
2. Payment Terms for Balance
US $[*] which shall be paid by applying the royalties payable
pursuant to Clause 3.1.2 until such sum (together with accrued interest)
has been paid in full. Thereafter the royalties shall be payable in
accordance with Clause 3.1.2. If at the expiry of 18 months from the
Commencement Date there is any part the US $[*] (or interest
thereon) unpaid the Licensee shall forthwith pay all such sums to the
Licensor by single payment.
3. Interest
Subject to Clause 12, interest shall accrue on all the sums referred to
above at the rate of 1 per cent above LIBOR from the Commencement Date
to the date of payment.
* Confidential Treatment Requested
<PAGE> 14
SCHEDULE 3
The Territory
The Territory is the healthcare and non-healthcare markets in the United
States of America
<PAGE> 1
EXHIBIT 10.6
MASTER AGREEMENT
BETWEEN
MPOWER SOLUTIONS, INC.
AND
METHODIST CARE, INC.
MPOWER MASTER AGREEMENT PAGE 1
<PAGE> 2
MASTER AGREEMENT
THIS MASTER AGREEMENT (the "Agreement"), effective February 4, 1999 (the
"Effective Date"), between MPOWER SOLUTIONS INC., a Delaware corporation with
its principal place of business located at 6400 S. Fiddler's Green Circle, Suite
540, Englewood, CO 80111 ("MPOWER") and Methodist Care, Inc., a Texas licensed
Health Maintenance Organization ("HMO") with its principal place of business
located at Two Greenway Plaza, Suite 500, Houston, TX 77046 ("Customer") sets
forth the promises of the parties with respect to the products and services of
MPOWER which are described in this Agreement.
WHEREAS, MPOWER is in the business of providing automated managed health care
information software and services to businesses providing managed health care
and insurance services, and desires to provide such services and software to
Customer, subject to the terms hereof; and
WHEREAS, Customer is a Texas licensed HMO and desires to use the software and
services provided by MPOWER, subject to the terms hereof.
NOW THEREFORE, in consideration of the mutual promises made, the terms and
conditions hereunder described and other valuable consideration, the parties
agree as follows:
I. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
A. CPI
"CPI" shall mean the Consumer Price Index for All Urban Consumers, U.S.
City Average, for All Items (1982-1984=100), as published by the Bureau
of Labor Statistics of the U.S. Department of Labor. If the Bureau of
Labor Statistics ceases to publish or substantially changes the
content, calculation or format of the CPI, the parties will substitute
another comparable index published by a mutually agreeable source;
provided, however, that if the change is merely to redefine the base
period to some other period, the parties will continue to use the
affected index but will convert either the current or prior level of
such index to the same basis as the other by using an appropriate
conversion factor.
B. DOCUMENTATION
"Documentation" shall mean the standard operational instructions,
manuals and related material regarding MPOWER Products (as defined
below) which MPOWER will deliver to Customer as set out in the
Attachments to this Agreement.
MPOWER MASTER AGREEMENT PAGE 2
<PAGE> 3
C. MPOWER(R) Product(s)
"MPOWER(R) Product(s)" shall mean those products which MPOWER will
deliver to Customer as set out in the Attachments to this Agreement.
D. Release
"Release" shall mean a set of computer programs and/or associated
Documentation regarding an MPOWER Product which MPOWER makes available
for use by its customers who are covered under warranty or a
maintenance agreement regarding such MPOWER Product. MPOWER reserves
the right to charge an additional license fee for any optional modules
which MPOWER reasonably determines contains significant additional
functionality. Such significant additional functionality shall mean (a)
new modules or subsystems that are not a mere enhancement nor extension
of existing functionality, which enhancements and extensions are
covered under maintenance agreements, or Go) different hardware,
operating system platforms or databases. The major modules and/or
functionality initially covered under this Agreement are listed in
Exhibit F to the applicable Attachment to this Agreement.
E. Site(s)
"Site(s)" shall mean the physical location(s) at which Customer
conducts its business.
F. Live Production Environment
A live production environment ("Live Production Environment") is
defined whereby MPOWER(R) is managing on-line the enrollment and
processing of subscribers or members, and, at a minimum, one line of
business,
G. Plan(s)
A "Plan" shall mean a health benefit plan which Customer or a Plan
Sponsor is offering.
H. Enrollee.
"Enrollee" shall mean an individual who is currently enrolled in a Plan
entitled to receive Covered Services or who has been enrolled in a Plan
at some time during the then-previous twelve (12) months, whether or
not such covered Enrollee has presented a valid claim to such Plan.
I. Covered Services
"Covered Services" shall mean those healthcare or related benefits that
an Enrollee is entitled to receive from a Participating Provider or
other Provider pursuant to the applicable Enrollee Group Benefits
Agreement.
MPOWER MASTER AGREEMENT PAGE 3
<PAGE> 4
J. Participating Provider
"Participating Provider" means Provider that has entered into an
agreement with Customer or Customer's customer to provide Covered
Services to Enrollees.
K. Group Benefits Agreement
"Group Benefits Agreement" means the document distributed by Customer
to its Enrollees describing all Covered Services in a Plan.
L. Work Order
"Work Order" shall mean a document that is separately executed by both
parties, that (a) describes a scope of services that Customer wishes
MPOWER to perform for Customer, (b) authorizes and obligates MPOWER to
perform such services for Customer, and (c) obligates Customer to pay
for such services, all under the terms of that separate document, and
which document, when executed, is incorporated and made part of this
Agreement.
M. Derivative Work
"Derivative Work" shall mean any computer program, application,
interface or related documentation that is based on an MPOWER. Product,
or any component part thereof, that is used or intended to be used as a
commercial software product or as a competitive product to MPOWER.
N. Source Code
"Source Code" shall mean the commonly accepted source code of a
computer program describing in a formal language certain logic
functions, from which source code a computer program is compiled or
interpreted to perform certain functions in a computer.
O. Object Code
"Object Code" shall mean the commonly accepted object code of a
computer program, which is that version of the computer program logic
that has been translated from the Source Code into instructions that
can be run directly within a computer in a predefined operating system
environment.
P. Plan Sponsor
"Plan Sponsor" shall mean the health plan, organization or legal person
that offers a Plan either directly or through another organization or
legal entity to Enrollees.
MPOWER MASTER AGREEMENT PAGE 4
<PAGE> 5
Q. Provider
"Provider" shall mean a medical services provider, clinic, laboratory
or other institution or facility that customarily provides Covered
Services or other medical, surgical, laboratory, radiology, therapies,
alternative medical services or any other commonly accepted services of
a medical or medically related nature, whether licensed or unlicensed,
to Enrollees of Customer or Customer's customers.
R. Claim Transaction
"Claim Transaction" shall mean a medical, surgical, laboratory,
radiology, therapy or other service claim or encounter, whether for a
Covered Service or any other service or product, submitted to Customer
by a Provider detailing services or products provided by such Provider
to an Enrollee.
S. Encounter File
"Encounter File" shall mean the codified output of one or more of the
aforementioned services performed by such Provider to an Enrollee,
resulting in claim transaction(s) to be processed.
T. "Life"("Lives")
"Life" ("Lives") shall mean an Enrollee or Member.
U. End User or Authorized User
"End User" or "Authorized User" shall mean all such authorized
individuals deemed by Customer to require access to the then current
release of MPOWER Product in Object Code form, based upon conformance
to the terms and conditions set forth in Paragraph II (Confidential and
Proprietary Information) of this Agreement.
V. Effective Date
"Effective Date" shall mean the date this Agreement is executed as
evidenced by the signature page included herein.
II. CONFIDENTIAL AND PROPRIETARY INFORMATION
MPOWER, on behalf of itself, its employees, agents, vendors,
successors, and assigns, agrees to keep in confidence all data relating
to Customer's business to which MPOWER
MPOWER MASTER AGREEMENT PAGE 5
<PAGE> 6
may have access as a result of performing its obligations under this
Agreement and the terms of this Agreement.
MPOWER asserts and Customer acknowledges that all MPOWER Products,
structural definitions, the Documentation and the Releases, and a11
information, data, designs, system setups, benefit plans, provider
contracts, fee groups, ad hoc reports, letter formats, sample letter
content, business process workflow diagrams, and any other structural
templates and other similar information provided by MPOWER, developed
by or in conjunction with MPOWER, and used by MPOWER in assisting
Customer in the installation, implementation or on-going use of the
MPOWER Product, and methodologies related thereto ("Proprietary
Information") are the exclusive property of MPOWER or MPOWER's
suppliers and that the Proprietary Information is confidential, has
tangible value and includes trade secret information of MPOWER and/or
MPOWER's suppliers. MPOWER and/or MPOWER's suppliers shall retain all
fights to the Proprietary Information, including all copyright rights
therein, except to the extent to which MPOWER grants rights to Customer
to use the Proprietary Information pursuant to this Agreement. Customer
may not create Derivative Works based upon the Proprietary Information
in whole or in part. All improvements, enhancements and modifications
to the Proprietary Information shall be owned exclusively by MPOWER or
MPOWER's suppliers. Without MPOWER's prior written consent, Customer
shall not decompile, disassemble or reverse engineer any Proprietary
Information.
Customer agrees not to sell, lease, assign or otherwise transfer,
disclose or make available, in whole or in part, any portion of the
Proprietary Information or the terms of this Agreement and Customer
shall prevent disclosure of any part of the Proprietary Information or
the terms of this Agreement to any third party for any reason (except
for disclosure or access to Customer's employees, contracted entities,
external auditors, Federal or State agencies, or Customer's customers
which is necessary for Customer to be able to use the Proprietary
Information in accordance with this Agreement). Customer agrees to
notify those employees, contracted entities, external auditors, Federal
or State agencies or customers to whom Customer gives access to the
Proprietary Information of the restrictions contained in this Section
II and to ensure their compliance with such restrictions.
The duties and obligations which are included in this Section II shall
survive any termination of this Agreement and/or Customer's right and
license to use any MPOWER Product.
If Customer desires to disclose any Proprietary Information to any
third party or to permit any third party to have access to any
Proprietary Information, such third party must have a legitimate need
to have access to such Proprietary Information (consistent with the
purpose[s] for which such disclosure was made to Customer) and, prior
to any such disclosure or access, Customer and such third party must
enter into a nondisclosure agreement as attached herein. In no event
shall Customer disclose any Proprietary Information to any competitor
of MPOWER.
MPOWER MASTER AGREEMENT PAGE 6
<PAGE> 7
Notwithstanding the above, Customer and MPOWER. acknowledge that the
MPOWER Product structural definitions of any system setups, benefit
plans, provider contracts, fee groups, ad hoc reports, letter formats,
sample letter content, workflow diagrams of Customer business
processes, and any other structural templates, that have been provided,
developed, reviewed or verified in whole or in part by or with the
support of MPOWER, its employees or agents, do not constitute
Proprietary Information of Customer within the meaning of this Section
II; provided, however, that specific provider and benefit contract
rates, benefit plans, workflow diagrams of Customer business processes,
the names, demographic information, contractual relationships, and
medical information of any group, member, provider or other entity with
a contractual relationship with Customer shall be considered
Proprietary Information of Customer or of such other entity contracted
with Customer, unless such information is available through public
sources or through publicly available filings with any insurance or
health care regulatory agency or with any industry accreditation or
reporting body.
Further notwithstanding the above, Customer and MPOWER acknowledge that
Customer may create and distribute reports and data from its licensed
use of the MPOWER Products in the normal course of its business to its
customers, to health care providers, Enrollees, employers or Plan
Sponsors, government agencies and others with a legitimate purpose in
the conduct of the Customer's business and the data processed by the
licensed MPOWER Products, and that such reports and distributed data do
not constitute Derivative Works, unless they are used to create
commercial software products for reuse and / or license to other
parties.
Customer "Confidential Information" shall mean this Agreement and any
information of the Customer that is disclosed in any form or manner,
whatsoever by Customer to MPOWER. MPOWER's licensed products, pricing
and written documentation. Except for member/enrollee information,
Confidential Information does not include any particular information
which the recipient of such information can demonstrate: (a) was, at
the time of disclosure to it, in the public domain; (b) after
disclosure to it, is published or otherwise becomes part of the public
domain through no fault of the recipient; (c) was received after
disclosure to it from a third party who had lawful right to disclose
such information to it. ALL CUSTOMER EMPLOYEE AND MEMBER/ENROLLEE
INFORMATION, INCLUDING MEDICAL AND BILLING INFORMATION, IS CONFIDENTIAL
INFORMATION, AND THE FOREGOING EXCLUSIONS SHALL NOT APPLY TO SUCH
INFORMATION.
Notwithstanding anything herein to the contrary, in the event Customer
requests MPOWER to develop a module that is separate from MPOWER's
application and provided that such development is agreed to in advance
in writing with MPOWER as a designated "Proprietary Methodist Care
Module" and Customer funds substantially all of the development costs
for the module, MPOWER will develop such a mutually agreed to module
for Customer. If MPOWER desires to market to or utilize this
"Proprietary MethodistCare Module" for any other Customer(s), MPOWER
will pay Customer on an annual basis 10% of all revenues
MPOWER MASTER AGREEMENT PAGE 7
<PAGE> 8
associated with the Proprietary MethodistCare Module. These payments
will be made until Customer has recouped 100% of its associated
development costs.
III. COPYING
Customer, for each licensed instance of the MPOWER Product being used
in a Live Production Environment, may make one (I) copy of each MPOWER
Product in machine-readable form in a test region for the purpose of
testing new releases or fixes and also one (1) copy of each MPOWER
Product in machine-readable form for backup purposes only. Customer
agrees that upon copying any MPOWER Product, Customer shall place a
label on the outside of each copy medium showing the program name,
version number and any/all copyright and proprietary notices in the
same form as contained on the original copy.
In addition, Customer may make automated backup copies of its
production and testing regions for operational backup purposes without
applying the above labels, provided that such operational backup copies
are maintained with the acceptable industry standard security measures
and not made available to outside parties except for the case of
disaster recovery purposes, in which case the disaster recovery agent
will be bound to all the confidentiality and Proprietary Information
restrictions to which Customer is bound hereunder, and further that no
such disaster recovery agent may be a competitor of MPOWER.
IV. SOURCE CODE ESCROW
At the request of Customer, MPOWER and Customer will enter into an
agreement with MPOWER's escrow agent ("Custodian") for the depositing
of the MPOWER Products' Source Code ("Source Code Copy"). [The current
Custodian is NORWEST Bank.] MPOWER shall notify Customer at least ten
(10) business days prior to a change in the entity identified as the
Custodian. Subject to Customer's payment of all fees due under this
Agreement in accordance with the applicable payment terms and
Customer's payment of all fees related to Custodian's administration of
said escrow (the current rate as of the date of this Agreement being
One Thousand Five Hundred ($1,500.00) Dollars per annum), the Source
Code Copy so deposited will be maintained during the period Customer
shall use and purchase, and MPOWER shall provide, software, are
maintenance services for the particular MPOWER Product. The Source Code
Copy will be updated by MPOWER within thirty (30) days after each new
Release of the particular MPOWER Product.
The parties agree that the Source Code Copy shall be held by the
Custodian for delivery to Customer under the conditions that this
Agreement is terminated as a result of a material breach of the terms
of this Agreement by MPOWER, MPOWER files for bankruptcy under Chapter
7, or its business is not continued by virtue of a merger,
consolidation, the sale of
MPOWER MASTER AGREEMENT PAGE 8
<PAGE> 9
all or substantially all of its assets, or through some other
transaction by another corporation or entity, and the Custodian of the
Source Code has received from Customer or from MPOWER, or from a court
of competent jurisdiction: (i) written notification of any such event
or condition; (ii) demand that a copy of the Source Code Copy be mailed
to Customer; (iii) written undertaking from Customer, which shall be
legally binding, that the copy of the Source Code Copy to be supplied
to Customer will be licensed to Customer as a Perpetual Source Code
License for internal Customer use only; and (iv) specific instructions
from Customer for the delivery of a copy of the Source Code Copy, with
a copy of such instructions to MPOWER. Customer has the right to use
the MPOWER Perpetual Source Code License indefinitely and to modify
Source Code to meet future business needs. Customer will pay the costs
and expenses of the Custodian in carrying out the requirements of this
Section IV.
Source Code Escrow Agreement. Upon receipt of all applicable fees from
Customer associated with said escrow, MPOWER acknowledges that it shall
deliver to Norwest Bank, an escrow agent (the "Escrow Agent") the
Source Code for MPOWER Release. During the term of the license for the
MPOWER Release granted in this Agreement, MPOWER shall deliver to the
Escrow Agent all modifications of the said Source Code so as to ensure
that the Source Code in possession of the Escrow Agent represents at
all times the most current version of MPOWER Release being operated by
Customer.
In addition, if Customer uses the MPOWER Product Source Code, it will
only be for the purposes for which the Object Code is licensed under
this Agreement and not for re-license, reverse engineering or to create
a derivative product. The Confidential and Proprietary Information
provisions of Section II apply also to the Source Code.
V. TERM AND TERMINATION
This Agreement is valid for an initial period of five (5) years from
the Effective Date. After the initial period this Agreement will renew
annually for one (1) year terms unless Customer provides ninety (90)
days prior notice of its intent not to renew.
Should Customer fail to pay may sum due and payable under this
Agreement, MPOWER shall notify Customer in writing of such failure to
pay. Customer shall then have thirty (30) days from the delivery of
MPOWER's written notice to pay such amount(s). The foregoing sentence
in no way relieves Customer from its obligation to pay any and all late
charges which may become due as set forth in Section VI below. If
payment is not made within such thirty (30) days, MPOWER shall have the
immediate right to discontinue any and all services under this
Agreement. Furthermore, if payment is not made within sixty (60) days
from the delivery of MPOWER's written notice, MPOWER shall have the
immediate right to terminate this Agreement.
Should either party commit a material breach of its obligations under
this Agreement, other than failing to pay money, the non-breaching
party may notify the breaching party in
MPOWER MASTER AGREEMENT PAGE 9
<PAGE> 10
writing, setting out the breach, and the breaching party shall have
thirty (30) days to remedy such breach. If the breaching party fails to
remedy the breach during this thirty (30) day period, or, with respect
to those breaches which cannot reasonably be remedied within thirty
(30) days, if the breaching party fails to proceed promptly after being
given such notice to commence remedying the breach and thereafter to
proceed to remedy the same, the other party shall have the right to
terminate this Agreement, provided such party gives the breaching party
thirty (30) days' prior written notice to that effect. Notwithstanding
the foregoing, either party shall have the fight to immediately
terminate this Agreement upon any breach by the other of its
obligations under Section II above.
Termination of this Agreement shall be without prejudice to all accrued
rights and remedies either party may have and shall not affect any
continuing rights and obligations of the parties under this Agreement.
Upon the termination of this Agreement and/or any Attachment to this
Agreement, Customer shall return to MPOWER all Proprietary Information
regarding the MPOWER Product whose license is being terminated, within
sixty (60) days after such termination and MPOWER shall return to
Customer any proprietary information obtained in the performance of
this Agreement within sixty (60) days after such termination.
VI. INVOICES AND CHARGES
Unless a specific payment date is set out in an Attachment to this
Agreement, Customer agrees to remit all payments under this Agreement
so that MPOWER shall receive such payments no later than thirty (30)
days from the date of receipt of MPOWER's invoice. Customer also agrees
that MPOWER shall have the right to charge interest of one and one-half
percent (1.5%) of the outstanding balance per month, or the highest
amount allowed by law, whichever is less, on any and all late payments,
and Customer agrees to pay such charges. All prices mentioned in this
Agreement are in U.S. Dollars. The parties agree that the prices set
out in this Agreement do not include any sales, use or gross receipts
taxes, any duties, any similar assessments, or any other tax imposed on
any party by virtue of this Agreement, all of which, excluding only
taxes based on MPOWER's income, shall be the sole liability of, and
shall be paid solely by, Customer.
VII. FORCE MAJEURE
Neither party shall be liable to the other for failing to fulfill any
obligation under this Agreement if such failure is caused by an event
which is beyond such party's reasonable control and which is not caused
by such party's fault or negligence, including without limitation, acts
of God, acts of war, rites, strikes, lightning, floods, epidemics,
civil unrest, power shortages, equipment failure, delays in
transportation, or either party's inability to
MPOWER MASTER AGREEMENT PAGE 10
<PAGE> 11
obtain necessary labor, material or components due to causes beyond
such party's reasonable control.
VIII. CUSTOMER RESPONSIBILITIES
A. Customer Responsibilities
Customer acknowledges that MPOWER(R) reflects certain interdependent
relationships, such as exist among the data variables, logic rules and
system functions of MPOWER(R). Customer further acknowledges that it is
required and has a .responsibility to understand such data variables,
logic rules and system functions, and their interdependent
relationships, and to define for its own purposes such data variables,
logic rules and system functions to MPOWER(R) in such a way that
MPOW'ER(R) will provide the functionality desired by Customer. Customer
acknowledges that it has or will hire and will maintain on its staff
personnel who are able to understand and define such data variables,
logic rules, system functions and interdependent relationships.
Customer further acknowledges that, even though MPOWER may assist
Customer personnel in performing these tasks, the responsibility for
the effective definition and maintenance of these data variables, logic
rules and system functions resides with Customer and not with MPOWER,
unless Customer specifically requests MPOWER to perform these tasks at
agreed upon rates specified in a Work Order.
B. Customer Data
Customer shall be responsible for inputting and ensuring the accuracy,
validity and completeness of all data variables, logic rules, system
functions and Customer data, including but not limited to group,
subscriber, member, provider, utilization, encounter, claims,
capitation, fund accounting, billing, collection, broker, benefits,
product contract, provider contract, provider fees, standard business
measures, and other similar or related data. Customer shall also be
responsible for inputting and ensuring, the accuracy, validity and
completeness of all user-defined report definitions, all report and
batch production job specifications and priority scheduling criteria.
Customer shall also be responsible for initiating, monitoring,
operating, printing and ensuring the accuracy, validity, and
completeness of all print outputs and file downloads, such as but not
limited to all reports, premium bills, checks, and the like,
determining how many and on what print stock such outputs are to be
printed or into which files or programs on Customer-controlled
computers such files are to be downloaded and manipulated, at
Customer's own initiative, responsibility and risk. Customer hereby
acknowledges 'responsibility for generally
MPOWER MASTER AGREEMENT PAGE 11
<PAGE> 12
controlling all aspects related to the production, distribution and
control of such outputs. Customer further acknowledges that,
notwithstanding the responsibility of MPOWER to have used due care and
diligence in the design, programming, documentation and operation of
the System, the accuracy of Customer's data base within MPOWER(R) and
the accuracy of the several outputs of the MPOWER(R), including but not
limited to, outputs that control the billing, receipt or expenditure of
monies, will be dependent on the accuracy and use of the data
variables, logic rules, system functions and Customer data input into
MPOWER(R) by Customer and verified by Customer.
C. Other Customer Obligations
In addition to its other obligations hereunder, Customer will on a
timely basis:
1. Communicate on a timely basis any significant changes in
general business operations or priorities, within 90 days from
such a change, which relate to MPOWER support of Customer.
Customer recognizes that changes in such priorities may result
in additional fees hereunder for additional staff, as
incremental support, or reordering of other priorities to
provide MPOWER services within the current fee structure.
2. Cooperate with MPOWER by, among other things, making
available, as reasonably requested by MPOWER, management
decisions, information, approvals, and acceptances in order
that MPOWER may properly accomplish its obligations and
responsibilities hereunder.
3. Carefully inspect and review all MPOWER generated reports and
other output and notify MPOWER of any incorrect reports or
output.
4. Personalize, maintain, reproduce and' distribute (solely for
Customer's internal use) procedure manuals and documentation
used by Customer personnel in connection with the M. POWER
services hereunder.
5. Train applicable Customer personnel to properly prepare input
for and to effectively utilize output from the systems
operated by MPOWER hereunder.
6. Pay all costs of acquisition, installation, use and
maintenance of equipment at Customer's site, as required for
the performance of MPOWER services.
7. Such other responsibilities as set forth herein.
Customer agrees that to the extent its failure to meet its obligations
set forth in this Section VIII affects the ability of M_POWER to
perform MPOWER's obligations under this Agreement, M_POWER shall be
relieved of such obligations and Customer shall not exert against
MPOWER any claims or liabilities arising out of such failure by
Customer.
MPOWER MASTER AGREEMENT PAGE 12
<PAGE> 13
D. Reprocessing or Reconstructing of Data
During any period of use of MPOWER(R), to the extent that any Customer
data must be corrected, recreated, restored or reprocessed due to the
fault or negligence of Customer, its employees or agents, or by a
breach by Customer of any of its obligations hereunder, MPOWER will do
so, and in such event Customer shall pay MPOWER at the service fee
rates outlined in an applicable Work Order and reimburse MPOWER for any
reasonable direct costs incurred by M_POWER in correcting, recreating,
restoring or reprocessing such data or in providing assistance
therewith.
IX. LIMITATION OF LIABILITY
PARTIES AGREE THAT THEY SHALL HAVE NO LIABILITY TO THE OTHER FOR
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, OR FOR LOSS OF USE OR OTHER COMMERCIAL
LOSS (INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUES AND/OR PROFITS),
HOWEVER OCCASIONED AND WHATEVER THE FORM OF ACTION, FOR ACTUAL OR
IMPUTED NEGLIGENCE, BREACH OF CONTRACT, BREACH OF WARRANTY OR
OTHERWISE.
FURTHERMORE, PARTIES AGREE THAT IN NO EVENT SHALL TIKE OTHER BE LIABLE
FOR DIRECT DAMAGES IN EXCESS OF:
A. ALL LICENSE AND MAINTENANCE FEES CUSTOMER SHALL HAVE
PAID MPOWER FOR THE PARTICULAR MPOWER PRODUCT WHICH IS
THE SUBJECT OF CLAIM.
The parties agree that no action, regardless of form, which may arise
out of the transactions under this Agreement may be brought by either
party more than one (1) year after the cause of action is known, or
ought reasonably to have been known, to the party bringing the action.
X. INFRINGEMENT
MPOWER agrees to defend, indemnify and hold Customer harmless against
any and all claims that any MPOWER Product infringes a U.S. Letter
Patent, copyright, trade secret or the proprietary rights of others,
provided that MPOWER shall have received timely written notice of any
such claim and that MPOWER shall have sole control of the defense of
such claim and all negotiations for the settlement or compromise of
such claim.
MPOWER MASTER AGREEMENT PAGE 13
<PAGE> 14
As of the date first written above, MPOWER warrants that it is not
aware of any infringement, and has not been notified by any third party
that it may be infringing, any U. S. Letter Patent, copyright, trade
secret or the proprietary rights of others.
If use of an MPOWER Product by Customer is enjoined, or becomes, or, in
MPOWER's sole opinion, is likely to become, the subject of a claim of
infringement, MPOWER will, at its option and expense, either:
1. procure for Customer the right to continue using the MPOWER
Product in question; or
2. replace or modify the same so that it is functionally equivalent
[i.e. the MPOWER Product will achieve the same or similar
business logic result] (or contains more functionality) and is
non-infringing.
Notwithstanding the foregoing, if MPOWER determines that neither of the
alternatives set forth above is reasonably available, MPOWER will
refund to Customer any un-amortized portion of the infringing MPOWER
Product's license fee which has then been paid by Customer.
Amortization shall be based upon a seven (7)-year life of the
infringing MPOWER Product, beginning on the date the infringing MPOWER
Product was licensed by Customer from MPOWER. Should such refund occur,
Customer agrees to return the infringing MPOWER Product to MPOWER.
Should any refund described above occur, the license for the infringing
MPOWER Product shall be terminated and MPOWER, its affiliates,
subsidiaries, assigns and successor corporations shall be released from
any and all liability arising from any and all claims, losses,
liabilities, damages, costs or deficiencies which are then-existing or
which may arise in the future with regard to such infringing MPOWER
Product(s) for which MPOWER has refunded fees pursuant to this Section
X.
Notwithstanding anything contained herein to the contrary, MPOWER shall
have no liability for any loss, cost, claim or expense caused by:
1. alteration of any MPOWER Product provided hereunder by any party
other than MPOWER;
2. any loss, expense or liability resulting from any infringement
which is a consequence of MPOWER's compliance with designs or
code submitted to MPOWER by Customer;
3. the use of any MPOWER Product in combination with products not
licensed to customer by MPOWER;
MPOWER MASTER AGREEMENT PAGE 14
<PAGE> 15
4. continuation of the allegedly infringing activity by Customer
after Customer is notified in writing thereof and after the
conclusion of a reasonable grace period afforded Customer in the
notice to migrate from the infringing activity to an alternate
solution; or
5. Customer's use of an MPOWER Product other than in compliance with
the terms and conditions of this Agreement.
Notwithstanding the foregoing, MPOWER shall not be obligated to defend,
indemnify or hold Customer harmless from and against any claim, suit
proceeding or allegation asserted by a parent, subsidiary or affiliate
of Customer.
The foregoing remedy set forth in this Section X represents the
exclusive remedy of Customer and MPOWER's sole liability with regard to
any claim that an MPOWER Product infringes the rights of others.
XI. RESOLUTION OF DISPUTES
If any dispute shall arise between the parties under this Agreement,
the parties shall make every effort to amicably resolve the dispute
pursuant to this Section XI. The following procedures shall be adhered
to in order to expeditiously resolve any disputes arising during the
term of this Agreement.
The party invoking the procedures of this Section XI shall provide
written notice to the other party and within five (5) business days
following the other party's receipt of such notice, the parties'
implementation team leaders shall attempt to resolve such dispute. If
the parties' team leaders do not resolve such dispute within seven (7)
business days following the date of the non-invoking party's receipt of
notice hereunder, either party hereto shall have the fight to refer
such dispute for "Executive Review" as provided below.
"Executive Review" shall refer to the dispute resolution process which
shall be conducted as follows: within fifteen (15) days of any party's
request for Executive Review, each such party shall have designated an
executive-level employee of such party and such designated executive
shall have met, either in person or via telephone, with the other
party's executive-level designee to attempt to resolve such dispute. If
said executive- level designees are unable to resolve the dispute
within ten (10) business days of their first telephone or in-person
meeting pursuant to this paragraph, either party may request that the
dispute be referred to a second level of Executive Review. Within ten
(10) days of any party's request for such second level of Executive
Review, the Chief Executive Officers of both parties hereto shall meet,
in person or via telephone, to attempt to settle such dispute.
Notwithstanding anything in this Agreement to the contrary, should
either party feel the dispute cannot be amicably resolved after having
negotiated in good faith to
MPOWER MASTER AGREEMENT PAGE 15
<PAGE> 16
resolve such dispute pursuant to the foregoing provisions of this
Section XI, such party shall have the right to terminate such
negotiations. Nothing in this Section XI shall require either party to
engage in negotiations to resolve a dispute for a period of more than
forty-five (45) days.
XII. SUCCESSORS AND ASSIGNS
Assignment. Except as may be herein specifically provided to the
contrary, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective legal representatives,
successors, and assigns; provided, however, that no assignment of this
Agreement or the rights and obligations hereunder shall be valid
without the specific written consent of both parties hereto.
Notwithstanding anything herein to the contrary, both Customer and
MPOWER shall have the right to (i) assign this Agreement and the rights
and obligations hereunder to an entity that is controlled by, under
common control with, or that controls Customer or MPOWER, where Control
is defined as an entity which Customer has majority ownership of or is
majority shareholder in or that is formed as the result of an internal
restructuring of Customer and/or its affiliates. Any such assignment by
Customer or MPOWER shall be effective without the need for any action
on the part of any party ether than such assignment by Customer to be
effective.
XIII. OMNIBUS RECONCILIATION ACT COMPLIANCE
As applicable under the Omnibus Reconciliation Act of 1980, until the
expiration of four (4) years after the furnishing of services under
this Agreement, MPOWER shall, upon receipt of written request, and if
then required to make such information available under the
then-existing law, make available to the Secretary of the United States
Department of Health and Human Services ("Secretary"), the Comptroller
General, or any of their duly authorized representatives; this
Agreement, books, documents, and/or records of MPOWER that are
necessary to certify the nature and extent of products and services
delivered under tiffs Agreement and costs associated therewith.
Furthermore, if MPOWER carries out any of the duties of tiffs Agreement
through a subcontract with a value or cost of Ten Thousand Dollars
($10,000.00) or more over a twelve (12)-month period, such subcontract
will contain a clause to the effect that, until the expiration of four
(4) years after the furnishing of such services under such subcontract,
the subcontractor shall, upon receipt of written request and if then
required to make such information available under the then-existing
law, make available to the Secretary, Comptroller General, or any of
their duly authorized representatives, the subcontract, books,
documents, and/or records of such subcontractor that are necessary to
verify the nature and extent of such costs.
MPOWER MASTER AGREEMENT PAGE 16
<PAGE> 17
XIV. RELATIONSHIP MANAGEMENT
MPOWER and Customer agree to discuss business and relationship
strategies affecting both parties, as is required to effectively manage
the relationship between the parties. MPOWER and Customer further agree
to have regularly scheduled communications to summarize current
activities, performance results, error corrections and work efforts, as
well as the future planned activities. During the term of this
Agreement, each party will provide a liaison who (i) will have overall
management responsibility for the performance by the party hereunder,
(ii) will have primary operational responsibility, and (iii) will serve
as the party's primary liaison with the other party with respect to
performance under this Agreement.
XV. MISCELLANEOUS
A. Invalidity. If any of the provisions, or portions thereof, of
this Agreement are deemed to be invalid under any applicable
statute or role of law, they are to that extent to be deemed
omitted, and the parties agree to negotiate in good faith to
bring such provisions, or portions thereof, into compliance.
B. Headings. The headings of Sections in this Agreement and in the
Attachments are included for convenience only and shall not be
considered by either party in construing the meaning of this
Agreement or any Attachment.
C. Notices. Any notice given under this Agreement shall be in
writing, sent by Certified .Mail, Return Receipt Requested or
overnight courier such as FedEx or equivalent, and shall be
deemed to be delivered upon receipt by the receiving party.
All notices remitted to MPOWER shall be remitted to the attention
of: Chief Executive Officer. All notices remitted to Customer
shall be remitted to the attention of'. Michael Stock, CFO.
D. Waiver. Neither party shall be deemed to have waived any term or
provision of this Agreement, nor consented to any breach of this
Agreement, unless such party shall waive such term or provision,
or shall consent to such breach, in writing. Any such written
waiver and/or consent must be signed by the party which is
waiving such term or provision or is consenting to a breach.
Either party's consenting to a waiver, or a breach, by the other,
whether express or implied, shall not constitute consent or
waiver of any other different or subsequent breach by the other.
E. Governing Law. This Agreement and all Attachments hereto shall be
governed by and construed according to the laws of the State of
Texas and venue shall lie exclusively in Harris County, Texas.
MPOWER MASTER AGREEMENT PAGE 17
<PAGE> 18
F. Joint Venture. Nothing in this Agreement constitutes or shall be
construed to be an agreement for Customer and MPOWER to share
losses or, for any reason, to be a partner or joint-venturer with
one another.
G. Entire Agreement. This Master Agreement, Attachment 1 and the
Exhibits contain the entire agreement of the parties with respect
to the subject matter covered by this Agreement. All provisions
contained in the Master Agreement apply to Attachment I and the
Exhibits. No other Agreement, attachment, statement, or promise
made by either party, or an employee, officer, or agent of the
party, which is not contained in this Agreement shall be binding
or valid unless executed pursuant to Section XV(H) below.
H. Amendment. Any changes to this Agreement shall be in writing in
the form of an amendment mutually agreed upon and duly executed
by both parties.
I. Right To Purchase Source Code. MPOWER grants to Customer the
right to purchase the Source Code for MPOWER. Products at any
time in the future for set price of one million-two hundred
fifty thousand dollars ($1,250,000 U.S.).
(REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.)
* Confidential Treatment Requested
MPOWER MASTER AGREEMENT PAGE 18
<PAGE> 19
XVI. SIGNATURE PAGE
The parties have each read this Agreement and agree to be bound by all of its
provisions, and further agree that it constitutes the complete and exclusive
statement of the agreement between them with regard to the subject matter
referenced herein, and supersedes any and all prior agreements and
understandings between them pertaining to the subject matter of this Agreement
and takes precedence over the provisions of any purchase orders submitted to
MPOWER by Customer. This Agreement may be amended only in writing signed by
authorized representatives of both of the parties.
METHODIST CARE INC. MPOWER SOLUTIONS INC.
("METHODIST CARE") ("POWER")
/s/ M. JAMES HENDERSON /s/ MARK S. RANGELL
- ---------------------------- --------------------------------
SIGNATURE SIGNATURE
M. JAMES HENDERSON MARK S. RANGELL
- ---------------------------- --------------------------------
NAME PRINTED NAME PRINTED
President/CEO Senior Vice President
- ---------------------------- --------------------------------
TITLE TITLE
2/9/99 2/4/99
- ---------------------------- --------------------------------
DATE DATE
MPOWER MASTER AGREEMENT PAGE 19
<PAGE> 20
METHODISTCARE
THE METHODIST HEALTH CARE SYSTEM
THIRD-PARTY ACCESS, CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT
In consideration of access to MethodistCare and MPOWER information or computer
systems, I agree to the following:
Access: I agree that MethodistCare and MPOWER will determine the
appropriate level of access to MethodistCare and MPOWER computer
systems, applications and information. Access will be based on my
duties and responsibilities. If appropriate, I will be assigned a user
identification label and will be asked to select a confidential
password. It is my responsibility to safeguard this password and not
share it with anyone. I agree to change my password periodically or as
required by a specific computer system. As an authorized computer
system user, I accept full responsibility for all actions performed
using my password. If I suspect or detect someone using my password, it
is my responsibility to both immediately change the password and notify
the Director, MethodistCare Information Services.
Purposes: I agree MethodistCare and MPOWER computer workstations,
premises and property are to be used only for MethodistCare and MPOWER
authorized purposes. Performing any unauthorized or inappropriate
functions constitutes a serious security violation. I understand that
periodic random audits may be conducted to detect violations. The
Director of MethodistCare Information Services or Chief Financial
Officer will be responsible for dealing with all security violations.
Data Protection: I will take all necessary steps to protect
MethodistCare and MPOWER data and information from destruction,
inappropriate alteration or unauthorized access. This includes any
confidential MethodistCare and MPOWER or Methodist Health Care System
data and information. I agree that I am required to log off a
MethodistCare and MPOWER computer workstation any time I leave the work
area.
Third Party Software: I agree not to copy or use MethodistCare and
MPOWER licensed software in violation of any vendor license agreements
or state/federal laws. Further, I agree not to remove any licensed
software from or lead any unapproved software on MethodistCare and
MPOWER computers or systems.
Confidentiality: I agree that all medical, financial and personal
information pertaining to membeRS, patients, physicians, providers,
employer groups and employees is Confidential. I further agree that all
financial, operational, proprietary or developmental information
pertaining to MethodistCare and MPOWER, the Methodist Health Care
System or third-party contractors is also Confidential. I agree not to
release, use. recreate, distribute, discuss, destroy, alter, or derive
benefit from any Confidential information without proper legal
authorization. The MethodistCare Chief Financial Officer or designee
will be responsible for chroming this provision.
Indemnification: I agree that I will indemnify and hold harmless
MethodistCare and MPOWER Methodist Health Care System and any related
entities from and against all liability, demands, claims, damages,
suits or judgments, including attorney's fees, costs and expenses
incident thereto, for injury or damage to any person
* Confidential Treatment Requested
MPOWER MASTER AGREEMENT PAGE 20
<PAGE> 21
or property, or loss caused by my negligent or intentional acts or
omissions, including but not limited to, release of confidential
information.
Non-Disclosure: I agree not to sell, lease, assign, use or otherwise
transfer, disclose or make available In any manner or form any
MethodistCare and MPOWER Confidential information without proper legal
authorization. I further agree to immediately return any MethodistCare
and MPOWER information including confidential or proprietary
information upon (1) request or (2) completion or termination of my
services.
I have read, understand and as evidenced by my signature below agree to be bound
by the terms of this agreement. I further understand that the terms of this
agreement survive the termination of any relationship I have with MethodistCare
and MPOWER.
- ---------------------------- --------------------------------
Signature/Date Witness/Date
MPOWER. MASTER AGREEMENT PAGE 21
<PAGE> 22
ATTACHMENT 1
I. DEFINITIONS
Except as set forth in this Section I of this Attachment, all
capitalized terms used in this Attachment shall have the same meaning
as set forth in the Master Agreement.
A. Master Agreement
"Master Agreement" shall mean the agreement to which this Attachment 1
is attached.
B. Agreement
"Agreement" shall mean the Master Agreement and all Addenda, Exhibits
and Attachments thereto.
C. MPOWER(R)
"MOWER(R)" shall mean the software product marketed by MPOWER which is
being licensed by Customer under this Attachment and the Master
Agreement. The modules that are included in MPOWER(R) as of the date of
this Attachment are listed in Exhibit F hereto.
II. GRANT OF LICENSE
In consideration of Customer's paying the Initial License Fee (as
hereinafter defined) and, when due, the Maintenance Fee, in accordance
with Section VIII of this Attachment, MPOWER grants Customer a
fully-paid, non-exclusive, perpetual, royalty free and annually
self-renewing license to operate a single, Object Code instance version
of MPOWER(R) on a RS/6000 HA50 platform for a Live Production
Environment for [*] lives ("Initial License).
This license allows authorized users to engage in the following
activities with respect to any MPOWER Release and Documentation:
(a) to use the MPOWER Release concurrently on authorized
computers;
(b) interface MPOWER Release with other programs used or
maintained by Customer;
(c) to make a reasonable number of back-up copies of MPOWER
Release on magnetic or optical media;
* Confidential Treatment Requested
MPOWER MASTER AGREEMENT PAGE 22
<PAGE> 23
(d) to copy and use MPOWER Release on a substitute computer or
computers if the authorized computers become inoperable;
(e) to use MPOWER Release at Customer's third party disaster site
on a computer other than the authorized computers (including
semi-annual testing at such site);
(f) to use MPOWER Release as otherwise provided in this Agreement;
(g) to relocate the authorized computers to any Controlled
Customer facility; and
(h) to make a reasonable number of copies of the documentation
related to the MPOWER Release.
All of such rights are collectively referred to as the "License
Rights."
Customer may extend the license for such single, Object Code instance
of MPOWER(R) ("License Extension(s)") for [*] lives by paying MPOWER
the fees for additional lives defined in Section VIII below, and
abiding by the terms therein stipulated, and by providing the number of
such additional lives to MPOWER prior to Customer's first use of
MPOWER(R) on behalf of such additional lives.
Customer may copy MPOWER(R) and/or the Documentation as allowed under
Section III of the Master Agreement. Furthermore, Customer may copy the
Documentation in order to supply a copy of the Documentation to each
end user of MPOWER(R) at each Site. Customer agrees that any and all
copies of MPOWER(R) and/or the Documentation made by Customer shall
include any/all copyright and proprietary notices in the same form as
contained on the original copy. Except as allowed in Section III of the
Master Agreement and this paragraph, Customer may not otherwise make
copies of MPOWER(R) or the Documentation or any part thereof without
the prior written consent of MPOWER. Customer agrees there shall be no
other use of MPOWER(R) or the Documentation without the prior written
consent of MPOWER except as allowed in Section II of the Master
Agreement.
In order to ensure that MPOWER(R) is being used in conformity with the
license being granted under this Attachment, MPOWER shall have the
right to conduct audits (either on-site or remotely, at MPOWER's
option) of Customer's use of MPOWER(R) at periodic intervals. MPOWER
agrees that any such on-site audit shall be scheduled in advance and at
a time so as not to unduly interfere with Customer's business
operations. Customer agrees that any audit revealing unauthorized use
of MPOWER(R) will result in Customer's being liable for the payment of
additional fees to MPOWER equal to MPOWER's fees as stated in Section
VIII A of this Attachment.
* Confidential Treatment Requested
MPOWER MASTER AGREEMENT PAGE 23
<PAGE> 24
Network and other Use. MPOWER acknowledges that the MPOWER Release will
be operated in conjunction with, and as a component of the Customers
network. As such, the MPOWER Release will be electronically linked to
the software and equipment, with which it may interact, including
interchanging data. The License Rights are deemed to include a license
to use the MPOWER Release in conjunction with the Customer's network.
Authorized Users may access the MPOWER Release through Customer's
network, and that such access and use via Customer's network does not
violate the License Rights.
III DELIVERY AND MEDIA
Promptly after the full execution of this Attachment, MPOWER will
deliver to Customer:
A. one (l) copy of the then-current Release of MPOWER(R) in Object Code
form; and
B. one (1) set of the the-current version of the Documentation in
electronic form.
IV. WARRANTY
A. System Warranties
Non-Infringement Warranty. MPOWER represents and warrants that as of
the Effective Date the MPOWER Release's performance under this
Agreement does not, and will continue not to, infringe, or constitute
an infringement or misappropriation of, the intellectual property
rights of any third party.
Performance Warranty. MPOWER represents and warrants that MPOWER
Release does, and shall continue to, meet or exceed the Functional
Specifications, Technical Specifications and Performance Standards set
forth in MPOWER's RFP responses, sales brochures and marketing
materials which are incorporated herein and made a part of this
Agreement. (the "Performance Warranty"). If MPOWER Release fails to
meet any aspect of the Performance Warranty (irrespective of the
severity of such failure) for any three consecutive months during the
warranty period, then Customer shall have the right to terminate this
Agreement pursuant. If MPOWER Release does not meet any aspect of the
Performance Warranty after the expiration of the warranty period but
while the Support and Maintenance Agreement is in effect, then MPOWER
shall take whatever corrective actions as may be necessary (or as
Customer may request) to have MPOWER Release meet the Performance
Warranty, at Customer's sole cost and expense.
PASS-THROUGH OF THIRD PARTY WARRANTIES. To the extent MPOWER may do so
under
MPOWER MASTER AGREEMENT PAGE 24
<PAGE> 25
agreement with Third Party software manufacturers or suppliers, M_POWER
passes through to Customer all warranties for Third Party software. To
the extent MPOWER may not pass such warranties through, MPOWER hereby
makes to Customer the same Third Party software warranties as
manufacturers or suppliers make to MPOWER.
AS DOCUMENTED WARRANT,. During the warranty period, MPOWER warrants
that MPOWER Release will operate in accordance with the Documentation,
including Third Party software documentation (the "As Documented
Warranty"). Upon receipt of notice from Customer of a breach of the
As-Documented Warranty, MPOWER will correct the breach, in accordance
with the corrective-maintenance provisions of the Support and
Maintenance Agreement.
PHYSICAL MEDIA WARRANTY. MPOWER warrants that MPOWER Release is and
will be free from physical defects in each media that contains MPOWER
Release (the "Physical media Warranty"); provided, however, (i) the
Physical Media Warranty does not apply to defects discovered more than
90 days after the date of installation of MPOWER Release by MPOWER; and
(ii) Customer's sole remedy for breach of the Physical Media Warranty,
to the exclusion of all other remedies, shall be replacement by MPOWER
of any copy of MPOWER Release that does not comply with this warranty.
B. YEAR 2000 WARRANTY.
The MPOWER Release software shall be Millennium Compliant. As used in
this Agreement, "Millennium Compliant" shall mean the ability of MPOWER
Release software to perform the following functions: a) consistently
handle date information before, during, and after January 1, 2000,
including but not limited to accepting date input, providing data
output, and accurately performing calculations in dates or portions of
dates, and b) function accurately in accordance with Customer's
requirements, without interruption before and after January 1, 2000,
without any change in operations associated with the advent of the new
century. In the event that Customer becomes aware that MPOWER(R) will
not or does not process data containing any dates before, during, or
after January 1, 2000, correctly, Customer shall immediately notify
MPOWER of that fact and MPOWER agrees to correct or replace MPOWER(R)
to eliminate such processing problem in accordance with MPOWER's
standard policies, which are available upon request.
Further, MPOWER agrees to provide on-site Year 2000 compliance testing
during the implementation phase and pursuant to Customer's
specifications and requirements.
The foregoing is Customer's sole and exclusive remedy for breach of
warranty. The warranty set forth above is made to and for Customer's
benefit only. The warranty will apply only if no modification,
alteration or addition has been made to MPOWER(R) by persons other than
MPOWER or MPOWER's authorized representative.
MPOWER MASTER AGREEMENT PAGE 25
<PAGE> 26
In no event will MPOWER be liable for any loss of profits, loss of use,
business interruption, loss of data, cover of cover, or indirect,
special, incidental, or consequential damages of any kind in connection
with or arising out of the furnishing, performance or use of MPOWER(R),
whether alleged as a breach of contract or tortious conduct, including
negligence, even if MPOWER has been advised of the possibility of such
damages. MPOWER's liability under this limited warranty for damages
will not, in any event, exceed the fees paid by Customer to MPOWER for
MPOWER(R).
C. SERVICE WARRANTIES.
MPOWER represents and warrants that it will perform the services
required under this Agreement in a professional manner with the utmost
due diligence and good faith. In addition, MPOWER represents and
warrants that it will initiate work on urgent issues within 1 hour of
Customer's call for assistance, at any time. Generally, "urgent issues"
involve substantial program failure or issues whose resolution is
critical to Customer's data processing, clinical or business
operations.
Disclaimer of all Other Warranties and Representations. THE EXPRESS
WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS AGREEMENT ARE IN LIEU
OF, AND CUSTOMER ACKNOWLEDGES THAT MPOWER DISCLAIMS, ANY AND ALL OTHER
WARRANTIES, CONDITIONS, OR REPRESENTATIONS (EXPRESS OF IMPLIED, ORAL
OR WRITTEN), WITH RESPECT TO THE SYSTEM OR ANY COMPONENT THEREOF,
INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
D. NON-INFRINGEMENT INDEMNITY.
Covenant to Defend and Indemnify. As a covenant separate from the
representation and warranty of non-infringement contained in Section
entitled Non-Infringement Warranty, MPOWER will defend, hold harmless
and indemnify Customer from any and all Claims brought against Customer
by any third party arising from or related to Customer's use of MPOWER
Release or MPOWER's Services subject to Section VIII, Customer
Responsibilities provision as established herein and to Limitations of
Liability as established in Section IX of the Master Agreement.
MPOWER MASTER AGREEMENT PAGE 26
<PAGE> 27
CONDITIONS FOR MPOWER'S DEFENSE. If a third party asserts an
infringement claim: (i) Customer shall promptly advise MPOWER of the
existence of the claim within 30 days of receipt of a written statement
of the claim against Customer (whether or not litigation or any such
action has occurred); (ii) MPOWER shall have the sole right to control
the defense and/or settlement of all such claims, in litigation or
otherwise; provided, however, that (A) any settlement does not
adversely affect Customer's ability to exercise the License Rights or
obligates Customer in any way to the third party without Customer's
prior written consent; and (B) MPOWER can demonstrate, upon Customer's
request, MPOWER's financial ability to defend and indemnify Customer.
Customer shall have the right, at Customers expense, to engage separate
legal counsel to monitor and advise Customer regarding such defense.
Any delay in notifying MPOWER of a claim as set forth in this Section
shall not relieve MPOWER of its indemnity obligations hereunder, unless
such delay materially prejudices MPOWER.
MPOWER'S RIGHT TO CURE. If MPOWER Release is found to infringe any
third party intellectual property right, at MPOWER's sole discretion
and expense, MPOWER may:
(1) obtain a license from such third party for Customer's benefit; or
(2) replace or modify the MPOWER so that it is no longer infringing.
INFRINGEMENT INJUNCTIONS OBTAINED BY THIRD PARTIES. If a third party
infringement claim is sustained in a final judgment from which no
further appeal is taken or possible, and which enjoins Customer from
continued use of MPOWER Release or portions thereof, then MPOWER shall,
at its sole expense: (i) procure for Customer (at MPOWER's expense) the
right to continue to use MPOWER Release pursuant to this Agreement,
including all License Rights; or (ii) replace or modify M_POWER Release
to make it non-infringing.
CUSTOMER'S OPTION TO TERMINATE. If Customer is ordered by a court to
cease use of MPOWER Release or of specific functions(s) of MPOWER
Release, or if MPOWER's replacement or modification of MPOWER Release
is not acceptable to Customer, then Customer will have the option to
terminate this Agreement pursuant without opportunity to cure.
V. SOFTWARE MAINTENANCE SERVICES
In consideration of payment of the annual Maintenance Fee(s) set forth
in Section VIII B of this Attachment, Customer agrees to purchase, and
MPOWER agrees to provide Customer on an annually renewable basis with
software maintenance services for MPOWER(R) as follows (provided
Customer allows MPOWER, at MPOWER's request, dial-up access to
MPOWER(R)):
MPOWER MASTER AGREEMENT PAGE 27
<PAGE> 28
A. any and all Releases regarding MPOWER(R) issued by MPOWER;
B. any and all updates to the Documentation issued by MPOWER; and
C. remote diagnostic support (including dial-up capabilities)
regarding MPOWER(R)to include error analysis and, where
possible, correction services, twenty-four (24) hours per day,
seven (7) days per week. Any on-site assistance which Customer
may request and which is provided by MPOWER, which, in
MPOWER's reasonable opinion, is not necessary to determine the
nature and resolution of any problems Customer may have with
MPOWER(R)shall be provided by MPOWER at its then-current
rates. If Customer notifies MPOWER that it suspects a material
error in the program logic of MPOWER(R)or in the
Documentation, MPOWER shall make all reasonable efforts to
confirm the existence of the error and correct it. If the
parties mutually determine that no such error exists, Customer
agrees to pay MPOWER for its services at MPOWER's hourly rates
then in effect and to reimburse MPOWER for any and all
reasonable travel and living expenses incurred by MPOWER in
rendering such services. MPOWER will use its Severity
Designations in effect from time to time to provide remote
diagnostic support. The current Severity Designations and
attendant response times are given in Exhibit G to this
Attachment.
Notwithstanding the foregoing, should Customer be utilizing any Release
of MPOWER(R) other than the then-most-recent Release, or the Release
prior to the then-most-current Release, provided such Release has been
available for Customer's use for a period of twelve (12) months or
longer, MPOWER reserves the right, at its sole option, to terminate its
obligations to provide maintenance services under this Section V at any
time upon giving thirty (30) days' prior written notice to Customer. If
such a condition exists, MPOWER and Customer agree to negotiate in good
faith to define reasonable terms, conditions and fees for MPOWER to
provide Customer with maintenance services for such then non-current
Release.
MPOWER's providing Customer with maintenance services as described in
this Section V shall automatically continue, on an annual basis, unless
either party shall give written notice to the other that it desires not
to renew such maintenance services. The parties agree that such written
notice shall be remitted for receipt by the other no less than ninety
(90) days prior to the end of the then-current annual maintenance
period.
VI. IMPLEMENTATION AND CONVERSION SERVICES
MPOWER MASTER AGREEMENT PAGE 28
<PAGE> 29
MPOWER agrees to provide implementation services ("Implementation
Services") to assist Customer in implementing MPOWER(R) at the Site(s).
These implementation services shall comprise: 1) analysis of the
Site's(s') business requirements; 2) assistance in the user set up
definitions and build; 3) testing of MPOWER(R) including Year 2000
compliance testing requested by Customer; 4) pre/post activation
support for end users; 5) up to eighty (80) hours of initial training
services and 6) project management. MPOWER shall charge Customer as set
out in Section VIII.C below for all such Implementation Services
requested by Customer.
MPOWER agrees to provide conversion services ("Conversion Services") to
Customer to convert its current data files from its existing software
system to the MPOWER(R) database. MPOWER shall charge Customer as set
out in Section VIII.C below for all such Conversion Services requested
by Customer.
MPOWER reserves the fight to subcontract any Implementation Services
responsibilities it may accept under this Agreement. Customer shall
have the fight to approve MPOWER's subcontractors, which approval shall
not be unreasonably withheld. If Customer objects to certain
subcontractors for a stated good cause, MPOWER and Customer agree to
seek a mutually agreeable resolution to Customer's objection.
VII. TRAINING SERVICES
MPOWER will provide up to eighty (80) hours of initial trainer services
training within the scope of payment of initial Implementation Fees, as
indicated in Section VIII.C of this Attachment. Initial training will
focus on Customer's education of functionality contained within key
subsystems of MPOWER(R) and will be inclusive of the following:
o Mapping of business rules to benefit plan templates;
o Establishment of workflow procedures and user-defined
variables;
o Use of standard and ad-hoc reporting systems; and
o Methods for maintenance of key information being stored in the
system.
MPOWER will provide Customer under an appropriate Work Order, at
MPOWER's then-current fees, with additional training sessions regarding
MPOWER(R) to a reasonable number of Customer's personnel. All such
training, including initial End User training, shall be conducted at
location(s) elected by Customer at time(s) which are mutually
acceptable to both parties. Current fees for additional training
sessions are provided in Section VIII.F.
MPOWER MASTER AGREEMENT PAGE 29
<PAGE> 30
VIII. FEES
A. MPOWER(R) License Fees.
1. Fee for the Initial License.
Customer agrees to pay MPOWER a license fee ("Initial License
Fee") equal to two hundred five thousand Dollars $205,000 for
the master license granted in Section II of this Attachment
for 75,000 lives ("Initial License"). Customer agrees this
entire Initial License Fee is due to MPOWER on the full
execution of this Attachment and payable according to the
schedule shown in Exhibit C hereto.
2. Fees for License Extensions.
Customer may, during the term of this Agreement, provided
Customer is current with all Maintenance Fees, exercise an
incremental license or incremental licenses for additional
life volume growth by paying to MPOWER an additional license
fee ("License Extension Fee") as shown on Exhibit C hereto for
each such License Extension.
The Initial License Fee and the License Extension Fee(s) may
be referred to as the License Fee(s).
The License Extension Fees will be billed and paid in
accordance with the terms and conditions outlined in this
Agreement.
B. Annual Maintenance Fees.
Customer agrees to pay to MPOWER for the software maintenance
services described above a software maintenance fee
("Maintenance Fee") equal to [*] percent ([*]%) of the
aggregate of the Initial License Fee and all License Fee
Extensions paid or payable by Customer to MPOWER.
The annual Maintenance Fee is due and payable as follows: the
first annual Maintenance Fee shall be due and payable upon the
earlier to occur of Final Acceptance or when Customer first
begins to use MPOWER(R) in a Live Production Environment.
* Confidential Treatment Requested
MPOWER MASTER AGREEMENT PAGE 30
<PAGE> 31
Each subsequent annual Maintenance Fee shall be billed and due
annually, based on the anniversary date of the first annual
Maintenance Fee due date. MPOWER will invoice Customer on an
annual basis for the maintenance fee. Customer agrees to pay
such invoices within thirty (30) days after Customer's receipt
of the invoice.
Maintenance Fees Payment Schedule is outlined in Exhibit D to
this Attachment.
C. Implementation Fees.
As outlined in Sections VI and VII above, MPOWER will provide
set-up, implementation, interface development and installation
services based upon the implementation requirement task list
and related hours outlined in Exhibit I hereto.
The Implementation Fee of $600,000 (six hundred thousand
dollars) will provide to Customer five-thousand five-hundred
and fifty five hours (5,555) of MPOWER professional staff
services for the services noted above and will be payable as
outlined in the schedule provided in Exhibit E. Such hours
will be accounted for and tracked via weekly time reporting to
Customer.
D. Travel and out of pocket expenses.
The fees set out above do not include travel and other
out-of-pocket expenses which may be incurred by MPOWER in the
course of delivering the products and services described in
this Attachment. MPOWER shall use all its reasonable efforts
to keep these travel and other out-of-pocket expenses to a
minimum. MPOWER will invoice Customer for MPOWER's travel and
out of pocket expenses on a monthly basis, as they are
incurred, and Customer agrees to pay such invoices within
thirty (30) days after receipt of the invoice.
E. Other Services
Customer may request and MPOWER may perform other services
("Other Services") for Customer, which services shall be
described in a Work Order, which shall be considered an
addendum to this Agreement and covered under the terms of this
Agreement, unless stated otherwise in the applicable Work
Order. The List Service Fee rate in effect through calendar
year 1999 is [*] ($[*]) Dollars per hour.
F. Additional Training Sessions
* Confidential Treatment Requested
MPOWER MASTER AGREEMENT PAGE 31
<PAGE> 32
Customer may request and MPOWER may perform additional
training sessions beyond the scope of the aforementioned
initial End User training, as described in Section VII of this
Attachment. Additional training services shall be described in
a Work Order, which shall be considered an addendum to this
Agreement and covered under the terms of this Agreement,
unless stated otherwise in the applicable Work Order. The rate
in effect for additional training services through calendar
year 1999 is $[1000.00] per day Customer may include as many
of its personnel in such sessions as may reasonably be
accommodated within a classroom environment
IX. THIRD PARTY PRODUCTS
Customer has the option to utilize Third Party Products with MPOWER(R)
as outlined in Exhibit B.
X. ACCEPTANCE
As soon as practicable after completion of preliminary testing,
Customer shall begin using MPOWER(R) in a simulated processing
environment using Customer's data. MPOWER(R) shall be deemed fully
accepted ("Final Acceptance") upon the conclusion of any consecutive
five (5) day period in which the MPOWER(R) functions in simulated
processing mode based on a test plan which has been jointly agreed to
by MPOWER and Customer. Customer shall execute a Certificate of
Acceptance (Exhibit A), which shall be attached hereto and made a part
of this Agreement. The date shown on the Certificate of Acceptance will
be the beginning date of any warranty or maintenance periods provided
for in this Agreement or any Exhibit hereto. Notwithstanding the above,
MPOWER(R) shall be deemed fully accepted upon the earlier to occur of
the date of the Certificate of Acceptance or the placement of MPOWER(R)
in a Live Production Environment.
XI. ADDITIONAL TERMS AND CONDITIONS
In addition to the terms and conditions of this Attachment, the parties
agree that all the terms and conditions of the Master Agreement shall
also apply to Customer's use of MPOWER(R). Should any terms or
conditions of this Attachment and the Master Agreement conflict, the
terms and conditions of this Attachment shall take precedence. Should
any terms or conditions of an applicable Work Order and this Attachment
or the Master Agreement conflict, the terms and conditions of the
applicable Work Order shall take precedence.
MPOWER MASTER AGREEMENT PAGE 32
<PAGE> 33
Signature Page
The parties have each read this Attachment and agree to be bound by all of its
provisions. The parties further agree that this Attachment (including its
Exhibits) and the Master Agreement constitute the complete and exclusive
statement of the agreement between the parties regarding MPOWER(R) and
supersedes any and all prior agreements and understandings between them
pertaining to MPOWER(R) and takes precedence over the provisions of any purchase
orders submitted to MPOWER by Customer. This Attachment may be amended only in
writing signed by both parties.
CUSTOMER MPOWER SOLUTIONS INC.
By: /s/ M. JAMES HENDERSON /s/ MARK S. RANGELL
- ---------------------------------- -----------------------------------
Signature of Authorized Signatory Signature of Authorized Signatory
M. JAMES HENDERSON MARK S. RANGELL
- ---------------------------------- -----------------------------------
Name Printed Name Printed
President/CEO Senior Vice President
- ---------------------------------- -----------------------------------
Title TItle
2/9/99 2/4/99
- ---------------------------------- -----------------------------------
Date Date
MPOWER MASTER AGREEMENT PAGE 33
<PAGE> 34
EXHIBIT A
FINAL ACCEPTANCE CERTIFICATE
Customer hereby acknowledges and MPOWER Solutions, Inc. hereby accepts that
MPOWEP(R) has been accepted by Customer per the date noted below. This will be
the basis for the beginning of any warranty or maintenance periods provided for
in this Agreement or any Exhibit hereto.
Date of Final Acceptance______________
Accepted by Customer: Accepted by MPOWER:
CUSTOMER MPOWER SOLUTIONS INC.
By:___________________________ By:________________________
Name (Printed):_______________ Name (Printed):____________
Title:________________________ Title:_____________________
Date:_________________________ Date:______________________
MPOWER MASTER AGREEMENT PAGE 34
<PAGE> 35
EXHIBIT B
NOT CURRENTLY APPLICABLE.
MPOWER MASTER AGREEMENT PAGE 35
<PAGE> 36
EXHIBIT C
MPOWER(R) License Fee Payment Schedule for the License Fees. Refer to
Section VIII A of the Attachment for MPOWER license terms and conditions.
<TABLE>
<CAPTION>
PAYMENT TRIGGERING EVENT EXPECTED PERCENTAGE AMOUNT
TIMEFRAME DUE DUE
<S> <C> <C> <C>
Contract Execution [ * ] [ * ] [ * ]
Customer Installation [ * ] [ * ] [ * ]
Completion of Acceptance Test / Go [ * ] [ * ] [ * ]
Live Date
Optional License Extension Based on a [ * ] Per
Quarterly Review Schedule
and Audit of
Customer's current
Life Count as of
the date Audit is
performed by
MPOWER
</TABLE>
LICENSE EXTENSION FEE(S):
o Increments of life volume above [ * ] initial lives:
[ * ] lives-[ * ] lives (increments of [ * ]) $[ * ] (each [ * ] lives)
[ * ] lives-[ * ] lives (increments of [ * ]) $[ * ] (each [ * ] lives)
* Confidential Treatment Requested
MPOWER MASTER AGREEMENT PAGE 36
<PAGE> 37
EXHIBIT D
MPOWER Annual Maintenance Fee Payment Schedule.
MPOWER billing and Customer paying of Annual Maintenance Fees is outlined in
Section VIII B of the Attachment. Refer to Section VIII B for on-going and
MPOWER Annual Maintenance Fee terms and conditions. The Annual Maintenance Fee
is calculated by multiplying [*] by the current License Fee or if adjusting the
amount based on Quarterly Audits, will be calculated by prorating any current
year amount of Maintenance Fee Customer has paid to MPOWER as of the date of the
Audit by MPOWER and subtracting that amount from [*] of the newly adjusted
License Fee for the current quarter post-audit life count totals. The
Maintenance Fee is due the first year on the date Final Acceptance and "Go Live"
occurs. The Annual Maintenance Fee may be adjusted by MPOWER based on the
Quarterly Audits of Life Count as described in Exhibit C.
<TABLE>
<CAPTION>
PAYMENT ESTIMATED PERCENTAGE DUE ESTIMATED
TRIGGERING EVENT TIMEFRAME -------------- AMOUNT DUE
- ----------------- --------- ----------
<S> <C> <C> <C>
Final Acceptance [*] [*] of First Year Annual [*]
or commencement Maintenance Fee
of Live Production
Environment and
"Go Live Date"
("Acceptance")
First and Annually [*] of Annual Maintenance [*] of Total
Subsequent Thereafter Fee License Fee
Anniversaries of
Acceptance
</TABLE>
* Confidential Treatment Requested
MPOWER MASTER AGREEMENT PAGE 37
<PAGE> 38
EXHIBIT E
MPOWER Initial Implementation Fee Payment Schedule
MPOWER billing and Customer payment of Implementation Fees are outlined in
Section VIII C of the Attachment. Refer to Section VIII C. for Terms and
Conditions.
<TABLE>
<CAPTION>
PAYMENT ESTIMATED PERCENTAGE DUE ESTIMATED
TRIGGERING EVENT TIMEFRAME -------------- AMOUNT DUE
- ----------------- --------- ----------
<S> <C> <C> <C>
Commencement of [*] [*] [*]
Setup Activities for
Initial
Implementation
Services
Customer [*] [*] [*]
Installation
Completion of [*] [*] [*]
Acceptance Test and
Go Live Date
</TABLE>
* Confidential Treatment Requested
MPOWER MASTER AGREEMENT PAGE 38
<PAGE> 39
EXHIBIT F
MODULES INCLUDED IN MPOWER(R)
All modules are included by MPOWER and comprise MPOWER(R) as of the
date of this Attachment:
o Set-ups
o Group Enrollment & Contracting
o Premium Billing & Accounts Receivable
o Member / Subscriber Enrollment
o Provider Contracting
o Capitation
o Claims Adjudication for UB92 / HCFA 1500 Claims'
o Certifications / Authorizations
o Customer Service
o Letter Generation
o Medicare Risk
o Medicaid Processing
o Ad Hoc Reporting
MPOWER MASTER AGREEMENT PAGE 39
<PAGE> 40
EXHIBIT G
Severity Definitions and Resolution Process
o SEVERITY 1.
The problem causes complete loss of service in the production and
staging environment and work cannot reasonably continue. The problem or
defect has one or more of the following characteristics:
[ ] Data corruption. Physical or logical data is unavailable or
incorrect. Examples: Block format corruption, invalid indices,
corruption of meta-data, incorrect results.
[ ] Critical functionality is not available.
[ ] System hangs. The process hangs indefinitely or there is severe
performance degradation, causing unreasonable waits for resources
or response, as if the system is hanging.
[ ] The entire MPOWER application crashes repeatedly.
[ ] Database process or background processes fall and continue to
fail after restart attempts.
[ ] Potential for above occurrences is defined imminent.
RESOLUTION OF SEVERITY 1: Until the issue is resolved MPOWER Solutions
will work on Severity 1 around the clock (7x24). As a result of the
severity, the customer must provide MPOWER with a point of contact
during the 7x24 period. The customer's point of contact will assist the
MPOWER customer support and development staff in gathering data,
testing fixes in the customer's testing region, and applying fixes to
the customer production environment.
o SEVERITY 2:
Problem or product defect causes a severe impact on the customer's
business regardless of customer environment. No workaround is
available, however operations can continue in a restricted fashion. The
problem or defect has one or more of the following characteristics:
[ ] Business Impact Examples: The customer can handle current volume,
but will not be able to handle quarter close; At close, customer
finds totals wrong, but close is not for a few weeks.
[ ] Internal software error, causing the application to fall to run
to completion, or return wrong results, or software error
severely degrades performance.
[ ] Some important functionality is unavailable, yet the system can
continue to operate in a restricted fashion.
[ ] Potential for above occurrences is defined imminent.
MPOWER MASTER AGREEMENT PAGE 40
<PAGE> 41
RESOLUTION OF SEVERITY 2: MPOWER Solutions will work on Severity 2 bug
based on customer assigned priority. Severity 2 fixes will be added in
the next scheduled maintenance or patch release.
o SEVERITY 3.
Problem or product defect causes minimal impact on the Customer's
business. The impact of the problem or defect is minor or an
inconvenience, such as a manual bypass to restore product
functionality. The problem or defect has one or more of the following
characteristics:
[ ] A software error for which there is an acceptable workaround.
[ ] Software error minimally degrades performance.
[ ] Software error or incorrect behavior has minor impact the
operation of the system.
RESOLUTION OF SEVERITY 3: Fixes for severity 3 bugs will be added to
the priority list for the next major scheduled release of the product.
The order of priority for resolving severity 3 issues will be assigned
jointly by the Customer and MPOWER.
o SEVERITY 4.
The problem or product defect causes NO impact on the Customer's
business. The problem or defect is a minor error, incorrect behavior,
or a documentation error that in no way impedes the operation of a
system.
RESOLUTION OF SEVERITY 4: Fixes for severity 4 bugs will be added to
the priority list for the next major scheduled release of the product.
The order of priority for resolving severity 4 issues will be assigned
jointly by the Customer and MPOWER.
MPOWER MASTER AGREEMENT PAGE 41
<PAGE> 42
EXHIBIT H
NOT CURRENTLY APPLICABLE.
MPOWER MASTER AGREEMENT PAGE 42
<PAGE> 43
EXHIBIT I
Customer Functional Requirements
SEE METHODIST CARE IMPLEMENTATION ATTACHMENT.
MethodistCare Implementation Attachment will identify hours and
associated costs related to development of "Proprietary MethodistCare
Modules" for recovery as set forth in Section II of the Master
Agreement.
[INIT]
MPOWER PLASTER AGREEMENT PAGE 43
<PAGE> 44
AMENDMENT NO. 1 TO
MASTER AGREEMENT
This Amendment No. 1 (the "Amendment") to the parties' February 4, 1999
Master Agreement is 'entered into as of the date of the later signature below by
and between Xcare.net, a Delaware corporation with its principal office at 6400
S. Fiddler's Green Circle, Suite 540, Englewood, Colorado 80111 ("Xcare.net")
and Methodist Care, Inc., a Texas licensed health maintenance organization, with
its principal office at Two Greenway Plaza, Suite 500, Houston, Texas 77046
("Customer").
WHEREAS, on February 4, 1999 Xcare.net (formerly "Mpower Solutions
Inc.") and Customer entered into a Master Agreement (the "Master Agreement");
and
WHEREAS, the parties desire to amend the Master Agreement as set forth
herein.
NOW, THEREFORE, for good and valuable consideration the receipt of
which is hereby acknowledged, the parties agree that the Master Agreement is
amended to include the following:
1. For the duration of the Master Agreement and for a period of one
year after the service are completed, Client agrees not to employ or solicit the
employment of any Xcare.net personnel who performed services under the Master
Agreement. Customer agrees to pay Xcare.net an amount equal to the annual
compensation of such personnel for the one-year period immediately preceding any
hiring or solicitation of any such Xcare.net personnel. This payment by Customer
constitutes the parties' estimates of that portion of Xcare.net's damages for
which Customer should be responsible for such activity, and is not a penalty.
The parties agree that this estimate is reasonable under the circumstances
existing as of the date of this Agreement, including, without limitation, the
difficulty of computing such damages exactly.
2. Except as expressly provided in this Amendment, the Master Agreement
shall remain unmodified and in full force and effect. In the event of any
inconsistency or conflict, the provisions of this Amendment shall control and
govern over the provisions of the Master Agreement.
METHODIST CARE, INC. XCARE.NET
By: By: /s/ LORINE SWEENEY
--------------------------------- ---------------------------------
Print Name: Print Name: LORINE SWEENEY
------------------------- -------------------------
Title: Title: PRESIDENT & CEO
------------------------------ ------------------------------
Date: Date: 8/27/99
------------------------------- -------------------------------
<PAGE> 1
EXHIBIT 10.10
MPOWER SOLUTIONS, INC.
ADMINISTRATIVE SERVICES AGREEMENT
THIS MASTER AGREEMENT (the "Agreement"), effective March 29, 1999 (the
"Effective Date"), is made and entered into by and between MPOWER SOLUTIONS,
INC., a Delaware corporation with its principal place of business located at
6400 S. Fiddler's Green Circle, Suite 540, Englewood, CO 80111 ("MPOWER") and
AMERICAN MEDICAL PATHWAYS, INC., a Delaware corporation and wholly-owned
subsidiary of American Medical Response, Inc. ("AMK"), a Delaware corporation,
with its principal place of business located at 2821 South Parker Road, Aurora,
CO 80014 ("Customer") and sets forth the promises of the parties with respect to
the products and services of MPOWER which are described in this Agreement, with
reference to the following facts:
WHEREAS, MPOWER is in the business of providing automated managed health care
information software and third-party administrative services of medical
insurance programs to businesses providing managed health care and insurance
services, and desires to provide such services and software to Customer, subject
to the terms hereof; and
WHEREAS, Customer provides medical transportation services and network
management functions to managed care health plans;
WHEREAS, Customer desires to retain MPOWER, and MPOWER desires to be so
retained, to provide third-party-administrative services to Customer in
connection with Customer's contracts to provide medical transportation services
to various managed care health plans in a multi-state region, in accordance with
the terms and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual promises made, the terms and
conditions hereunder described and other valuable consideration, the parties
agree as follows:
I. DEFINITIONS
1. Administrative Manual means a manual of the policies and procedures of
a Contracted Health Plan that will be jointly developed and followed by
Customer and the Contracted Health Plan with respect to administration
of the applicable Health Plan Agreement. The Administrative Manual(s)
are hereby incorporated by reference into this Agreement.
2. Contracted Health Plan means a health maintenance organization or
health plan with which Customer has contracted to provide medical
transportation services.
3. Health Plan Agreement means the contract between Customer and a
Contracted Health Plan pursuant to which Customer provides medical
transportation services to Members of a Contracted Health Plan.
4. Medical Necessity means services that are covered as basic covered
benefits under the applicable Membership Agreement and are appropriate
and necessary for the symptoms or treatment of a medical condition.
Whether a covered service is Medically Necessary shall be determined
based on criteria set forth in the applicable Administrative Manual.
-1-
<PAGE> 2
5. Member means an individual or his or her dependents, as the case may
be, who is entitled to receive health care services from a Contracted
Health Plan pursuant to that individual's Membership Agreement.
6. Membership Agreement means the agreement between a Contracting Health
Plan and an individual or group pursuant to which a Member receives,
among other things, medical transportation services.
II. RESPONSIBILITIES OF MPOWER
1. SERVICES TO BE PROVIDED.
A. SERVICES. MPOWER shall provide (i) claims processing services
in connection with the medical transportation services
provided by Customer pursuant to its Health Plan Agreements;
(ii) medical review services associated with such claims
processing; (iii) receipt of inquiries concerning eligibility,
benefits, and claims status; and (iv) related reports required
to be provided by Customer pursuant to its Health Plan
Agreements. Such services shall be provided in accordance with
this Agreement and the requirements of the applicable
Administrative Manual. Customer shall consult with MPOWER in
connection with developing the portions of each Administrative
Manual applicable to claims processing, and MPOWER shall have
the opportunity to appoint a representative to participate on
the team established by Customer to develop each
Administrative Manual. Customer shall also provide MPOWER
promptly with all information from Health Plan Agreements and
Member Agreements that is necessary for MPOWER to perform its
obligations under this Agreement.
MPOWER shall cooperate with and assist Customer in
establishing and providing effective communication links and
working relationships with the Contracted Health Plans and
other program administrators retained by Customer with respect
to administration of other aspects of Customer's Health Plan
Agreements. The key assumptions used to establish services to
be provided by MPOWER and compensation hereunder are more
particularly described on Exhibit A, attached hereto and made
a part of this Agreement.
This Agreement shall apply to all Health Plan Agreements, both
current and those that will be entered into by Customer during
the term of this Agreement.
B. CLAIMS PROCESSING. MPOWER shall promptly process all claims in
accordance with the terms of the applicable Membership
Agreement, Health Plan Agreement, and Administrative Manual,
which process shall include, without limitation, the
following:
1. Receive and date stamp all claims, indicating the
date of receipt of each claim, in the case of paper
claims, and the date of transmission of each claim to
MPOWER, in the case of claims electronically
submitted to MPOWER.
2. Verify Member eligibility.
-2-
<PAGE> 3
3. Determine the Medical Necessity of medical transportation
services in accordance with the Medical Necessity standards
set forth in the applicable Administrative Manual. Any claim
that would be denied on the basis of Medical Necessity shall
be referred to the Contracted Health Plan prior to denial.
Except as otherwise provided in the applicable Administrative
Manual, (a) the Contracted Health Plan, or its designee, shall
be solely responsible for notifying the Member of the denial
of any claim; and (b) MPOWER shall not contact the Member with
respect to any denial of claims. If the Contracted Health
Plan approves the claim, Customer shall notify MPOWER of the
approval, and MPOWER shall promptly pay the claim.
Notwithstanding the foregoing, if Customer's referral
authorization is included in the claims submission, then the
Medical Necessity of the claims will be deemed to be
determined, and further review will not be required.
4. Deny claims that are not covered benefits for reasons other
than Medical Necessity and notify the Contracted Health Plan,
as required, of the Member's right to appeal such denial in
accordance with the Contracted Health Plan's appeal process.
5. Calculate and promptly pay to the appropriate transportation
or other network provider the amount to be paid as covered
benefits in accordance with the applicable network provider
agreement and Membership Agreement. Unless a claim is
disputed, MPOWER shall make payment on the claim within the
time frame required by applicable state or federal law or
regulation or such other period of time as set forth in the
applicable Administrative Manual and Membership Agreement.
6. Calculate and notify provider via statement of remittance for
Member liability only as provided in the Health Plan
Agreements.
7. The specific time limits for performing the functions set
forth in this Section II.1.B shall be specified in the
applicable Administrative Manual.
2. IMPLEMENTATION. MPOWER shall take all actions necessary to establish
all administrative and other connections and arrangements necessary for
the transfer of data and processing of claims, including, without
limitation, the establishment and maintenance of electronic data
interface or electronic data transfer capabilities for the electronic
transfer of encounter and other data related to claims. processing in a
timely manner. MPOWER and Customer shall agree on an implementation
project plan and schedule, which shall be set forth on Exhibit B,
attached to this Agreement and made a part hereof. The implementation
project plan and schedule wilt identify the steps necessary to achieve
implementation of this Agreement, the responsibilities of the
respective parties, and the timeframe for completion of each step.
Provided that Customer completes any requirements it has within the
implementation plan in a timely manner, the plan shall result in
completion of the implementation process in accordance with the
implementation table set forth on Exhibit A of this Agreement. MPOWER
agrees that it will be ready for implementation of this Agreement in
connection with the first Health Plan Agreement by [*].
* Confidential Treatment Requested
-3-
<PAGE> 4
In the event Customer enters into Health Plan Agreements with
additional Contracted Health Plans, MPOWER shall cooperate diligently
with Customer to implement services in connection with such Health Plan
Agreements. In consideration for such implementation, Customer shall
pay MPOWER for MPOWER's costs for such implementation based on mutually
agreed upon work orders. One half of the estimated amount of such costs
shall be paid to MPOWER prior to commencement of such implementation
and the balance shall be paid upon successful completion of
implementation.
3. QUALIFICATIONS AND SERVICE LEVEL REQUIREMENTS. Consistent, high quality
service to Customer, policyholders, Contracted Health Plans, and
providers is an essential requirement. MPOWER will meet the following
qualifications and service level commitments.
A. On or before [*], MPOWER shall file initial applications to
obtain all applicable licenses/certifications required for
MPOWER to perform its obligations hereunder, including without
limitation, licensure as a third party administrator and
utilization review agent, if applicable, and MPOWER shall
obtain such licenses/certifications. Thereafter, MPOWER shall
at all times during the term of this Agreement remain
appropriately licensed in each state in which MPOWER performs
services hereunder.
B. Subject to Section 3.A above, MPOWER shall remain in
compliance with all applicable local, state, and federal laws,
rules and regulations relating to the services provided by
MPOWER hereunder, including without limitation, fulfillment of
third party administrator financial obligations pertaining to
payment of penalties for late claims, interest, or other
penalties, as well as any claim reserves or other funding
requirements.
C. MPOWER will maintain compliance with all Customer requirements
pertaining to claims processing procedures, including without
limitation, those requirements set forth in the Administrative
Manual. The parties will establish procedures regarding
handling and disbursement of funds as part of the
implementation process, to be finalized prior to [*].
D. MPOWER shall meet or exceed the performance standards set
forth herein relating to claims processing, including but not
limited to claims turnaround time, payment accuracy, and
reporting.
E. MPOWER will establish and maintain throughout the life of the
Agreement a dedicated staff of personnel responsible for
servicing Customer's individual business.
F. MPOWER will maintain backup tapes of all programs, data,
and/or any other information used in the administration of
claims.
G. MPOWER represents and warrants that all hardware/software
required to perform MPOWER's obligations hereunder is Year
2000 compatible and that the information and services to be
provided by MPOWER will not be impaired, disrupted, or
interrupted, in whole or in part, by deficiencies or
inaccuracies related to the processing and display of
date/time data (including, but not limited to, century
recognition, calculations that
* Confidential Treatment Requested
-4-
<PAGE> 5
accommodate the same century and multi-century formulas and
date values, and interface values that reflect the century)
from, into, and between the 20th and 21st centuries, and the
years 1999 and 2000, and leap year calculations. In the event
that Customer becomes aware that MPOWER(R) has not processed
data containing any dates correctly, Customer shall
immediately notify MPOWER of this fact, and MPOWER agrees to
correct or replace MPOWER(R) to eliminate the problem.
4. PERFORMANCE STANDARDS AND ASSOCIATED FINANCIAL PENALTIES.
A. MPOWER shall meet the following performance goals in
connection with the following performance standards:
1. Claims Processing Accuracy. Not less than [*] percent
([*]%) of the claims submitted to MPOWER will be
accurately adjudicated in accordance with the
applicable Administrative Manual, the Network
Provider Agreement and the applicable Membership
Agreement. The performance assessment for claims
adjudication accuracy shall be based on audits
performed by Customer.
2. Timing of Claims Payments. Not less than [*] percent
([*]%) of all claims shall be processed within thirty
(30) calendar days of receipt.
3. Accuracy of Claims Payments. Not less than [*]
percent ([*]%) of the claims submitted to MPOWER
shall be priced in accordance with Customer's
instructions regarding pricing.
4. Written inquiry response time. Not less than [*]
percent ([*]%) of Member's written questions
regarding medical transportation services will be
responded to within five (5) working days after
receipt of such inquiry, Not less than [*]
percent ([*]%) of Member's written requests regarding
medical transportation services will be responded to
within seven (7) working days after receipt of such
inquiry. MPOWER shall report all written inquiries to
Customer on a monthly basis in a format mutually
acceptable to the parties and to the Contracted
Health Plans. In addition, MPOWER shall report all
phone and written complaints and grievances to
Customer within two (2) business days of receipt.
5. Telephone inquiry response time. Not less than [*]
percent ([*]%) of all incoming phone calls shall be
responded to within a time not to exceed twenty (20)
seconds. No telephone inquiries during normal
business hours from Members or Contracted Health Plan
inquiries regarding denials or disputes will be
blocked due to MPOWER's failure to maintain its
system.
6. Abandoned Call Rate. MPOWER's abandoned call rate
shall not exceed [*] percent ([*]%) on not less than
[*] percent ([*]%) of business days.
B. The parties acknowledge that Customer may be subject to
penalties for failure to meet each performance goals set forth
above at least [*] percent ([*]%) of the time during each
calendar quarter. In connection with the assessment of
MPOWER's performance of these
* Confidential Treatment Requested
-5-
<PAGE> 6
goals, MPOWER. may be audited by Customer, by a Contracted
Health Plan, or by an independent auditor on behalf of
Customer and/or a Contracted Health Plan. MPOWER shall be
responsible for, and shall reimburse Customer for, penalties
incurred by Customer under any Health Plan Agreement
(including Administrative Manual) due to MPOWER's failure to
meet each performance goals set forth above [*] percent ([*]%)
of the time during each calendar quarter. Such penalties shall
be paid by MPOWER, to Customer within thirty (30) days after
notification by Customer of the amount of such penalty(ies).
Penalties for specific Contracted Health Plans are more fully
described in Exhibit A hereof and subsequent exhibits
addressing scope of services for each Contracted Health Plan.
5. REPORTING.
A. MPOWER shall accurately measure and report service levels to
Customer. MPOWER, shall provide to Customer (or directly to
the Contracted Health Plans, if so directed by Customer)
reports containing information required by Customer and the
applicable Contracted Health Plan, in accordance with the
applicable Administrative Manual or Contracted Health Plan
Amendment. Such reports must be sent via magnetic tape,
electronic transmission, or diskette (or hard copy, if
requested by a Contracted Health Plan) in a standard format
established by Customer and the Contracted Health Plans, for
each encounter that Member receives during the previous month.
Such information shall be complete and accurate and shall be
provided to Customer (or to a Contracted Health Plan directly,
if so directed by Customer) by the fifteenth (15th) day of the
month, or if the fifteenth (15th) day falls on a weekend or a
holiday, as of the next business day thereafter. However, for
a period, not to exceed nine months, the California Department
of Corporations shall require for all California Contracted
Health Plans weekly reporting. Such encounter data reporting
shall be segregated by Contracted Health Plan. MPOWER shall
promptly provide Customer (or the Contracted Health Plan, as
appropriate) with all corrections and revisions of such
encounter data. Encounter data shall include, at a minimum,
those data elements identified on the HCFA 1500, or its
successor form.
B. MPOWER shall provide to Customer reports related to the
performance of each standard set forth in Paragraph II.4.A
above in the format identified in the applicable
Administrative Manual. Such reports shall be provided on a
monthly or quarterly basis, as determined by Customer and the
applicable Contracted Health Plan, and shall be segregated by
Contracted Health Plan.
C. Upon request, MPOWER shall provide to Customer, or shall
assist Customer to prepare, quality reports in a format
identified in the applicable Administrative Manual. Such
reports shall be prepared at least quarterly and shall be
segregated by Contacted Health Plan.
6. AUDITS. Customer and the Contracted Health Plans shall have the right
to audit MPOWER at any time in connection with MPOWER's performance
pursuant to this Agreement. MPOWER will provide Customer and the
Contracted Health Plans, or their designees, with access at any time to
all of MPOWER's books, records, and systems prepared, maintained, and
utilized in connection with the performance of MPOWER's obligations
pursuant to this Agreement, in every format utilized by MPOWER.
Customer and the Contracted Health Plans, or their designees, shall
have
* Confidential Treatment Requested
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<PAGE> 7
access to MPOWER's personnel during normal business hours, and such
personnel shall cooperate fully with Customer and the Contracted Health
Plans or their designees in the performance of such audits. Customer
shall have the right to copy any and all books and records associated
with MPOWER's services provided to Customer hereunder. Customer agrees
that it will use its best commercially reasonable efforts not to
disrupt the business of MPOWER during the performance of such audits.
7. KEY PERSONNEL. MPOWER will identify and commit key personnel to the
implementation and management of services to be provided under this
Agreement. Any staffing changes involving key personnel will be
discussed in advance between Customer and MPOWER.
8. CONFIDENTIALITY. MPOWER shall maintain the confidentiality of all
Customer and Contracted Health Plan data, including, but not limited
to, contracts, provider information, strategic objectives, enrollment,
financial information, etc. Except as described below, MPOWER shall not
disclose the details of Customer's or any Contracted Health Plan
program experience, including such information as price, claims
history, profit/loss, etc., to any third party. Except as described
below, MPOWER shall maintain the confidentiality of all Customer and
Contracted Health Plan policyholder data, including any medical records
information, operative reports, fee schedule information, and the like.
MPOWER shall disclose information described in this Section only: (a)
in response to a court order; (b) for an examination conducted by the
applicable Office of the Insurance Commissioner; (c) for an audit or
investigation conducted under the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1001, et seq.); (d) to or at the request of
Customer; or (e), with respect to individual patient information, with
the written consent of the insured or certificate holder (or a
designated legal representative) to which the information applies.
MPOWER shall obtain a confidentiality agreement protecting Customer's
confidential information from any subcontractor in a form satisfactory
to Customer.
MPOWER and Customer mutually covenant to keep confidential any
proprietary or confidential information of the other party, and to
implement safeguards designed to prevent disclosure of any proprietary
or confidential information of either party to a third party without
the express written consent of the other party. Such information shall
include internal business practices, business records, trade secrets,
contracts, the terms of this Agreement, or business methods, in any
form whatsoever. MPOWER and Customer further mutually covenant that the
proprietary confidential information of the other will be disclosed
only to such of its employees and representatives as have a need for
such information in furtherance of the purpose contemplated by this
Agreement and, in any case, will be responsible for breaches of this
Section by such employees and representatives. Upon request, the party
receiving such information shall either return or destroy confidential
information, as directed by the disclosing party.
9. TRAINING. MPOWER shall complete any necessary training of Customer
staff and/or staff from other administrators with whom Customer has
contracted for specific services. Customer shall provide training to
MPOWER staff regarding (a) pertinent portions of the applicable
Membership Agreements, including without limitation covered benefits
for medical transportation services, (b) applicable portions of the
Administrative Manuals pertaining to MPOWER's obligations
-7-
<PAGE> 8
hereunder; and (c) any special processes, procedures, or benefits
applicable to a specific Contracted Health Plan that are necessary in
order for MPOWER to satisfy its obligations under this Agreement.
MPOWER. shall make available staff members designated as key contacts
for all administrators and Contracted Health Plans to attend sessions
conducted by Customer for product training, provider issues resolution
or training, and to help build effective working relationships among
administrators and Contracted Health Plans. Such sessions shall be
sponsored by Customer and scheduled as far in advance as possible.
III. PRICE AND PAYMENT
1. PRICE. The fees for the services of MPOWER pursuant to this Agreement
are identified on Exhibit A. These fees cover those services provided
by MPOWER pursuant to this Agreement and are based on the key
assumptions identified on Exhibit A, as well as the cost of toll-free
telephone lines and supplies. In the event of the addition of new
Contracted Health Plans, the encounter pricing set forth on Exhibit A
shall remain applicable to services provided in connection with such
new Contracted Health Plans, except that if the requirements for such
services are materially greater or less than the assumptions set forth
on Exhibit A, the per encounter charge may be changed accordingly upon
mutual agreement of the parties. Notwithstanding the foregoing, the
parties acknowledge that the price set forth in Exhibit A is not
contingent upon the continuation of any specific Health Plan Agreement
between Customer and a Contracted Health Plan.
2. PAYMENT. On or before the fifteenth (15th) day of each month, MPOWER
shall provide Customer with a report of the aggregate number of
encounters processed by MPOWER during the previous month. Customer will
pay MPOWER the applicable tiered encounter fee for such encounters on
or before the last day of the month during which such report was
received by Customer. Customer's obligation to pay MPOWER hereunder
shall be subject to Customer's right to audit MPOWER's books and
records to verify encounters processed by MPOWER in connection with
this Agreement. Customer shall be entitled to offset and withhold from
MPOWER any amounts due Customer for penalties or otherwise.
3. CHARGES. Customer agrees that MPOWER shall have the right to charge
interest of one and one-half percent (1.5%) of the outstanding balance
per month, or the highest amount allowed by law, whichever is less, on
any and all late payments (except to the extent that such amounts are
reasonably disputed by Customer), and Customer agrees to pay such
charges.. All prices mentioned in this Agreement are in U.S. Dollars.
The parties agree that the prices set out in this Agreement do not
include any sales, use or gross receipts taxes, any duties, any similar
assessments, or any other tax imposed on any party by virtue of this
Agreement, all of which, excluding only taxes based on MPOWER's income,
shall be the sole liability of, and shall be paid solely by, Customer.
IV. INDEMNIFICATION
1. Customer agrees to defend, indemnify, and hold harmless MPOWER, and its
parent and subsidiaries, and their officers, directors, agents, and
employees, from and against any claim, expenses (including reasonable
attorney fees and litigation costs), losses, lawsuits, damages, fines,
penalties, or other liability to any third party, including
participating providers, nonparticipating providers, and Customer's
insureds, arising out of or related to any negligent, wrongful, or
- 8-
<PAGE> 9
unauthorized act or omission of Customer or act or omission of MPOWER
expressly required by Customer. MPOWER acknowledges its responsibility
to notify Customer if the officers or directors of MPOWER has knowledge
that direction provided by Customer is negligent, wrongful, or
unauthorized.
2. MPOWER agrees to defend, indemnify, and hold harmless Customer, the
Contracted Health Plans, their respective parents, subsidiaries and
affiliates, and their officers, directors, agents, and employees, from
and against any claim, expenses (including reasonable attorney fees and
litigation costs), losses, lawsuits, damages, fines, penalties, or
other liability to any third party, arising out of or related to any
negligent, wrongful, or unauthorized act or omission of MPOWER.
Customer acknowledges its responsibility to notify MPOWER if the
officers or directors of Customer has knowledge that any action on the
part of MPOWER is negligent, wrongful, or unauthorized.
3. Each party will promptly notify the other if it becomes aware Of any
lawsuit, insurance department complaint, or demand by an attorney,
which may affect the other; provided, however, that the failure to give
such notice will not relieve any such other party from liability under
this Article IV with respect to such lawsuit, insurance department
complaint or attorney demand, except to the extent that such other
party has been actually prejudiced as a result of such failure.
Customer shall be fully responsible for defending lawsuits based solely
on claims arising under the provisions of its policies. MPOWER shall be
fully responsible for defending lawsuits based solely on allegations of
MPOWER's own misconduct. If either party is named as a defendant in a
lawsuit for any matter for which the other party is responsible under
this provision, the other party shall be responsible for defending such
matter. Responsibilities under this provision includes liability for
judgments, reasonable attorney fees, costs, penalties, and fines.
4. Notwithstanding other provisions of this Article IV, the duty of either
party to notify the other, defend, indemnify, or hold harmless under
this Article shall not arise unless and until such claim, expense,
loss, damage, fine, penalty, or other liability to any third party
shall exceed $25,000.
V. DISPUTE RESOLUTION
1. NOTIFICATION AND RESOLUTION OF COMPLAINTS. MPOWER shall notify Customer
within forty-eight (48) hours of receipt of any complaint received from
a Member, a Member's representative, a Contracted Health Plan (if such
complaint involves administrative services rendered by MPOWER pursuant
to this Agreement) or a provider of medical transportation services in
connection with services rendered by MPOWER hereunder. MPOWER agrees to
cooperate fully with Customer and with the applicable Contracted Health
Plan in resolving any Member or provider complaint regarding services
provided by MPOWER in connection with this Agreement, in accordance
with the dispute resolution procedure set forth in the applicable
Membership Agreement, Administrative Manual or provider agreements, as
appropriate. In addition, MPOWER agrees to be joined in any dispute
between Customer and a Contracted Health Plan involving administrative
services rendered by MPOWER pursuant to this Agreement, and to
cooperate fully in the resolution of such dispute in accordance with
the dispute resolution procedure set forth in the applicable Health
Plan Agreement.
2. DISPUTE BETWEEN THE PARTIES. If any dispute shall arise between the
parties in connection with this Agreement that is unrelated to a
Member, provider, or Contracted Health Plan
-9-
<PAGE> 10
complaint, the parties shall make every effort to amicably resolve the
dispute pursuant to this Section V.2. The following procedures shall be
adhered to in order to expeditiously resolve any disputes arising
during the term of this Agreement.
A. The party invoking the procedures of this Section V.2 shall
provide written notice to the other party. Each party shall
designate an individual empowered to bind the organization to
a negotiated resolution of the dispute. Unless the dispute is
resolved with fewer meetings, these parties shall meet and
confer at least two (2) times within forty-five (45) days to
attempt to reach such resolution. If the matter has not been
resolved informally within such forty-five (45) days (which
period may be extended by mutual agreement), the dispute shall
be settled by binding arbitration, in accordance with the
provisions of Sections B through G of this Section V.2.
B. Either party may commence arbitration by sending a written
demand for arbitration to the other party, setting forth the
nature of the controversy, the dollar amount involved, if any,
and the remedies sought, and attaching a copy of this Article
V to the demand. The parties shall attempt to agree upon
either one or three (3) arbitrators, as they jointly deem
appropriate. If the parties fail to agree upon the appropriate
number of arbitrators and the identity of the arbitrator(s)
within ten (10) days after the demand for arbitration is
mailed, then the parties stipulate to arbitration before three
(3) neutral arbitrators sitting on the JAMS/Endispute ("JAMS")
panel administered by the Denver, Colorado, JAMS office. Each
party shall select one such arbitrator from the panel, and the
third arbitrator shall be selected by the first two so
selected. All three arbitrators shall be neutrals, and no
arbitrator shall have a conflict of interest unless waived by
both parties.
C. The parties shall share all costs of arbitration.
D. The arbitrator(s) shall apply the substantive law of Colorado.
The parties shall have the rights of discovery as provided for
any judicial proceeding. The Colorado evidence code shall
apply to testimony and documents submitted to the
arbitrator(s).
E. Arbitration shall take place in Denver, Colorado unless the
parties otherwise agree. As soon as reasonably practicable,
the arbitrator(s) shall conduct a hearing on the dispute or
matter to be resolved. As soon as reasonably practicable
thereafter, the arbitrator(s) shall arrive at a final
decision, which shall be reduced to writing, signed by the
arbitrator(s) and mailed to each of the parties and their
legal counsel.
F. All decisions of the arbitrator(s) shall be final, binding and
conclusive on the parties and shall constitute the only method
of resolving disputes or matters subject to arbitration under
this Agreement. The arbitrator(s) or a court of appropriate
jurisdiction may issue a writ of execution to enforce the
arbitrator's judgment. Judgment may be entered upon such a
decision in accordance with applicable law in any court having
jurisdiction.
G. Notwithstanding the foregoing, because time is of the essence
of this Agreement, the parties specifically reserve the right
to seek a judicial temporary restraining order, preliminary
injunction, or other similar short term equitable relief, and
grant the
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<PAGE> 11
arbitrator(s) the right to make a final determination of the
parties' rights, including whether to make permanent or
dissolve such court order.
VI. TERM AND TERMINATION
1. TERM. The initial term of this Agreement shall commence on the
Effective Date hereof and shall continue for a period of [*] ([*])
years unless sooner terminated in accordance with this Article VI.
Thereafter, this Agreement shall automatically renew for consecutive
one (1) year periods.
2. DELAYS IN IMPLEMENTATION. In the event this Agreement is not
implemented in accordance with the implementation schedule set forth on
Exhibit A as to any service area noted in such schedule, and such delay
is caused by the acts or omissions of MPOWER (except as such acts or
omissions were directed by Customer), MPOWER shall be liable for any
damages incurred by Customer as a result of such delay, including such
damages payable by Customer to a Contracted Health Plan under the
applicable Health Plan Agreement in connection with such delay in
implementation. MPOWER shall continue implementation of the remaining
service areas in accordance with the implementation schedule. If the
delayed service area is not implemented within ninety (90) days of the
scheduled implementation date, such delay by MPOWER shall be deemed to
be a material breach of this Agreement. This section shall not apply to
any delays in implementation resulting from the actions of Customer or
the applicable Contracted Health Plan.
3. TERMINATION WITHOUT CAUSE. This Agreement may be terminated without
cause by either party by providing one hundred twenty (120) days prior
written notice to the other party; provided, however, that if MPOWER
terminates this Agreement pursuant to this Section, Customer shall have
the right to exercise the option set forth on Attachment A-2 of Exhibit
A of this Agreement, regardless of when during the term of this
Agreement such termination occurs.
4. TERMINATION FOR CAUSE. This Agreement may be terminated immediately
upon written notice thereof given by either party if any one oft he
following occurs, but in no event shall such termination relieve either
party from any of its obligations incurred at the time of termination
under this Agreement.
A. Except as provided in Section 4.B below, either party may
terminate this Agreement upon failure of the other party to
cure non-compliance with any material provision of this
Agreement within thirty (30) days after the terminating party
gives written notice of such non-compliance to the other
party, unless cure of the non-compliance cannot be reasonably
completed within thirty (30) days, in which case such cure
shall be commenced within such thirty (30) day period and
diligently pursued to completion, which completion shall occur
no later than forty-five (45) days after the initial notice of
termination. Any such termination shall be effective as of the
date of expiration of the applicable cure period.
B. In the event of breach by MPOWER, Customer may terminate this
Agreement in whole or in part (i.e., only as to specific
service areas or Contracted Health Plans).
5. IMMEDIATE TERMINATION.
* Confidential Treatment Requested
-11-
<PAGE> 12
A. Subject to Section II.3.A hereof, this Agreement shall
automatically terminate if MPOWER fails to maintain applicable
licensure as a third party administrator and/or such other
licenses or certifications required for MPOWER to perform its
obligations hereunder.
B. In the event of any material adverse change in MPOWER's
insurance coverage, Customer may immediately terminate this
Agreement.
C. In the event of termination of a Health Plan Agreement for any
reason, Customer may terminate this Agreement in whole or in
part effective on the date of termination of the Health Plan
Agreement. Customer shall provide MPOWER with not less than
forty-five (45) days notice of such termination.
D. This Agreement may be terminated if either party becomes
insolvent, or is adjudicated as bankrupt, or its business
comes into possession or control, even temporarily, of any
trustee in bankruptcy, or a receiver is appointed for it, or
it makes a general assignment for the benefit of creditors,
and no interest in this Agreement shall be deemed an asset of
creditors. No interest in this Agreement shall be deemed an
asset or liability of either party, nor shall any interest in
this Agreement pass by operation of law without the consent of
both parties.
6. EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason, the Agreement shall be of no further force or effect, except as to the
rights and obligations of the parties arising out of transactions occurring
prior to the effective date of termination. MPOWER shall cooperate fully with
Customer and all Contracted Health Plans to ensure a smooth transition of
administrative functions assumed by MPOWER hereunder to Customer or directly to
another administrative services vendor. Such cooperation shall include but not
be limited to the following:
A. MPOWER shall continue to pay claims incurred during the term
of this Agreement unless directed by Customer to transfer such
functions to Customer or directly to the new administrative
services vendor.
B. MPOWER. shall transfer, as soon as possible, both
electronically and on diskette, all data, records, and other
information connected with claims processing and other
services provided by MPOWER to Customer or directly to the new
administrative services vendor.
C. MPOWER shall provide a final accounting of claims processed
within thirty (30) days after the end of the month in which
this Agreement was terminated.
VII. GENERAL PROVISIONS
1. OPTION TO LICENSE SOFTWARE. MPOWER hereby grants Customer an option to
license the MPOWER(R)software system in accordance with Attachment A-2
of Exhibit A of this Agreement. Customer may exercise such option only
after completion of the first two (2) years of the initial term this
Agreement, unless MPOWER terminates this Agreement without cause in
accordance with Section VI.3 hereof, in which case, Customer may
exercise this option at that time, regardless of when such termination
occurs. In the event Customer exercises the option pursuant to this
Section, this Agreement shall terminate upon Acceptance of the software
by Customer, as defined in Paragraph 5 of Attachment A-2 of Exhibit A
of this Agreement.
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<PAGE> 13
2. COVENANT NOT TO HIRE. During the life of the Agreement between
Customer and MPOWER, and for a period of one (1) year after termination
of the Agreement by either party for any reason, both parties agree not
to knowingly hire, directly or indirectly, for the purpose of
performing or assisting others in the performance of, any service or
function provided pursuant to this Agreement, who was an employee of
the other party during the life of this Agreement without the prior
written consent of the other party. "Knowingly" as used in the
preceding sentence is intended to refer to the actual knowledge of the
officers and senior management of the parties hereto. This covenant
applies to both parties and to any of their affiliated companies,
including, but not limited to, a parent or subsidiary company. Both
parties agree that calculating damages that a breach of this section
would cause is difficult and agree to liquidated damages in the mount
of [*] Dollars ($[*]) per breach. Injunctive relief shall also be
available to the parties.
3. SUBCONTRACTING. All services proposed by MPOWER will be performed by a
combination of its own staff and designated subcontractor(s). All
subcontractors operating on behalf of MPOWER will be subject to the
terms and. conditions of this Agreement. Customer shall have the fight
to approve all subcontractors prior to their contracting with MPOWER.
4. CUSTOMER SATISFACTION SURVEYS. Customer may periodically conduct
"customer" satisfaction surveys of policyholders, Contracted Health
Plans, and providers with whom Customer has contracted. MPOWER agrees
to record all interactions with these parties and provide those
records, including the callers' telephone numbers, to Customer as
requested. MPOWER will provide other reasonable support to Customer's
customer satisfaction survey activities as requested.
5. INSURANCE. Each party shall obtain and carry general liability
insurance, including errors and omissions coverage, in a form and with
an insurer acceptable to the other, with limits of at least $1,000,000
per occurrence and $3,000,000 in the aggregate. Within sixty (60) days
of execution of this Agreement, each party shall deliver to the other a
certificate of notice which provides that, should either party
discontinue its errors and omissions coverage, the other will be
notified by the errors and omissions carrier. In the event any such
coverage is provided on a claims made basis, such coverage shall be
manufactured (or such party shall procure equivalent tail coverage) for
a period of five (5) years after the termination hereof.
6. BUSINESS RELATIONSHIP. The business relationship of MPOWER to Customer
hereunder is that of an independent contractor and not as partner,
joint venture, employee, or agent.
7. NO ADVERTISING. MPOWER shall not engage in any marketing or advertising
of any Customer products or services without the express written
consent of Customer.
8. NOTICE. Any notice required or permitted hereunder shall be deemed
served if personally delivered or mailed by registered or certified
mail, return receipt requested, postage prepaid, and properly addressed
to the respective party to whom such notice relates at the address set
forth below, or at such other address as shall be specified by notice
given in the manner herein provided.
Notice to Customer: AMERICAN MEDICAL PATHWAYS
* Confidential Treatment Requested
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<PAGE> 14
2821 South Parker Road
Aurora, CO 80014
Attn: President and Chief Operating Officer
With a copy to: AMERICAN MEDICAL RESPONSE
2821 South Parker Road
Aurora, CO 80014
Attn: President and Chief Operating Officer
Notice to MPOWER: MPOWER SOLUTIONS, INC.
6400 S. Fiddler's Green Circle
Suite 540
Englewood, CO 80111
Attn: Chief Executive Officer
9. PARTIES BOUND. This Agreement shall be binding upon and shall inure to
the benefit of the parties And their respective successors and
permitted assigns. Neither party shall assign or otherwise transfer
this Agreement without the prior written consent of the other party;
provided, however, that either party may assign this Agreement to any
subsidiary of such party (or in the case of Customer any subsidiary of
AMR) in which such party owns an equity position of fifty one percent
(51%) or more, by giving thirty (30) days' prior written notice to the
other party, provided that any such assignee has at least the financial
and other capabilities to perform hereunder as the original parties
hereto.
10. AMENDMENT. This Agreement may be amended at any time but only by the
written agreement of the parties.
11. SEVERABILITY. The invalidity or unenforceability of any term or
provision hereof shall in no way affect the validity or enforceability
of any other term or provision of this Agreement.
12. GOVERNING LAW. This Agreement and the rights, obligations, and remedies
of the parties hereunder shall b e governed by the laws of the state of
Colorado.
13. HEADINGS. The table of contents and headings to the various paragraphs
of this Agreement have been inserted for convenient reference only and
shall not modify, define, limit, or expand the express provisions of
this Agreement.
14. AUTHORIZATION FOR AGREEMENT. The execution and performance of this
Agreement by the parties has been duly authorized by all necessary
laws, resolutions, or corporate action, and this Agreement constitutes
a valid and enforceable obligation of the parties in accordance with
its terms.
15. FORCE MAJEURE. No party shall be liable for any failure to perform its
obligations under this Agreement, including without limitation
compliance with the performance standards set forth in Section II.4, to
the extent that such failure results from any act of God, riot, war,
civil unrest, natural disaster or labor dispute.
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<PAGE> 15
16. ENTIRE AGREEMENT. This Agreement, including exhibits and
attachments, contains the entire agreement between the
parties, and this Agreement may not be modified or terminated
except as expressly provided herein or by an agreement in
writing signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the day and year first set forth above.
AMERICAN MEDICAL PATHWAYS, INC. MPOWER SOLUTIONS, INC.
[ILLEGIBLE] ["MPOWER"]
/s/ ROBERT E. WATSON /s/ MARK S. RANGELL
- ------------------------------ ---------------------------------
SIGNATURE SIGNATURE
ROBERT E. WATSON MARK S. RANGELL
- ------------------------------ ---------------------------------
NAME PRINTED NAME PRINTED
VP & CEO, PATHWAYS SENIOR VICE PRESIDENT
- ------------------------------ ---------------------------------
TITLE TITLE
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<PAGE> 16
EXHIBIT A
SCOPE OF SERVICES
IN CONNECTION WITH
KAISER FOUNDATION HEALTH PLANS
STATEMENT OF WORK
ELIGIBILITY
KEY ASSUMPTIONS:
o A full eligibility data load will be provided to MPOWER from Customer
and Kaiser Foundation Health Plans ("Kaiser") in a format agreed to
between Customer and Kaiser, which shall be in the MPOWER-specific
electronic format
o Customer and the Contracted Health Plan will provide eligibility on an
agreed to monthly date and be loaded by MPOWER within 24 hours of
receipt with each new eligibility load representing the current
"eligible population"
o No retroactive enrollments and disenrollments
o No reconciliation of monthly eligibility
o No retroactive claim adjustments
IMPLEMENTATION SCHEDULE
<TABLE>
<CAPTION>
LIVES ENCOUNTERS ENCOUNTERS
PHASE REGION (000,000) (YEARLY) (MONTHLY) LIVE DATE
- ----- ------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1 Rocky Mountain Division* [* * * *
2 Southern CA * * * *
3 AMR Other * * * *
4 K.C. * * * *
5 Northern CA * * * *
6 Oregon, Hawaii, WA * * * *
7 Georgia, N.C. * * * *
8 Maryland, Ohio, Wash D.C., VA * * * *
9 NY, MA, VT, CT * * * *]
--------- ---------- ---------
Total [* * *]
</TABLE>
*The financial provisions connected with this service area will be implemented
on June 1, 1999.
* Confidential Treatment Requested
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<PAGE> 17
CAPITATION/FUND POOL MANAGEMENT/FINANCIAL
KEY ASSUMPTIONS:
o Set-up and maintain fund pools applicable to Kaiser satellite
locations
o Load and maintain provider and vendor data for 100 network
providers
o Set-up and maintain roll-up hierarchy of Customer transports
by division
o Set-up and maintain roll-up hierarchy of transports by Kaiser
satellite
o Provide 1099s for up to 100 non-Customer network providers
o Perform fee-for-service claims payments and issue remittance
advice with checks to providers (100 checks/me.)
AUTHORIZATIONS/CLAIMS
KEY ASSUMPTIONS:
o 56% of claims will require medical necessity checking (60%
submitted electronically)
o 44% will auto-adjudicate according to role set (85% submitted
electronically)
o Encounter volume breakdown according to Attachment A
o Denials are disbursed to Providers and Kaiser for distribution
o Customer Service is limited to 100 Providers and
Customer/Contracted Health Plan staff
o No EOBs are submitted to members
o Claims are submitted in standard HCFA 1500 or UB92 format
o Maintenance of out of network providers will be limited to 500
providers
o Customer service calls to Contracted Health
Plans/Customer/contracted providers will be limited to 2% of
the volume attributed to Medical Necessity claims. Excess
Customer services requirements shall be managed by Customer
o Medical necessity checking will be limited to Contracted
Health Plan approved protocol compliance and subject to
"prudent person" rule, if applicable
REPORTING
o Provide encounter data reporting electronically
o Limited to reports which are included in standard MPOWER
system format, and as agreed to by the Contracted Health Plan
PRICING ASSUMPTIONS
The following assumptions have been made within the generic pricing model.
1. IMPLEMENTATION - Implementation has been scoped on the basis of a
standard implementation without consideration for custom reporting or
custom interfaces. These customizations would be provided on a time and
materials basis (based on mutually agreed upon scope-of-work orders) or
could be quoted fixed fee if a detailed specification is available.
2. VOLUMES - are based on attached estimated encounter volumes.
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<PAGE> 18
3. Encounter Tiers - were scoped based on anticipated roll-out of the
Kaiser contract and reflect higher fees in the earlier stages of the
contract.
4. Travel & Expenses - Any travel which is required to AMERICAN MEDICAL
PATHWAYS client sites is not included.
5. Training - of AMERICAN MEDICAL PATHWAYS staff in MPOWER system
operations is not included. However, MPOWER shall be financially
responsible for training the individual responsible for providing such
training to AMERICAN MEDICAL PATHWAYS.
6. Dedicated Telecommunications - between MPOWER Denver Operations and
AMERICAN MEDICAL PATHWAYS is included.
7. Location - Computer Operations will be housed in MPOWER facilities with
claims processing staff located in Federal Way, WA and Jacksonville,
FL.
PENALTIES
In accordance with Section II.4.B of this Agreement, MPOWER is responsible for
reimbursing Customer for penalties incurred by Customer due to MPOWER's failure
to meet the performance goals set forth in Section II.4.A of this Agreement.
Such penalty shall be equal to [*] percent ([*]%) of the administrative fees set
forth in Article II hereof in connection with the particular service area(s) (as
defined in the applicable Health Plan Agreement) that has been deemed not to
have met the performance goals set forth in Section II.4 of this Agreement.
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<PAGE> 19
PRICING MODEL
The pricing model is broken down into two components.
1. Fixed infrastructure.
2. Monthly encounter processing.
FIXED INFRASTRUCTURE
The benefit of the MPOWER outsourcing project is the ability of Customer to
bring a fully implemented turnkey system operation in-house at the end of the
processing contract. As such, MPOWER has broken out fixed fee infrastructure
costs as follows:
o Operations Hardware/Software
o MPOWER System Software
o Implementation Services
A description of the hardware and software system is more specifically described
in Attachment A-1, attached to this Exhibit A and made a part of this Agreement.
The cost for these fixed infrastructure fees is $778,000. Software for on-site
Customer workstations will be approximately an additional cost of
$[*]/workstation. Customer shall pay MPOWER [*] Dollars ($[*]) upon execution of
this Agreement, [*] percent ([*]%) of the remaining balance within forty-five
(45) days after execution of this Agreement, and the remaining [*] percent
([*]%) of the balance plus additional costs for workstations upon completion of
initial implementation. If this Agreement is terminated by Customer for cause
prior to completion of implementation, MPOWER shall refund to Customer the
greater of: (a) any amounts not spent by MPOWER on its actual costs of
implementation or (b) [*] percent ([*]%) of the fee paid to MPOWER up until the
effective date of termination.
MONTHLY ENCOUNTER PRICING
<TABLE>
<CAPTION>
TIERS
(MONTHLY)
ENCOUNTERS $/ENCOUNTER
---------- -----------
<S> <C>
0 - 9999 $[*]
10000 - 19999 $[*]
20000 - 34999 $[*]
35000+ $[*]
</TABLE>
The foregoing encounter numbers include all encounters from all Contracted
Health Plans aggregated.
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<PAGE> 20
ATTACHMENT A-1
DESCRIPTION OF HARDWARE AND SOFTWARE
IBM KS-6000, Model J-50
MPOWER(R) Managed Care Software Application
IBM Transaction Server
IBM Universal Data Base (UDB)
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<PAGE> 21
ATTACHMENT A-2
TERMS OF LICENSE AGREEMENT
Upon exercise of the Option, the terms of the license agreement ("Agreement")
between MPOWER SOLUTIONS, INC. ("MPOWER") and AMERICAN MEDICAL PATHWAYS, INC.
("AMP") shall be as follows:
1. The software to be licensed by AMP from MPOWER ("the Software") is the
MPOWER Managed Care Software Application.
2. The license to be granted by MPOWER to AMP ("the License") is a
perpetual, nonexclusive, nontransferable (except to affiliates and
successors), license to utilize the Software at all locations and for
any number of stations and/or users.
3. The License shall be of the then latest existing version of the
Software. The License shall include all documentation related to the
Software.
4. The fee for the License (the "License Fee") shall be the lesser of (i)
$[*], or (ii) the then-existing fee for the Software charged by MPOWER
to its best customers, after giving effect to the rate of discount
given by MPOWER to its best customers, less the sum of $[*].
5. The License Fee shall be payable as follows. [*] percent ([*]%) thereof
at execution of a formal License Agreement. [*] percent ([*]%) thereof
upon installation. The remaining [*] percent ([*]%) upon Acceptance,
which shall be defined as sixty (60) days' continuous performance of
the Software in AMP's live environment in accordance with its
specifications and with acceptable system up-time and acceptable system
response time.
6. Support, maintenance, updates and enhancements ("maintenance and
support") shall be provided by MPOWER, at the option of AMP, for up to
five years after Acceptance. The annual fee therefor for the first two
(2) years after Acceptance shall be [*] percent [*]% of the License
Fee. The annual fee for years three (3), four (4) and five (5) after
Acceptance shall be [*] percent ([*]%) plus an amount equal to the
Consumer Price Index ("CPI") in the Denver Colorado Area as published
by the United States Department of Labor, Bureau of Labor Statistics on
the day preceding the first day of each such year.
7. At its option, from time to time during the maintenance and support
period described In paragraph 6 above AMP may obtain additional
Operational Systems Management Services from MPOWER. The fee therefor
shall be the sum of [*] Dollars ($[*]) per month.
8. The License shall be granted to AMP and the maintenance and support
shall be provided to AMP pursuant to a formal license agreement, i.e.
the Agreement referred to above, and upon exercise of the option both
MPOWER and AMP agree to negotiate in good faith toward the drafting,
mutual acceptance and execution of such an Agreement at the earliest
practicable time.
9. The Agreement shall provide at least the following warranties by MPOWER
to AMP: a) that the Software is Year 2000 compliant; b) that the
License does not infringe the patent, copyright, or other legal rights
of any third party; and c) that MPOWER has not and will not introduce
any virus, time-bomb, etc. into the Software.
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<PAGE> 22
10. If the Agreement limits the liability of MPOWER as to incidental and
consequential damages, such limitation shall not apply to damages
caused by breach of any warranty of MPOWER under the Agreement, nor to
damages due to the Set, are or to the acts or omissions of MPOWER.
11. If the Agreement limits the liability of MPOWER to a maximum dollar
amount, such amount shall not be less than the License Fee.
12. The License Fee shall not include the costs of installation,
implementation nor reasonable training of AMP personnel. Further,
reasonable out-of-pocket travel expenses of MPOWER shall be payable in
addition to the License Fee.
13. The Agreement shall provide for settlement of disputes by arbitration
in Denver, Colorado, and that the Agreement shall be governed by the
internal laws of the state of California.
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<PAGE> 23
EXHIBIT B
IMPLEMENTATION PLAN
NEW ACCOUNT IMPLEMENTATION WORKPLAN SCHEDULE
The following attachment provides a sample implementation plan, indicating key
activities and milestones to be accomplished during the implementation process.
This schedule normally covers a period of ninety (90) days from contract
signing. MPOWER and Customer will work in conjunction with the first Contracted
Health Plan to expedite the standard timeframe, in support of a [*] initial live
date for the first service area (Rocky Mountain Division).
* Confidential Treatment Requested
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<PAGE> 24
<TABLE>
<CAPTION>
%
ID TASK NAME COMPLETE DURATION START* FINISH
- -- --------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1 x [*]
2 x
3 x
4 x
5 x
6 x
7 x
8 x
9 x
10 x
11 x
12 x
13 x
14 x
15 x
16 x
17 x
18 x
19 x
20 x
21 x
22 x
23 x
24 x
25
26
27
28
29
30
31
32
33
34
35
36
37
38
</TABLE>
* Confidential Treatment Requested
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<TABLE>
<CAPTION>
%
ID TASK NAME COMPLETE DURATION START* FINISH
- -- --------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
39 [*]
40
41
42
43
44
45
46
47 x
48
49
50
51
52
53
54
55 x
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
</TABLE>
* Confidential Treatment Requested
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<TABLE>
<CAPTION>
%
ID TASK NAME COMPLETE DURATION START* FINISH
- -- --------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
79 [*]
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
</TABLE>
* Confidential Treatment Requested
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<TABLE>
<CAPTION>
%
ID TASK NAME COMPLETE DURATION START* FINISH
- -- --------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
119 [*]
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
</TABLE>
* Confidential Treatment Requested
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<TABLE>
<CAPTION>
%
ID TASK NAME COMPLETE DURATION START* FINISH
- -- --------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
159 [*]
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
</TABLE>
* Confidential Treatment Requested
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<TABLE>
<CAPTION>
%
ID TASK NAME COMPLETE DURATION START* FINISH
- -- --------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
199 [*]
200
201
202
203
204
205
206
207
208
209
210
211
</TABLE>
* Tasks may not be started earlier than this date
* Confidential Treatment Requested
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<PAGE> 30
NON-DISCLOSURE AGREEMENT ("AGREEMENT")
This Agreement is entered into as of ,19__, by and between MPOWER Solutions
Inc., a Delaware corporation ("MPOWER"), with its principal place of business at
6400 South Fiddler's Green Circle, Suite 540, Englewood, CO 80111 and___________
____________________________________ ("Consultant") with its principal place of
business located at ____________________________________________________________
__________________________________________________________________________
WHEREAS, each party wishes to disclose and to receive from the other party
certain proprietary information for the purpose of _____________________________
________________________________________________________________________________
_______________________
WHEREAS, the parties wish to protect certain confidential information winch may
be disclosed between them.
NOW THEREFORE, in consideration of access to said information the parties hereto
agree that for a period of three (3) years from the date of this Agreement,
neither party shall copy, reproduce or disclose any information it receives from
the other that is marked "Confidential" to any other person, farm, or
corporation, or use such data for its own benefit, except as provided herein,
and shall use the same degree of care to avoid publication or use of such
information as each employs with respect to its own information of like
importance which it does not desire to have published or disseminated.
Information disclosed orally shall be confirmed in writing within thirty (30)
days to be deemed Confidential hereunder. Within thirty (30) days of receipt of
written request from the other party, each party agrees to return to the other
party, and to delete from any of its electronic storage devices, all
Confidential information received from the other, in whatever form.
The parties hereto agree that information shall not be deemed proprietary and
each party shall have no obligation with respect to any information which
(i) is or falls into the public domain through no wrongful act of the
receiving party;
(ii) is rightfully received from a third party without restriction and
without breach of this Agreement;
(iii) is approved for release by written authorization of the disclosing
party;
(iv) is disclosed pursuant to the requirement of a governmental agency or
operation of law; or
(v) has been previously and independently developed by the receiving party.
Nothing contained in this Agreement shall be construed as granting, conferring,
or implying any rights by license or otherwise.
IN WITNESS WHEREOF, the parties by their duly authorized representatives have
caused this Agreement to be executed as of the date first written above.
MPOWER SOLUTIONS INC. CONSULTANT
By: By:
---------------------------------- ------------------------------------
(Authorized Signature) (Authorized Signature)
Title: Title:
------------------------------- ----------------------------------
Date: Date:
-------------------------------- -----------------------------------
<PAGE> 1
EXHIBIT 10.11
TABLE OF CONTENTS
Processing and Services Agreement
1. Definitions
2. Remote Processing
3. Ongoing Basic Support
4. Incremental Support
5 System Modifications
6. Problem Resolution
7 Customer Responsibilities
8 Warranties
9. Limitation of Liability
10. Fees and Charges
11. Term of Agreement
13. Dispute Resolution and Termination
14. Confidentiality
15. Backup and Disaster Recovery and Audit
16. Relationship Management
17. General
Schedule A - Processing and Service Fees
Schedule B - Ongoing Basic Support
Schedule C - Remote Processing
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<PAGE> 2
Schedule D - Work orders
Schedule E - Addendum to Processing and Services Agreement
(to implement client server product at Customer
site)
1. Definitions
2. MPOWER Software; License; Core Services
3. Supplemental Service
5. Acceptance
5. Fees and Charges
6. Problem Resolution
7. Customer Responsibilities
8. Warranties
9. Limitation of Liability
10. Other Provisions
11. Additional Provisions Relating to Termination
12. Provisions Relating to Confidentiality
13. Amendments to Section 13., General
Exhibit 1 - Definition of Core Services
Exhibit 2 - License, Processing and Service Fees
Exhibit 3 - MPOWER Identified Parties for Non-Disclosure
Exhibit 4 - Documentation Outline
Exhibit 5 - Non-Disclosure Agreement
Exhibit 6 - Third Party Vendor Software and Hardware to
Hardware to Implement MPOWER software on Client Server
ii
<PAGE> 3
PROCESSING AND SERVICES AGREEMENT
This Agreement, effective as of the 1st day of January, 1997 is
entered into by and between Brokerage Services, Incorporated, a New Mexico
corporation with offices at 11200 Lomas Boulevard, N. E., Albuquerque, New
Mexico, 87112 ("Customer"), and MPOWER Solutions Inc., a Delaware corporation
with offices at 2305 Renard Place, S.E, Albuquerque, New Mexico 87106
("MPOWER").
WHEREAS, MPOWER is in the business of providing automated managed
health care information services to businesses providing managed health care
insurance services, and desires to provide such services to Customer, subject to
the terms hereof; and
WHEREAS, Customer is in the business of providing managed health
care and other health benefits administration services to its customers' and
desires to use the services of MPOWER, subject to the terms hereof;
WHEREAS, a Managed Care Management Information Services
Agreement, terminating July 31, 1996 and extended by Letters dated June 27,
1996, August 29, 1996, and December 12, 1996, until December 31, 1996, currently
exist between MPOWER and Customer, and both parties desire to replace that
Agreement in totality.
NOW, THEREFORE, in consideration of the mutual promises made, the
terms and conditions hereunder described and other valuable consideration, the
parries agree as follows:
SECTION 1. DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the meanings
indicated, unless the context clearly requires otherwise;
(a)"Effective Date" shall mean the date first set forth above.
(b) "Expenses" shall mean any out of pocket expenses, including,
without limitation, travel and travel-related expenses, incurred by MPOWER in
connection with the performance of the MPOWER Services pursuant to this
Agreement.
(c) "Fees" shall mean the fees for MPOWER Services set forth in
the Schedule A attached hereto including the Remote Processing Fees, Ongoing
Basic Support Fees, and the Personnel Resources Fees.
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<PAGE> 4
(d) "Incremental Support" shall be any support required by
Customer and agreed to be provided by MPOWER in addition to that provided as
part of Ongoing Basic Support, and which shall be provided for the Personnel
Resources Fees specified in Schedule A and including but not limited to the
services described in Schedule B annexed hereto, and herein, subject to the
terms hereof.
(e) "Member" shall mean an individual who has been or will be
eligible for certain benefits provided by or through Customer, which individual
becomes eligible either (a) directly as the subscriber to a Customer sponsored
and administered insurance or benefit program, or as an eligible employee to an
employer sponsored benefit plan administered by Customer, or Co) indirectly as a
dependent of that subscriber or employee. For example, in a family of four (4)
individuals, where the employee is the primary insured individual, the employee,
the spouse and the two (2) dependent children are each a Member for a total of
four (4) Members:
(f) "Member Month" shall mean, respectively, during any
applicable month, the number of active eligible Customer Members as enrolled and
entered by Customer onto the MPOWER System, adjusted for actual retroactive
Customer Member enrollment or disenrollment occurring in the prior twelve (12)
months. Such retroactive adjustments shall include the twelve (12) months prior
to the Effective Date of this is Agreement. Retroactive disenrollment shall not
apply to a month in which the Member was, at any prior time, eligible for
processing on MPOWER's system under a Customer's subscriber contras, and are
limited to late enrollments and disenrollments by employer groups.
(g) "Ongoing Basic Support" shall be the support provided by
MPOWER and limited by the conditions of Schedule A and which includes services
as described in Schedule B annexed hereto, and herein.
(h) "MPOWER Services" shall mean the Remote Processing Services,
Ongoing Basic Support, Incremental Support and other services provided by
M_POWER to Customer as described herein.
(i) "MPOWER Site" shall mean the site of the MPOWER System,
currently located at 2305 Renard Place, S. E., Albuquerque, New Mexico.
(j) "MPOWER Software" shall mean a single database version of the
MPOWER(TM) software which is used to perform the MPOWER Services for Customer,
and any updates, revisions, enhancements, or additions thereto made by MPOWER.
(k) "MPOWER System" shall mean the computer hardware, MPOWER
Software and other hardware and software at the MPOWER Site linking the M. POWER
Site to the communication network and to Customer's facility(ies).
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<PAGE> 5
(l) "Remote Processing Fees" shall mean the Fees for Remote
Processing Services set forth on Schedule A.
(m) "Remote Processing Services" shall mean those MPOWER Services
which allow Customer's use of the MPOWER Software by remote access to the MPOWER
System at the MPOWER Site as described Herein.
(n) "User Documentation" shall mean the User Documentation as
published and updated periodically by MPOWER.
(o)"General System Enhancements" shall mean enhancements,
revisions or updates to the MPOWER Software that are made available generally to
licensees of the MPOWER Software, as and when such enhancement, revisions or
updates are made available generally.
SECTION 2. REMOTE PROCESSING
2.1 Remote Processing Services. MPOWER shall provide Customer
with Remote Processing Services, as described in Schedule C annexed Hereto,
until termination or expiration of this Agreement. In addition, for the Remote
Processing Fees, MPOWER shall provide Customer with the number of hours of
Ongoing Basic Support set forth in Schedule A. Customer shall be required to
continue to receive Remote Processing Services for the term of this Agreement
unless Customer exercises his rights as delineated in Section 12 Conversion to
Customer Processing.
2.2 Remote Processing Fees. The Remote Processing Fees are set
forth in .Schedule A. In addition, Customer shall be responsible for all network
costs related to data communications with the MPOWER Site, including costs of
equipment at the Customer site necessary. for Customer to communicate with the
M-POWER Site, and the installation, operation and maintenance thereof.
2.3 Data Integrity. Customer acknowledges that, the quality and
integrity of all Customer data is solely Customer's responsibility.
2.4 Remote Processing Errors. MPOWER shall use due care in
processing all information transmittal to it by Customer. In the event of any
errors attributable to a malfunction of the MPOWER System, errors of MPOWER
operators, programmers or other personnel, or otherwise attributable to MPOWER,
MPOWER shall correct the errors, at no additional cost to Customer.
SECTION 3. ONGOING BASIC SUPPORT
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<PAGE> 6
3.1 Ongoing Basic Support. MPOWER. shall provide Ongoing Basic
Support subject to the terms hereof. Ongoing Basic Support may include high
level consultation regarding Customer system usage and coordination of the
following: a) Customer requirements, b) training, c) system maintenance and
enhancement support, and other consultation, as more fully described on Schedule
B.
3.2 Customer Support Personnel. Each parry shall designate a
primary liaison as set forth in Section 15.2. The Customer designated personnel
shall support Customer's users, including providing first line ongoing problem
resolution.
3.3 User Documentation. MPOWER shall provide a complete set of
User Documentation, including updates, at least once annually.
SECTION 4. INCREMENTAL SUPPORT
4.1 Incremental Support. If Customer desires to arrange for
Incremental Support, Customer shall submit a work order to M-POWER as defined in
Schedule D.
4.2 Fees for Incremental Support. MPOWER shall provide
Incremental Support on a rime and materials basis at the Personnel Resources
Fees specified in Schedule A.
For services requested by Customer which are beyond the scope of the services
contemplated hereunder, for special circumstances, or if the geographic location
in which any MPOWER Services are to be provided for Customer demands higher
labor or resource costs, MPOWER reserves the right to propose a new fee
structure or different rates.
SECTION 5. SYSTEM MODIFICATIONS
During the term of this Agreement Customer may identify enhancements or
modifications which it desires to have MPOWER make to the MPOWER Software such
as integration to other software systems, modifications for legal requirements
and other functional enhancements. Customer shall be responsible for providing
to MOWER. a description of the changes which Customer requests to be made in the
MPOWER Software. MPOWER shall have the right to design any Customer requested
modifications in a way which, in MPOWER's reasonable opinion, will not adversely
affect the MPOWER Services or the structure or performance of the MPOWER
Software or will have general applicability. In the event MPOWER agrees to
provide such enhancements or modifications to the MPOWER Software, such
enhancements and modifications shall be owned by MPOWER as part of the MPOWER
Software. Resources utilized by MPOWER in providing services pursuant to any
such requests will be charged to Customer as
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<PAGE> 7
Incremental Support, unless expressly agreed to otherwise in writing by the
parties. Customer will also be responsible for any associated Expenses.
In order for these enhancements or modifications to be completed in a
timely and successful manner, Customer will provide MPOWER with applicable
information and access to key personnel during the period these services are
being performed. MPOWER will be entitled to submit various materials, including
time schedules, business requirement, specifications, and test results, for
Customer's review, comment or approval. Customer will respond to each such
request as soon as reasonably practicable, and, in any event, in a time frame
consistent with the time schedules, and shall nor unreasonably withhold any
sign-off or approval requested by MPOWER.
SECTION 6. PROBLEM RESOLUTION
6.1 In the event MPOWER receives notice from Customer of a
Critical Failure (as defined herein), MPOWER agrees to respond to such notice by
assigning a qualified individual to attempt to remedy the Critical Failure, and
agrees to use best efforts to remedy the Critical Failure commensurate with the
severity of the problem and the timeliness and quality of information regarding
the problem received from Customer. A Critical Failure shall be defined as a
failure of the MPOWER System to perform in accordance with the User
Documentation which has a material impact on Customer's mission-critical system
related functions. By way of example, a Critical Failure may include inability
to generate checks, unavailability of the M.POWER System, inability to perform
on-line adjudication of all types of claims, or incorrect adjudication of all
types of claims. MPOWER will use reasonable efforts to correct Non-critical
Failures (defined as any other failure of the M_POWER System) in a timely
manner.
SECTION 7. CUSTOMER RESPONSIBILITIES
7.1 Customer Responsibilities. Customer acknowledges that the
MPOWER Software reflects certain interdependent relationships, such as exist
among the data variables, logic rules and system functions of the MPOWER
Software. Customer further acknowledges that it is required and has a
responsibility to understand such data variables, logic rules and system
functions, and their interdependent relationships, and to define for its
own-purposes such data variables, logic rules and system functions to. the
MPOWER Software in such a way that the MPOWER Software will provide the
functionality desired by Customer. Customer acknowledges that it has or will
hire and will maintain on its staff personnel who are able to understand and
define such data variables, logic rules, system functions and interdependent
relationships. Customer further acknowledges that, even though. MPOWER may
assist Customer personnel in performing these tasks, the responsibility for the
effective definition and maintenance of these data variables, logic rules
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<PAGE> 8
and system functions resides with Customer and not with MPOWER, unless Customer
specifically requests MPOWER to perform these tasks at the Incremental Support
rates.
7.2 Customer Data. Customer shall be responsible for inputting
and ensuring the accuracy, validity and completeness of all data variables,
logic rules, system functions and Customer data, including but not limited to
group, subscriber, Member, provider, utilization, encounter, claims, capitation,
fund accounting, billing, collection, broker, benefits, product contract,
provider contract, provider fees, standard business measures, and other similar
or related data. Customer shall also be responsible for inputting and ensuring,
the accuracy, validity and completeness of all user-defined report definitions,
all report and batch production job specifications and priority scheduling
criteria. Customer shall also be responsible for initiating, monitoring,
operating, printing and ensuring the accuracy, validity, and completeness of all
print outputs and file downloads, such as but limited to all reports, premium
bills, checks, and the like, determining how many and on what print stock such
outputs are to be printed or into which files or programs on Customer-
controlled computers such files are to be downloaded and manipulated, at
Customer's own initiative, responsibility and risk. Customer hereby acknowledges
responsibility for generally controlling all aspects related to the production,
distribution and control of such outputs. Customer further acknowledges that,
notwithstanding the responsibility of MPOWER to have used due care and diligence
in the design, programming, documentation and operation of the System, the
accuracy of Customer's data base within the MPOWER Software and the accuracy of
the several outputs of the MPOWER Software, including bur not limited to,
outputs that control the billing, receipt or expenditure of moneys, will be
dependent on the accuracy and use of the data variables, logic rules, system
functions and Customer data input into the MPOWER Software by Customer and
verified by Customer.
7.3 Other Customer Obligations. In addition to its other
obligations hereunder, Customer will on a timely basis:
a) Establish appropriate priorities for Customer, on a
regular basis and no less frequently than every three months, that relate to
MPOWER Services and communicate the same to MPOWER. Customer recognizes that
changes in such priorities may result in additional fees hereunder for
additional staff, as Incremental Support, or reordering of other priorities to
provide MPOWER Services within the current Fee structure.
(b) Cooperate with MPOWER by, among other things, making
available, as reasonably requested by MPOWER, management decisions,'
information, approvals, and acceptances in order that MPOWER may properly
accomplish its obligations and responsibilities hereunder;
(c) Carefully inspect and review all MPOWER generated
reports and other output and notify M-POWER of any incorrect reports or output.
MPOWER
page 6
<PAGE> 9
(d) Personalize, maintain, reproduce and distribute
(solely for Customer's internal use) procedure manuals and documentation used by
Customer personnel in connection with the MPOWER Services hereunder.
(e) Train applicable Customer personnel to properly
prepare input for and to effectively utilize output from the systems operated by
MPOWER hereunder.
(f) Pay all costs of acquisition, installation, use and
maintenance of equipment at Customer's site, as required for the performance of
the MPOWER Services.
(g) Such other responsibilities as set forth herein.
Customer agrees that to the extent its failure to meet its
obligations set forth in this Section 7.3 affects the ability of MPOWER to
perform MPOWER's obligations under this Agreement, MPOWER shall be relieved of
such obligations, and Customer shall indemnify MPOWER against any claims or
liabilities arising, out of such failure by Customer.
7.4 Reprocessing or Reconstructing of Data. During any period of
MPOWER Processing to the extent that any Customer data must be corrected,
recreated, restored or reprocessed due to the fault or negligence of Customer,
its employees or agents, or by a breach by Customer of any of its obligations
hereunder, MPOWER will do so, and in such event Customer shall pay MPOWER at the
Personnel Resources Rates and reimburse MPOWER for any costs incurred by MPOWER
in correcting, recreating, restoring or reprocessing such data or in providing
assistance therewith.
SECTION 8. WARRANTIES
MPOWER warrants that it either owns the rights to the MPOWER
Software or has the right to perform the MPOWER Services herein, and that it
either owns or has licensed in the manner contemplated by this Agreement any
other software used in the provision of the MPOWER Services to Customer. MPOWER
agrees to defend Customer against all claims arising from the infringement by
the MPOWER Software of the rights of third parties, provided that Customer
notifies MPOWER in writing within seventy-two (72) hours of the receipt by
Customer of any such claim or notice of any such claim and permits MPOWER upon
request, and at MPOWER's cost and expense, to assume and control the defense or
settlement thereof Customer agrees to cooperate with MPOWER in every reasonable
manner in the defense of such claim. In defending or settling any such claim
MPOWER may elect, at its sole discretion, to (i) obtain the right of continued
use of such MPOWER Software or pare thereof, which is alleged to be infringing
or (ii) replace or modify such MPOWER Software, or part thereof, so as to avoid
such claim of infringement, or (iii) terminate this Agreement, in which event
MPOWER shall have no further obligation or liability to Customer with respect to
the MPOWER Services.
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MPOWER DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, EXCEPT THOSE
WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT. MPOWER SPECIFICALLY DISCLAIMS
ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PUP, POSE OF THE MPOWER SERVICES OR THE MPOWER SYSTEM, OR THE
COMPLIANCE OF THE FOREGOING WITH ANY LAW, REGULATIONS OR ORDER.
SECTION 9. LIMITATION OF LIABILITY
NEITHER PARTY SHALL HAVE LIABILITY WITH RESPECT TO ITS
OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE FOR CONSEQUENTIAL, EXEMPLARY,
INCIDENTAL OR PUNITIVE DAMAGES EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY
SUCH DAMAGES. MPOWER SHALL NOT BE LIABLE FOB ANY CLAIM ARISING FROM THE USE OF
SOFTWARE OR DATA WHICH HAS BEEN MODIFIED BY ANYONE OTHER THAN MPOWER, ITS
AGENTS, ASSIGNS OR SUBCONTRACTORS, NOR FOR ANY CLAIM ARISING FROM THE USE OF ANY
SOFTWARE OR EQUIPMENT DEVELOPED OR MODIFIED BY CUSTOMER OR WHICH HAS BEEN
PROVIDED TO OR ACQUIRED BY CUSTOMER UNDER ANY LICENSE OR OTHERWISE FROM ANY
THIRD PARTY.
MPOWER'S LIABILITY FOR THE CORRECTION OF ERRORS IN THE PROCESSING
OF CUSTOMER'S DATA AND FILES IS LIMITED, AS PROVIDED IN SECTION 2.4, TO
CORRECTING THE ERRORS AND REPROCESSING THE INFORMATION IF SUCH ERRORS ARE BROUGH
TO MPOWER'S ATTENTION IN A TIMELY MANNER. IN NO EVENT SHALL MPOWER'S TOTAL
LIABILITY TO CUSTOMER RELATED TO THIS AGREEMENT, WHETHER IN CONTRACT OR IN TORT
OR OTHERWISE, EXCEED THE SUM OF THE AMOUNTS PAID BY CUSTOMER TO MPOWER FOR THE
SPECIFIC PRODUCT OR SERVICE AND IMPLEMENTATION WHICH IS THE SUBJECT OF THE
ACTION OR CLAIM DURING THE SIX (6) MONTHS IMMEDIATELY PRIOR TO THE BREACH FOR
WHICH THE DAMAGES ARE CLAIMED. THIS LIMITATION APPLIES TO ALL CAUSES OF ACTIONS
OR CLAIM IN THE AGGREGATE INCLUDING WITHOUT LIMITATION, BREACH OF CONTRACT,
BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATION AND OTHER
TORTS. FURTHER NO CAUSE OF ACTION WHICH ACCRUED MORE THAN TWO (2) YEARS PRIOR TO
THE FILING OF A SUIT ALLEGING SUCH CAUSE OF ACTION MAY BE ASSERTED AGAINST
MPOWER.
MPOWER hereby is not assuming or otherwise responsible for,
expressly or implicitly, any obligation or liability of any kind whatsoever of
Customer. Customer shall
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and hereby does agree to indemnify and hold MPOWER harmless from any and all
claims, lawsuits, liabilities, expenses, costs, damages and fees arising from or
in connection with Customer's breach of its obligations hereunder or relative to
Customer's provision of services or products to any third party.
SECTION 10. FEES AND CHARGES
10.1 Fees and Charges. The Fees for the MPOWER Services are
described in Schedule A attached hereto.
10.2 Timeliness of Payment. All Fees payable by Customer
hereunder shall be paid by Customer on a monthly basis. The Remote Processing
Fees shall be due and payable in advance at the beginning of each month. Any
other sum due M_POWER hereunder for which a time for payment is not otherwise
specified will be due and payable within twenty (20) days after the date of an
invoice therefor from MPOWER. If Customer fails to pay any amount due within
thirty (30) days from the due date, late charges of 1 1/2% per month shall also
become payable by Customer to MPOWER. In addition, failure of Customer to fully
pay any amount due within sixty (60) days after the due date shall be deemed a
material breach of this Agreement and shall be sufficient cause for immediate
termination hereof. If Customer fails to pay, when due, any amount payable
hereunder or fails to fully perform its obligations hereunder, Customer agrees
to pay, in addition to any amount past due, plus interest accrued thereon, all
reasonable expenses incurred by MPOWER in enforcing this Agreement including but
not limited to all expenses of any legal proceeding related thereto and all
reasonable attorneys' fees incurred in connection therewith. No failure by
MPOWER to request any such payment or to demand any such performance shall be
deemed a waiver by MPOWER of Customer's obligations hereunder or a waiver of
MPOWER's right to terminate this Agreement.
10.3 Fee Changes. If, during the term of this Agreement, the
Consumer Price Index for All Urban Consumers, U.S. City Average, Other Goods and
Services published by the Bureau of Labor Statistics of the Department of Labor
(the "CPI"), shall at any anniversary of the Effective Date (the "Current
Index") be higher than the CPI twelve (12) months prior thereto (the "Base
Index"), then, effective as of such anniversary, the then current Ongoing Basic
Support Fees, and Personnel Resources Fees, may be increased by one and a half
(1.5x) the percentage that the Current Index increased from the Base Index, but
not to exceed 10%. In addition, effective as of such anniversary, MPOWER may
increase the Processing Fees by the percentage (1x) that the Current Index
increased from the Base Index. MPOWER shall notify Customer of each increase by
a written statement. MPOWER's notice may be given after the applicable
anniversary date of the increase, and Customer shall pay MPOWER the accrued
adjustment of the months elapsed between the effective date of the increase and
MPOWER's notice.
10.4 Taxes. There will be added to may charges under this
Agreement, and
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Customer will pay to MPOWER, amounts equal to any taxes, however designated or
levied, based upon such charges, or upon this Agreement or the services or
materials provided hereunder, or Customer's use thereof, including state and
local sales, use, privilege or excise taxes based on gross revenue, and any
taxes or amounts in lieu thereof paid or payable by MPOWER in respect of the
foregoing, but excluding any franchise taxes, taxes based on the adjusted gross
income of MPOWER, and employee withholding, FICA, and other taxes relating to
MPOWER personnel performing services hereunder.
SECTION 11. TERM OF AGREEMENT
ll.1 Term of Agreement. The term of this Agreement shall commence
on the Effective Date and shall continue for thirty six (36) months unless
otherwise terminated pursuant to this Agreement. The agreement will be extended
for an additional 36 months upon the mutual written agreement of the parties.
The parties mutually agree to inform the other party, at least 120 days prior to
the Termination of this Agreement, as to whether or not they wish to negotiate a
new agreement which would be effective upon the Termination of this Agreement.
SECTION 12. CONVERSION TO CUSTOMER PROCESSING
12.1 Customer's Right to Convert at Will. At any time during the
initial or extended term of this Agreement, Customer may provide MPOWER with one
hundred- twenty (120) days notice of its intent to execute its right to license
the MPOWER software to run on Customer's own IBM hardware. At that time,
Customer and MPOWER will execute Schedule E MPOWER's License Agreement.
SECTION 13. DISPUTE RESOLUTION AND TERMINATION.
13.1 Dispute Resolution. In the event of a dispute between the
parties arising out of or relating to this Agreement, then, upon the written
request of either party, each of the parries will appoint a designated
representative to endeavor to resolve such dispute. The designated
representatives will negotiate in good faith to resolve the dispute. Initially,
disputes will be bandied by the M. POWER Director of Relationship Management and
the Customer's PRESIDENT, DEVELOPMENT or his/her equivalent, and if they are
unable to reach a resolution, the dispute will be presented to the COO of MPOWER
and the Customer for resolution. If the mercer has not been resolved pursuant to
the aforesaid mediation procedure within sixty (60) days of the commencement of
such procedure (which period may be extended by mutual agreement), the
controversy shall be settled by arbitration in accordance with the American
Arbitration Association. (the "Association) under the Commercial Arbitration
Rules of the Association there in effect, by a panel of three (3) arbitrators
knowledgeable in the computer area. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
by the arbitrator may be entered by any court having
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jurisdiction thereof. The place of arbitration shall be Albuquerque, New Mexico.
Each party shall pay its own costs and expenses.
13.2 Termination for Cause. In the event that either parry hereto
materially or repeatedly defaults in the performance of any of its duties or
obligations hereunder (except for a default in payments to MPOWER) and does not
substantially cure such default within one hundred twenty (120) days after being
given written notice specifying the default, or, with respect to those defaults
which cannot reasonably be cured within one hundred twenty (120) days, if the
defaulting parry fails to proceed promptly after being given such notice to
commence curing the default and thereafter to proceed to cure the same, then the
parry not in default may, by giving written notice thereof to the defaulting
parry, terminate this Agreement as of a date specified in such notice of
termination.
13.3 Termination for Nonpayment. In the event that Customer
defaults in the payment when due of any amount due to MPOWER hereunder, and does
not cure such default within sixty (60) days after the date of receipt the
invoice, then MPOWER may, by giving written notice thereof to Customer,
terminate this Agreement as of a date specified in such notice of termination.
13.4 Termination for Relocation. Should MPOWER relocate "it's"
service Bureau facility and resources outside the state of New Mexico, then
customer may terminate this Agreement without penalty upon 90 days notice. Such
notification, however, must be given within 120 days of such relocation
13.5 Termination for Insolvency. In the event that either parry
hereto becomes or is declared insolvent or bankrupt, is the subject of any
proceedings relating to its liquidation, insolvency or for the appointment of a
receiver or similar officer for it, makes an assignment for the benefit of all
or substantially all of its creditors, or enters into an agreement for the.
composition, extension, or readjustment of all or substantially all of its
obligations, then the other party hereto may, by giving written notice thereof
to such party, terminate this Agreement as of a date specified in such notice of
termination
13.6 Termination Assistance. Upon the termination of this
Agreement for any reason, MPOWER will provide to Customer such termination
assistance, at MPOWER's Personnel Resources Rate plus Expenses, as may be
reasonably requested by Customer and scheduled by M_POWER. if this Agreement is
terminated, then Customer will pay MPOWER, on the first day of each month and as
a condition to MPOWER's obligation to provide such termination assistance to
Customer during that month, an amount equal to MPOWER's reasonable estimate of
the total amount payable to MPOWER for such termination assistance for that
month.
13.7 Outstanding Amounts. Termination of this Agreement shall
entitle MPOWER to payment and Customer shall be obligated to pay for the
provisions of any and all
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MPOWER Services rendered by MPOWER under this Agreement prior to the date of
such termination.
13.8 Customer Data. In the event that either party terminates
this Agreement, Customer retains ownership of all membership data and all other
Customer data in the MPOWER System. MPOWER shall return same to Customer at the
time of termination in MPOWER's standard tape record format. Any support by
MPOWER to provide data in other than MPOWER's standard format shall be billed as
Termination Assistance per section 13.5 above.
SECTION 14. CONFIDENTIALITY
14.1 Confidential Information. "Confidential Information" shall
mean information such as customer lists, business plans, operation plans, client
information, application software programs and documentation licensed by third
parties to Customer or MPOWER, the MPOWER Software, and all other materials
relating to MPOWER's business or the business of Customer, which are designated
in writing as confidential at the time of disclosure by Customer or MPOWER, or
is identified orally at the time of the disclosure as confidential and confirmed
in writing within one week of such disclosure, and which are disclosed by
Customer or MPOWER to the other party, its employees, agents, contractors,
assignees or successors in the conduct of business under this Agreement.
14.2 Standard of Care. Each party hereby agrees that and its
respective officers, employees, agents, contractors, assignees and successors
shall (i) keep all Confidential Information received from the other party
strictly confidential, (ii) instruct their officers, employees, agent's,
contractors, and permitted assignees and successors to use the same degree of
care and discretion with respect to the Confidential Information of the other
parry, or of any third party utilized hereunder, that MPOWER and Customer each
require with respect to their own most confidential information, (iii) use and
disclosure of such information solely for the purposes and in the manner set
forth in this Agreement, (iv) not disclose any such information to any other
person, corporation, governmental agency or other entity without the express
written permission of the other and (v) institute the necessary security
policies and procedures to meet its obligations hereunder. Notwithstanding the
foregoing, the confidentiality obligations set forth in this Section 12 will not
apply to any information which the recipient parry can establish to have (x)
become publicly available without breach of this Agreement, (y) been
independently developed by the recipient parry outside the scope of this
Agreement and without reference to the Confidential Information received under
this Agreement, or (z) been rightfully obtained by the recipient parry from
third parries which are not obligated to protect its confidentiality.
SECTION 15. BACKUP AND DISASTER RECOVERY SERVICES AND AUDIT
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15.1 Backup. MPOWER will establish and maintain reasonable
safeguards against the destruction, loss or alteration of Customer data in the
possession of MPOWER. In the event that additional safeguards for Customer data
are reasonably requested by Customer, MPOWER will provide such additional
safeguards and Customer shall reimburse MPOWER for any additional costs incurred
by MPOWER.
15.2 Disaster Recovery. M.POWER shall maintain an agreement or
arrangement with a third party to provide MPOWER a disaster recovery site with
facilities sufficient to enable MPOWER to provide a continuation of MPOWER
Services in the event the MPOWER System is unavailable for an extended period
of time.
15.3 Notification. MPOWER will provide customer with a current
copy of MPOWER's Backup and Disaster Recovery procedures and the results from
Annual Testing and EDI Audit.
SECTION 16. RELATIONSHIP MANAGEMENT
16.1 Meetings. MPOWER and Customer agree to regularly discuss business
and relationship strategies affecting both parties. MPOWER and Customer further
agree to have regularly scheduled communications to summarize current
activities, performance results, error corrections and work efforts, as well as
the future planned activities.
16.2 Liaison. During the term of this Agreement, each party will
provide a liaison who (i) will have overall management responsibility for the
performance by the party hereunder, (ii) will have primary operational
responsibility, and (iii) will serve as the party's primary liaison with the
other party with respect to performance under this Agreement. Customer may have
primary liaison replaced for cause.
SECTION 17. GENERAL
17.1 Independent Contractor. MPOWER, in performing its
obligations under this Agreement, is acting only as an independent contractor of
Customer and the rights and responsibilities of the parties shall be determined
accordingly.
17.2 Force Majeure. Each party hereto shall be excused from
performance hereunder for any period and to the extent that it is prevented from
performing any services pursuant hereto, in whole or in part, as a result of
delays caused by the other parry or an act of God, war, civil disturbance, court
order, labor dispute of the other parry or any third party, or other cause
beyond its reasonable control and which it could not have prevented by
reasonable precautions, and such nonperformance shall not be a default hereunder
or a ground for termination hereof. In the event that either party is excused
from performance hereunder
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pursuant co this Section, then that party shall cake all reasonable actions to
resume, or provide alternative performance of its obligations hereunder as soon
as feasible.
17.3 Governing Law: Jurisdiction and Venue. This Agreement shall be
construed and enforced according to the laws of the State of New Mexico without
reference to principles of conflicts of laws. The sole and exclusive forum for
any disputes arising out of or relating to this Agreement shall be in a court of
competent jurisdiction in the City of Albuquerque, New Mexico, and the parties
hereby irrevocably consent to such jurisdiction.
17.4 Notices. All notices and other communications under this Agreement
shall be in writing mad may be girth by any of the following methods: (a)
personal delivery against signed receipt; (b) facsimile transmission; (c)
registered or certified mail, postage prepaid, return receipt requested; or (d)
over-night delivery service. Notices shall be sent to the appropriate parry at
its address or facsimile number given below (or at such other address or
facsimile number for such party as shall be specified by notice given
hereunder):
17.4.1. If to MPOWER, to:
MPOWER Solutions Inc.
2305 Renard Place, S. E.
Albuquerque, NM 87106
17.4.2. If to Customer, to:
Brokerage Services, Inc.
11200 Lomas Boulevard, N. E.,
Albuquerque, New Mexico, 87112
All such notices and communications shall be deemed delivered upon (a) actual
receipt thereof by the addressee, (b) actual delivery thereof to the appropriate
address, or (c) in the case of a facsimile transmission, upon transmission
thereof: by the sender and issuance by the transmitting machine of a
confirmation slip confirming that the number of pages constituting the notice
have been transmitted without error. In the case of notices sent by facsimile
transmission, the sender shall contemporaneously dispatch a copy of the notice
to the addressee at the address(es) provided for above by an overnight courier
service. However, such mailing shall in no way alter the time at which the
facsimile notice is deemed received.
17.5 Insurance. During the term of this Agreement, each parry
will insurance coverage, such coverage to bear the risks associated with the
performance of this Agreement as is reasonable, prudent and advisable under the
circumstances and will provide evidence of or otherwise demonstrate such
capability to the other party upon the other party's reasonable request from
time to time.
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17.6 Assignment. This Agreement and Customer's rights or
obligations hereunder may not be assigned or transferred by Customer to another
entity whether by assignment, merger, transfer of assets, sale of stock of
Customer, operation of law or otherwise without the prior written consent of M.
POWER. MPOWER may assign this Agreement upon notice to, but without the consent
of, Customer. This Agreement shall inure to the benefit of and be binding upon
the parties, their permitted successors and their permitted assigns.
17.7 Hiring of Employees. Except as otherwise provided in this
Agreement, MPOWER and Customer each agree that, during the term of this
Agreement arid for three years thereafter, it shall not, except with the prior
written consent of the other, offer employment to or employ any person employed
then or within the preceding twelve months by the other. This shall not apply to
employees of either party who have termination agreements which specifically
allow their hiring or retention as consultants by the other party.
17.8 Entire Agreement. This Agreement, including any Schedules
referred to herein and attached hereto, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and there are no
representations, understandings or agreements relative hereto which are not
fully expressed herein. No amendment, change, waiver, or discharge hereof shall
be valid unless in writing and signed by an authorized representative of the
party against which such amendment, change, waiver, or discharge is sought to be
enforced.
17.9 General. All provisions of this Agreement relating to
confidentiality, nondisclosure, publicity, proprietary rights-and indemnity
shall survive the cancellation, termination or expiration of this Agreement. The
waiver or failure of either parry to exercise any right in any instance shall
not be deemed a waive? of any other or further right hereunder. If for any
reason a court of competent jurisdiction finds any provision of this Agreement,
or portion thereof to be unenforceable, that provision shall be enforced to the
maximum extent permissible so as to effect the intent of the parties, and the
remainder of this Agreement shall continue in full force and effect. The section
headings used herein are for reference and convenience only and shall not enter
into the interpretation thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
MPOWER Solutions Inc. CUSTOMER
By: /s/ WILLIAM F. REILLY By: /s/ JAMES L. HEALY
-------------------------- -------------------------------------
Name: William F. Reilly Name: James L. Healy
------------------------ -----------------------------------
Title: EVP Title: Exec VP
----------------------- ----------------------------------
Date 1-10-97 Date: 1-10-97
------------------------- -----------------------------------
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SCHEDULE A
PROCESSING AND SERVICE FEES
REMOTE PROCESSING FEES
The Processing Fee shall be $0.65 per member per month. Fees for Life Insurance
and/or Dental only members, is $.22.
As part of the service provided by MPOWER, included in this processing fee,
Ongoing Basic Support as defined in Schedule B.
PERSONNEL RESOURCES FEES - STANDARD RATE
The Personnel Resources Fee for the year 1996 is $100.00/hour for most
of MPOWER Staff with a Fee of $150/hour for billable support provided by
MPOWER senior management and lead technical staff. Personnel Resources
provided include customer support personnel, analysis and programming
personnel used for initial implementation and ongoing maintenance and
enhancement activities directly related to the MPOWER System.
EXPENSES
Customer shall reimburse MPOWER for reasonable MPOWER travel and out of
pocket expenses for which advance approval has been received from the
Customer either as part of and or incidental to an approved Work Order
(Schedule X), or for a specific trip requested by Customer.
SPECIAL PROJECT FEES
Customer arid MPOWER agree to consider "Special Projects" which may be mutually
beneficial. Customer and MPOWER may establish a separate "preferred" hourly rate
for MPOWER services related to such projects. Operating guidelines for
establishing and monitoring such projects shall he specified in separate letter
agreements between the parties.
Other Services
At the request of Customer, MPOWER may provide other services, such as the
printing of year end Provider 1099 Tax Forms. MPOWER shall invoice Customer for
any direct cost, such as the expense of pre-printed forms, associated with these
services.
* Confidential Treatment Requested
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SCHEDULE B
ONGOING BASIC SUPPORT
Ongoing Basic Support includes the following services directly related to the
MPOWER(TM) System:
Customer Support (telephone and on-site).
o Access to the MPOWER Help Desk for routine simple queries and
logging of issues
o Resolution of issues relating to production status
o Account Management and coordination
Work Order Support
o Assistance with. preliminary analysis to support creation of a
Work Order
Ongoing Basic Support does not include the following services:
o Assistance with actual coding of setups or UVAMs or development of
setups or UVAMs for new Benefit Plans
o Actual-analysis, design or programming and test of any
Customer-requested enhancements to the System
o Formal training
INCREMENTAL SUPPORT
Subject to the specifics of any given Work Order, Incremental Support includes
the following services directly related to the MPOWER(TM) System:
Customer Support (on-site and telephone)
- System set-ups
- Ad-Hoc reporting
- Possible problem analysis
- Documentation
- Training
- Appropriate overlap and backup of Analysis
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Analysis
- Possible problem analysis
- Business requirements definition
- System testing
- Business consulting regarding use of system
- Documentation
- Appropriate overlap and backup of Customer Support and Programming
Programming
- Programming of client prioritized business requirements
- Possible problem analysis
- Documentation
- Appropriate overlap and backup of Analysis and Customer Support
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SCHEDULE C
REMOTE PROCESSING
I. ONLINE AVAILABILITY
The MPOWER System shall achieve [*] percent ([*]%) availability between
the hours of 7:30 a.m. and 6:00 p.m. Mountain Time weekdays, Saturdays
between the hours of 6:00 a.m. and 12:00 noon. Mountain Time, excluding
MPOWER holidays, and during any additionally requested and agreed upon
on-line processing hours.
Measurement
Availability shall be calculated on a monthly basis utilizing MPOWER's
standard availability performance cools. The MPOWER System availability
shall be measured at MPOWER's system in Albuquerque, NM and MPOWER shall
not be penalized for non-availability of the MPOWER System for reasons
not in MPOWER's direct control.
In addition, the following conditions shall be calculated as if the
MPOWER System were 100% available:
1. Customer has requested on-line downtime during normal operating
hours.
2. The parties have mutually agreed to a reorganization/purge of
client data during normal Saturday operating hours.
II ONLINE PERFORMANCE
The MPOWER System shall achieve three (3) second response time [*]
percent ([*]) of the time during the Working Hours.
Measurement
Response time shall be calculated on a monthly basis utilizing MPOWER's
standard on-line performance measurement performance tools. The MPOWER
System on-line performance shall be measured at MPOWER's system in
Albuquerque, NM and MPOWER shall not be penalized for response time
delays of the M_POWER System for reasons not in MPOWER's direct control.
The parties understand that running Void Check, Batch Claim (for EDI
claims), batch jobs or Reprocessing Claim transactions, RAC Output
(reporting) and UVAM generation during normal on-line hours will
adversely affect response time.
* Confidential Treatment Requested
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Accordingly, if Customer chooses to run the aforementioned transactions
during normal on-line hours, for purposes of the response time
calculation said time shall be deemed to have met the 3 second standard.
On-line Availability of Information: MPOWER will maintain on-line
availability of claim information for a period of up to twenty-four (24)
months from the date of payment in the MPOWER System, unless otherwise
agreed by the parties. Other data will be archived on a regular basis
based upon criteria to be mutually agreed to within the first 60 days of
the contract.
MPOWER Current Standard On-Line Availability Fees for Remote Processing.
Customer may request that the MPOWER System be available for additional
hours for Remote Processing. Subject to the mutual agreement of the
parties as to the timing of such additional hours of system
availability, Customer will pay MPOWER at MPOWER's then standard fees
for such service. MPOWER's current standard fee for additional requested
on-line processing time is $[*] per hour, with a minimum of two (2)
hours, plus any personnel resource fees for incremental support.
MPOWER's remote processing service will accommodate processing of
customer membership up to [*] members, should client grow membership
to that level.
MPOWER will make ANSI Standard EDI capabilities available to customer
within 1 year of the contract date. Such services may be chargeable to
customer at rates not to exceed those charged to other customers of
MPOWER.
* Confidential Treatment Requested
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SCHEDULE D
WORK ORDERS
A work order is the document the Customer uses to authorize MPOWER to perform
Incremental Support ("Work Order"). Some examples of Incremental Services are
modifications, enhancements, conversion support, additional training, etc. to
the extent that such activities require MPOWER. resource commitments beyond
those provided as part of Ongoing Basic Support. The steps in completing a Work
Order are is follows:
Step 1. The Customer determines that Incremental Support is required from
MPOWER.
Step 2. The Customer, assisted by M. POWER, if requested and as part of
provision of Ongoing Basic Support, provides, in writing, the high level
functional requirements for the desired Incremental Support.
Step 3. Provided Customer has provided sufficient information in Step 2.,
MPOWER creates a project plan. (IF information is incomplete, Step 2.
Needs to be repeated or expanded upon.) The contents of a typical
project plan are given below:
Contents of Typical Project Plan
I. Statement of work, including description of task, goal, scope of
effort, assumptions/constraints, approach, success factors, and
II. Term
III. Estimated Hours (if applicable)
IV. Staffing and Roles
V. Schedule and Milestones
VI. Deliverables
VII. Estimated Non-Personnel Charges (such. as, it: applicable, but
not limited to, supplemental computer processing usage,
telecommunications charges, physical materials, special
equipment, etc.)
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Step 4. Customer reviews project plan. If necessary based on Customer's
comments, MPOWER revises project plan.
Step 5. MPOWER prepares a Work Order (see sample on the next page) with the
project plan as an attachment.
Step 6. Customer approves Work Order.
Step 7. Work begins upon receipt by MPOWER. of an approved Work Order.
NOTE: Any change in scope (e.g., a modification or an expansion to the
functional requirements in Step 2) to an existing Work Order requires
either a new Work Order or a signed amendment to the existing Work
Order and a repeat of the above steps. Customer may execute Work Orders
for initial phases of a project in order to arrange for MPOWER to
provide analysis support of the creation of functional specifications.
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Sample Work Order
[Date]
[Customer Name]
[Customer Address}
Re: Work Order Number [ Insert sequential number of Work Order]
Dear [Customer Authorized Signator]:
This letter is a "Work Order" in accordance with the Processing and
Services Agreement between [Customer Name] and MPOWER, dated [date of
Agreement] ("Agreement"), and confirms the agreements reached between
you and MPOWER for the services specified herein.
[Customer] Coordinator: [name]
MPOWER Coordinator: [name]
Task Description: See attached Project Plan.
Term: See Attached Project Plan.
Rate.: Per Schedule A of the Agreement dated [date] or by special
agreement of the parties pursuant to Schedule A with respect to Special
Project Fees, the rate shall be [add appropriate rate].
Estimated Charge: [state if applicable]
Assignment Location: MPOWER Headquarters, Albuquerque, NM.
Deliverables: See attached Project Plan.
Production Impact: [state].
Travel Expenses: Shall be reimbursed in accordance with Schedule A of
the Agreement dated [date].
Other:
[Customer name] hereby represents that it has the right and authority to
execute this Work Order and agrees to be bound by the terms and
conditions of both the
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Agreement and this Work Order. The terms and conditions of this Work
Order shall take precedence over any conflicting terms and conditions
contained in the Master Agreement. Please indicate [Customer's name]'s
acceptance of this is Work Order by returning one signed copy to MPOWER.
Sincerely,
MPOWER Solutions Inc.
By:____________________________
Name:__________________________
Title:_________________________
Accepted on this___________day of____________, 19__.
[CUSTOMER NAME]
By:____________________________
Name:__________________________
Title:_________________________
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Schedule E
ADDENDUM TO PROCESSING AND SERVICES AGREEMENT
This Agreement is entered into as of this ___________ day of
___________, _____ , by and between Brokerage Services, Incorporated, a New
Mexico corporation with its principal place of business located at 11200 Lomas
Blvd., NE, Albuquerque, New Mexico 87112(hereinafter referred to as
"Customer"),and MPOWER Solutions Inc., a Delaware corporation with its principal
place of business located at 2305 Renard Place, S. E., Albuquerque, New Mexico
87106 (hereinafter referred to as "MPOWER").
WHEREAS, MPOWER is in the business of providing automated managed health
care information services and licensing software to businesses providing managed
health care and insurance services, and desires to provide such services, and
license such software, to Customer, subject to the terms hereof; and
WHEREAS, Customer is in the business of providing managed health care
and insurance services to its customers and desires to use the services of,
and/or software licensed by MPOWER, subject to the terms hereof; and
WHEREAS, Customer has previously engaged MPOWER to provide Remote
Processing Services as set forth in the Agreement dated January 1, 1997, 1996,
and whereas Customer wishes to invoke Section 12 of said Agreement.
NOW, THEREFORE, in consideration of the mutual promises made, the terms
and conditions hereunder described and other valuable consideration?? the
parties agree as follows:
1. DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the
meanings indicated unless the context clearly requires otherwise;
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(a) "Core Services" shall mean those services provided by MPOWER
(as described and set forth in Exhibit 1) in consideration of Customer's payment
of the License Fees.
(b) A "Critical Failure" shall mean a verifiable Nonconformity
in the Shelf Version of the MPOWER Software (or verifiable failure of the MPOWER
System hardware if the problem arises with respect to Remote Processing) which
has a material impact on Customer's mission critical system related functions.
By way of example, a Critical Failure may include the inability of Customer to
generate checks, complete failure of availability of the on-line system,
inability to perform on-line adjudication of any types of claims, or incorrect
adjudication of any types of claims.
(c) "Customer Processing" shall mean the use of the MPOWER
Software on Customer equipment at a Customer site, as set forth herein.
(d) "Derivative Work" shall mean any computer program,
application, interface or related documentation of any kind that is based, to
any extent, on MPOWER Software, or any component part thereof.
(e) "Documentation" shall mean collectively, the System
Documentation, the Functional Documentation and the User Documentation.
(f) "Effective Date" shall mean the date first set forth above.
(g) "Expenses" shall mean any reasonable out of pocket expenses,
including, travel and travel-related expenses, incurred by MPOWER in connection
with the performance of this Agreement.
(h) "Fees" shall mean the fees for MPOWER Services as described
and set forth in Exhibit 2 of this Addendum attached hereto.
(i) "General System Enhancements" shall mean enhancements,
revisions or updates to the MPOWER Software that are made available generally to
licensees of the MPOWER Software as part of the Maintenance Fee (MF), as and
when such enhancements, revisions or updates are made available generally,
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and shall not include any separate products where MPOWER charges a separate
license fee to its licensees.
(j) "Implementation" shall mean the conversion and installation
of Customer's managed health care and/or insurance processing from remote
processing to Customer Processing using the MPOWER(TM) system as set forth in
this agreement.
(k) "Implementation Date" shall mean the actual date that the
first Member transaction is processed, by Customer at Customer's site.
(1) "License" shall mean the license granted by MPOWER to
Customer for the MPOWER Software, to the extent set forth herein.
(m) "License Fees" shall include the Initial License Fee(s)
("ILF"), the Maintenance Fee ("MF"), and any Transfer Fee(s), as described in
Exhibit 2 herein.
(n) "Maintenance Services" shall include the Maintenance Support
Services".
(o) "Maintenance Support Services" shall mean the
post-production services provided by MPOWER as part of the Core Services that do
not provide for upgrades or general enhancements to the MPOWER Software, which
are provided through the Maintenance FEE.
(p) "Member" shall mean an individual who is as of a certain
effective date eligible for certain benefits provided by or through Customer or
a Related Party, which individual becomes eligible either (a) directly as the
subscriber to a Customer or Related Party sponsored and administered insurance
or benefit program, (b) as an eligible employee to an employer sponsored benefit
plan administered by Customer or a Related Party, or (c) as a beneficiary of a
government sponsored benefit plan, or (d) indirectly as a dependent of that
subscriber, employee or beneficiary. For example, in a family of four (4)
individuals, where the employee is the primary participant individual, the
employee, the spouse and the two (2) dependent children are each a Member for a
total of four (4) Members.
(q) "Member Month" shall mean, respectively, as of
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the first of each applicable month, the number of active eligible Members as
enrolled and entered by Customer, as of a given effective date, onto the MPOWER
System (for Remote Processing) or processed using the MPOWER Software (for
Customer Processing), adjusted for actual retroactive Customer Member enrollment
or disenrollment occurring in the prior twelve (12) months.
(r) "Nonconformity" shall mean a failure of a specific Release
of the MPOWER Software to materially conform to the User Documentation and
Functional Documentation of such Release.
(s) "MPOWER Services" shall mean services furnished by MPOWER
according to the terms of this Agreement and attached Schedules and other
services described in any Work Order.
(t) "MPOWER Site" shall mean the site of the MPOWER System,
currently located at 2305 Renard Place, S. E., Albuquerque, New Mexico, 87106.
(u) "MPOWER Software" shall mean the copies of the MPOWER
Software licensed by Customer under this Agreement. MPOWER Software is marketed
under the trade name "MPOWER(TM)".
(v) "MPOWER Client-Server Software" shall mean the MPOWER(TM)
software owned by MPOWER, migrated to and operating on the IBM RS6000 computer
(or operating on other hardware to which MPOWER(TM) has been migrated and on
which the MPOWER(TM) software is generally marketed under the name of
MPOWER(TM)), and any updates, revisions, enhancements, or additions thereto
supplied by MPOWER, (including but not limited to those updates, revisions,
enhancements, or additions supplied to Customer pursuant to Work Orders under
this Agreement) or made by Customer and incorporated by MPOWER, as described in
Section 2.7 of this Addendum.
(w) "MPOWER Standard Interface Specifications" shall mean the
MPOWER written specifications for the file size, format, blocking factors, field
content and frequency of batch transmission for interfacing software programs
for data exported from or imported into the MPOWER(TM) software-maintained
databases. MPOWER agrees that with respect to those specifications for
interfacing programs not yet developed, MPOWER agrees to consult with Customer
on such specifications and the resulting specifications shall comply with normal
industry standards.
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(x) "Related Party" shall mean an entity as to which Customer
directly owns a greater than fifty percent (50%) equity interest in the assets
of such entity, but excludes any entity as to which another co-owner, partner or
joint venture participant or affiliate is a competitor of MPOWER as set forth in
Exhibit 3.
(y) A "Release" shall mean a new version or new release of the
MPOWER Software containing General System Enhancements that is made available to
MPOWER's customers generally.
(z) A "Release Date" is the date that a Release is made
available to MPOWER's customers generally.
(aa) "Shelf Version" shall mean the Releases of the MPOWER
Software which are accepted by Customer pursuant to Section 4 herein.
(bb) "Source Code Buyout Option" shall mean the option of
Customer to acquire the right to make modifications to the source code of the
MPOWER Software and to no longer pay the Maintenance Services Fees, in
accordance with the Fees stated in Exhibit 2 hereto.
(cc) "Supplemental Services" shall mean any support or services
required by Customer and agreed to be provided by MPOWER in addition to that
provided as part of the License, as fully specified in each Work Order, which
Supplemental Services may include, but not be limited to, conversion support,
modification and enhancements, and System Set-ups.
(dd) "System Documentation" shall mean the MPOWER system
documentation provided to Customer pursuant to the terms of this Agreement. An
outline of the current System Documentation is set forth in Exhibit 4 attached
hereto.
(ee) "User Documentation" shall mean the MPOWER user
documentation provided to Customer pursuant to the terms of this Agreement. An
outline of the current User Documentation is set forth in Exhibit 4 attached
hereto.
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(ff) "Work Order" shall mean a document that is separately
executed by both parties, substantially in the format of the template included
in Schedule D of the original Agreement, that authorizes MPOWER to perform
Supplemental Services or other services for Customer and obligates Customer to
pay for such Supplemental Services or other services under the terms of that
separate document, and which document is incorporated and made part of this
Agreement.
(gg) "Workaround" shall mean a change in the procedures followed
or data supplied to avoid a Nonconformity without materially impairing
performance of the MPOWER Software.
Definitions not modified by this Addendum shall have the meaning set forth in
the Agreement dated January 1, 1997.
2. MPOWER SOFTWARE; LICENSE; CORE SERVICES
2.1 MPOWER Software License.
MPOWER grants to Customer, a nonexclusive, non-transferable (except as
specified herein) license (the "License") to use the MPOWER Software for Members
while this Agreement is in effect, which MPOWER Software includes the
Documentation, subject to the terms and conditions set forth herein.
(a) MPOWER shall prepare and provide Customer one (1) copy of
the Documentation for the MPOWER Software and update same as required due to
enhancements, upgrades, error correction or other changes made by MPOWER to the
MPOWER Software.
(b) Until such time as Customer exercises the Source Code Buyout
Option, Customer's license extends only to the right to use the object code of
the MPOWER Software and not to make modifications to the source code of the
MPOWER Software, even though the source code to the MPOWER Software may be
resident on a Customer computer for purposes of compiling, ease in debugging, or
for some other reason of operational ease, integrity or efficiency.
2.2 Payment. In consideration of the License, Customer shall timely pay
the ILF, the MF, the Maintenance Services Fees and the Transfer Fees in
accordance with Exhibit 2.
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Schedule A of the Processing and Service Agreement is Superseded when remote
processing is terminated by Customer.
2.3 Scope of Use.
(a) Customer, shall use the MPOWER Software and Documentation
solely for its own use as a provider or administrator of managed health care
and/or other insurance services to its Members and the Members of its Related
Parties, solely as expressly set forth herein, pursuant to the terms herein and
not for the benefit of any other entity, and further subject to the geographical
and Related Party restrictions in the License granted.
(b) Customer shall have the right to provide the use of certain
limited functions and features of the MPOWER Software, as described in the
Documentation, to its clients (including Members, providers of health care
services to Members, the employers of Members, which employers have signed a
contract with Customer to pay for health care services or the administration of
benefit plans for their employees, or government agencies that have signed a
contract with Customer for Members for which Customer provides administration
services, and to providers of health care services, subject to the
confidentiality restrictions set forth in Section 14 as amended in this
Addendum.
(c) Customer shall not copy the MPOWER Software or permit same
to be copied, except for production copies for use within the restrictions of
the License granted herein, and for a reasonable number of backup and test
copies: (i.) for the specific data center(s) where the MPOWER Software will be
installed where Customer is performing Customer Processing, and (ii.) for
testing and modification of the MPOWER Software (pursuant to Section 3.6).
Customer shall promptly notify MPOWER in writing as to the number of production
and test copies and location of said copies of the MPOWER Software which it
intends to make in each instance.
(d) In addition, Customer shall be permitted to make a
reasonable number of copies of the User Documentation solely for Customer's
internal use and for distribution to Related Parties and Non-Related Parties
pursuant to Section 14.2, not to exceed one (1) copy per workstation, and only
if the original copyright and other proprietary rights notices are preserved.
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(e) In addition, Customer shall be permitted to make a
reasonable number of copies of the Functional Documentation for Customer's
internal use and for distribution to Related Parties pursuant to Section 14.2
solely for use by business or technical analysts with a need to know and only if
the original copyright and other proprietary rights notices are preserved.
(f) Furthermore, Customer shall be permitted to make a very
limited number of copies, but not more than five (5) of the System Documentation
solely for Customer's internal use by senior business or technical analysts with
a need to know and only if the original copyright and other proprietary rights
notices are preserved and if Customer maintains such System Documentation under
the tightest security and destroys copies that are no longer needed.
(g) Notwithstanding anything herein to the contrary, in no event
shall Customer allow any third party to copy the System Documentation.
(h) Distribution of the Functional Documentation and of the
System Documentation is to be tightly controlled, subject to a need to know. No
identifying marks, copyright or other proprietary right notices may be deleted
from any copies of the MPOWER Documentation and all backup copies of the MPOWER
Software created shall include all such notices.
(i) MPOWER Software used for Customer Processing may be
temporarily transferred to backup equipment owned by Customer or by a third
party provider of disaster recovery services and used thereon only for so long
as the Customer size is inoperative. The use of such third party provider of
disaster recovery services shall not require the consent of MPOWER provided
such provider agrees to be bound by the confidentiality restrictions set forth
herein, and is not a competitor of MPOWER. Simultaneous use of more than the
authorized number of copies of the MPOWER Software is expressly prohibited.
(j) Customer shall not modify the MPOWER Software (except as set
forth in Section 2.7) or the Documentation, nor translate, or adapt the MPOWER
Software or the Documentation in any way or use it to create a Derivative Work
or permit the foregoing. Except as set forth in Section 8.2 with respect to the
Shelf Version, MPOWER shall not be responsible for the functioning of updates,
revisions, enhancements, additions or
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conversions or otherwise maintaining the MPOWER Software if the MPOWER Software
is modified by Customer or if Customer installs or attempts to install software,
other than MPOWER Software, which interfaces with the MPOWER Software in a
manner which is inconsistent with MPOWER Standard Interface Specifications, or
writes to any data files maintained by the MPOWER Software. Customer shall be
solely responsible for the results of such modifications or interfaces,
including the integrity of data used or generated by the MPOWER Software. In the
event that Customer makes a permitted modification or enhancement to the MPOWER
Software, as set forth in Section 2.7 herein, and it is subsequently determined
that such modification or enhancement was the cause of a Nonconformity in the
MPOWER Software, then MPOWER shall be reimbursed at the Supplemental Service
Fees rates set forth in Schedule B for the time spent in determining that such
modification or enhancement was the cause of the Nonconformity, and MPOWER
agrees to provide Supplemental Services support as specified on a Work Order to
correct such Nonconformity.
2.4 General System Enhancements. In consideration of the ILF and MF,
MPOWER shall provide to Customer General System Enhancements, if and when such
General System Enhancements are made available to licensees of the MPOWER
Software generally, except as otherwise provided in Exhibit 2. Any General
System Enhancements supplied to Customer by MPOWER shall become part of, and
subject to, this Agreement and License. MPOWER shall only provide General System
Enhancements for the then most current Release of the MPOWER Software. In
addition, MPOWER agrees also to provide support for the one prior Release
immediately preceding the most current Release of the MPOWER Software and to
provide support for any other Releases for up to one (1) year from the Release
Date of such other Releases. During any applicable support period, support for
any such prior Release of the MPOWER Software that has been replaced or modified
by General System Enhancements or by a subsequent Release shall be limited to
correction of identified and reproducible defects in the Shelf Version of such
prior Release from the published specifications therefor. MPOWER shall not be
obligated to provide General System Enhancements for any Release other than the
most current Release. Any additional MPOWER Services provided in connection with
an older Release of the MPOWER Software shall be provided as Supplemental
Services.
2.5 Correction of Nonconformities. In consideration of the ILF and MF,
and subject to the terms of this Agreement, upon
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written notification by Customer of a Nonconformity in the most current Release
of the MPOWER Software or in the one prior Release immediately preceding the
most current Release of the MPOWER Software, MPOWER will analyze the
Nonconformity and notify Customer of its estimate of when and how such
Nonconformity will be corrected or any Workaround provided and MPOWER shall use
commercially reasonable efforts to correct such Nonconformity in accordance with
the procedures and priorities established in Schedule A under Help Desk.
Notwithstanding the prior sentence, MPOWER's sole obligation hereunder shall be
limited to correcting identified and reproducible Nonconformities in the Shelf
Version of the MPOWER Software in accordance with Section 4 herein and the
relevant portions of Exhibit 1 which deal with Definitions, Support and Time
Frame for Resolution of issues logged through the MPOWER Help Desk.
2.6 Proprietary Rights and Confidentiality. MPOWER represents and
Customer acknowledges that the MPOWER Software, including the Documentation, is
the sole and exclusive property of MPOWER, including, but not limited to, all
applicable rights to patents, copyrights, trademarks and trade secrets inherent
therein and appurtenant thereto, and MPOWER retains title to the MPOWER Software
and any copies thereof. Customer is not purchasing title to the MPOWER Software
or copies thereof, but rather is being granted a license to use the MPOWER
Software pursuant to the terms herein. Customer shall not sell, license,
transfer, or otherwise make available (except as expressly provided herein) any
portion of the MPOWER Software to others, including but not limited to Related
Parties and Non-Related Parties for which Customer is providing processing
services pursuant to the terms hereof, nor permit the foregoing, except for
disclosure of the MPOWER Software to Customer consultants and auditors pursuant
to the provisions of Section 14.2 herein, and the disclosure of the User
Documentation to Related Parties and Non-Related Parties, pursuant to the
provisions of Sections 2.3 and 14.2 herein. Customer agrees to use at least
Commercially reasonable methods to secure and protect the MPOWER Software and
the Documentation as MPOWER Confidential Information as defined herein, in a
manner consistent with the manner in which it protects its own most sensitive
confidential information.
2.7 Modification by Customer. In the event that Customer exercises its
option for the Source Code Buyout Option, Customer shall have the right to
modify the MPOWER Software for
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Customer Processing without notifying MPOWER and without obtaining MPOWER's
consent provided that (i.) Customer's ownership of such modifications shall be
subject to MPOWER's proprietary rights in the MPOWER Software and to the
provisions of this Section, (ii.) MPOWER's warranties and support obligations
related to the MPOWER Software shall apply only to the Shelf Version, and (iii.)
Customer shall not market or distribute such modifications (except Customer may
distribute descriptions and/or documentation of such modifications to Related
Parties and Non-Related Parties) which distribution or marketing shall be deemed
a violation of MPOWER's proprietary rights in the MPOWER Software. If Customer
desires MPOWER to continue to provide support services, Customer shall offer all
modifications made by Customer to MPOWER for inclusion in the MPOWER Software,
subject to the mutual agreement by the parties as to the consideration, if any,
to be paid to Customer in return for Customer costs and efforts in development
of such modification(s). MPOWER shall have the right to distribute such
modifications as General System Enhancements, and if MPOWER does so, such
modification shall be covered by the MPOWER warranty and support obligations as
set forth in this Agreement. Subject to the foregoing, Customer agrees that all
modifications accepted by MPOWER in writing shall be owned by MPOWER. All right,
title and interest in such accepted modifications are hereby irrevocably
assigned by Customer to MPOWER. All such modifications shall belong exclusively
to MPOWER, with MPOWER having the right to obtain and to hold in its own name
copyright registrations, patents and such other intellectual property protection
as may be appropriate to the subject matter and any extensions and renewals
thereof. Customer agrees to give MPOWER reasonable assistance, at MPOWER's
expense, required to perfect MPOWER's rights set forth herein.
2.8 Support for Modifications
(a) Modifications Not Included in the MPOWER Software; Support
Costs. In the event (i.) MPOWER modifies or enhances the MPOWER Software at
Customer's request pursuant to Section 3.2, or Customer modifies the MPOWER
Software pursuant to Section 2.7; and (ii.) such modifications or enhancements
do not have general applicability for MPOWER's customers and are not offered as
General Systems Enhancements, in order to provide support for such modifications
and enhancements, MPOWER will need to agree, in writing, to provide support for
such modifications and enhancements, and Customer agrees that there may need to
be
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an increase in the MF and/or the Fees for Maintenance Support Services. In the
event that MPOWER agrees, in writing, to provide such support, and reasonably
believes that an increase in the MF or the Fees for Maintenance Support Services
is required due to Customer specific modifications, the parties shall meet and
discuss the nature of the increase. In the event that MPOWER does not agree to
provide such support, or if the parties fail to agree upon the amount of the
increase to the MF or the Fees for Maintenance Support Services, MPOWER shall
have no obligation to support such modifications and enhancements.
(b) Modifications Included in the MPOWER Software. Modifications
made to the MPOWER Software either by Customer , pursuant to Section 2.7, or by
MPOWER, pursuant to Section 3.2, which are included in the MPOWER Software as
General System Enhancements by MPOWER shall be supported by MPOWER as set forth
in Section 2.4.
2.9 Core Services. In consideration of the payment of the License Fees
by Customer , MPOWER shall, during the term of this Agreement, provide the Core
Services set forth in Exhibit ! except as otherwise provided in Exhibit 2.
Schedule C of the Processing and Service Agreement is superseded after the
effective date of this Schedule.
3. SUPPLEMENTAL SERVICES
3.1 Supplemental Services. Supplemental Services may include as
applicable (i.) conversion services to convert Customer data; (ii.) System Setup
such as the establishment of benefit plans, pricing information, tracking
information, capitation rules, procedure and diagnosis code files and fund
accounting and billing rules; (iii.) services for modifying the MPOWER Software
for enhancements and modifications; (iv.) -training support after initial
training; (v.) consulting services; (vi.) the efforts required to be put forth
by MPOWER to respond to the excessive or inappropriate use of the MPOWER Help
Desk by Customer for issues resulting from the lack of adequately trained
Customer personnel or from the lack of use or inadequate utilization of the
Documentation by Customer ; and (vii.) project Coordination and management for
the above Supplemental Services. All. such Supplemental Services shall be
described in an applicable Work Order and shall be undertaken by MPOWER only
pursuant to a Work Order. For services requested by Customer
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which are beyond the scope of the services generally contemplated hereunder, for
special circumstances, or if the geographic location in which any MPOWER
services are to be provided for Customer demands higher labor or resource costs,
MPOWER will provide Customer with written notice, and MPOWER reserves the right
to propose a new fee structure or different rates, which fee structure or rates
will be detailed in the appropriate Work Order.
3.2 Enhancements and Modifications Under Work Orders. Pursuant to this
Section 3.2 and the applicable Work Order, Customer may identify enhancements or
modifications which it desires to have MPOWER make to the MPOWER Software, such
as integration to other software systems, modifications for legal requirements,
and other functional enhancements. Customer shall be responsible for providing
to MPOWER a description of the changes which Customer requests to be made in the
MPOWER Software. MPOWER shall have the right to design any Customer requested
enhancements or modifications in a way which, in MPOWER's reasonable opinion,
will not adversely affect the MPOWER Services or the structure or performance of
the MPOWER Software or will have general applicability. In the event MPOWER
agrees to provide such enhancements or modifications to the MPOWER Software,
suck enhancements or modifications shall be owned by MPOWER and licensed to
Customer as part of the MPOWER Software subject to Section 2. Resources utilized
by MPOWER in providing services pursuant to any suck requests will be detailed
in applicable Work Orders.
3.2 Data Integrity. Customer acknowledges that, although MPOWER may, as
part of Supplemental Services, perform certain conversion tasks (for which
MPOWER shall be responsible), including development of files and programs for
the conversion of Customer data into formats for the MPOWER Software, the
quality and integrity of all Customer data provided to MPOWER, and the results
obtained or resulting from poor or inaccurate data are solely Customer's
responsibility.
3.3 Access. In order for the Supplemental Services to be completed in a
timely and successful manner, Customer shall provide MPOWER with such access to
applicable information and key Customer personnel as MPOWER may reasonably
request from time to time during the period the Supplemental Services are being
performed. In connection with the Supplemental Services, MPOWER will be entitled
to submit various materials, including time
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schedules, business requirements, specifications, and test results, for
Customer's review, comment, sign-off, or approval. Customer will respond to each
such request as soon as reasonably practicable, and, in any event, in a time
frame consistent with the applicable project plan, and shall not unreasonably
withhold any sign-off or approval requested by MPOWER.
3.4 Schedule B of the Processing and Service Agreement is superseded by
this Schedule.
4. ACCEPTANCE
For all deliverables, including the MPOWER Software and General System
Enhancements and Customer-specific enhancements and modifications provided
pursuant to an applicable Work Order, whether for MPOWER Processing or for
Customer Processing, Customer shall, within thirty (30) days of receipt of the
deliverable, or within such other time period as may be agreed to in writing by
the parties, review and, if applicable, test-the deliverable and approve it or
notify MPOWER in writing of non-approval, documenting in reasonable detail any
and all material' defects in the deliverable which prevent it from conforming to
the Documentation or specifications therefor, as applicable. Work Orders for
Customer enhancement requests will include specification of an acceptance test
period that is mutually agreed to by Customer and MPOWER and which shall be
reflective of the estimated size and complexity of the deliverable specified by
the Work Order. MPOWER shall, upon receipt of such notice, use its best efforts
to correct any such material failures and shall notify Customer of its
completion thereof. Customer shall, after receipt of said notice, review the
deliverable and report. Customer shall do so promptly using diligent efforts,
but in no event shall such process exceed fifteen (15) days. The above cycle
shall be repeated as is necessary. A deliverable shall be deemed accepted by
Customer if either:
(a) Customer notifies MPOWER in writing of its acceptance and
the acceptance date shall then be the date of such notice;
(b) Customer fails to notify MPOWER in writing within the
applicable time period of any material defect in the deliverable and the
acceptance date shall then be the last day of said period; or
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(c) Customer places in productive use any portion of the
deliverable and the acceptance date shall then be the first day of such
productive use. Productive use for purposes of the foregoing shall not include
the use by Customer of the MPOWER Software in a parallel processing environment
where Customer is utilizing the MPOWER Software to process a limited number of
Members during a reasonable period of time for the purpose of testing the MPOWER
Software.
Customer agrees that it will so test any modifications or enhancements
made by MPOWER for Customer under an applicable Work Order and made part of a
Release and all General System Enhancements. The version and release of the
MPOWER Software so accepted by Customer shall be deemed the current Shelf
Version. Customer and MPOWER shall maintain copies of each Shelf Version. The
obligation of MPOWER to maintain any enhancements or modifications made
specifically for Customer that are not part of either General System
Enhancements or a Release shall be specified in the Work Order that authorizes
such enhancements or modifications or in a subsequent Work Order.
5.FEES AND CHARGES
5.1 Fees and Charges. The Fees for the MPOWER License and Services are
described in Exhibit 2 attached hereto.
5.2 Timeliness of Payment. Customer will pay the ILF, MF and all other
fees in accordance with the schedule set forth in Exhibit 2. All other
provisions of Section 10.2 of the Agreement dated January 1, 1997, remain in
force.
6.PROBLEM RESOLUTION
Subject to the limitations in support for prior Releases provided by
MPOWER as set forth in Section 3 hereof, in the event MPOWER receives notice
from Customer of a Critical Failure in the most current Release of the MPOWER
Software or in the one prior Release immediately preceding the most current
Release of the MPOWER Software, MPOWER agrees to respond to such notice by
assigning a qualified individual to attempt to remedy
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the Critical Failure, and agrees to use commercially reasonable efforts to
remedy the Critical Failure in accordance with the provisions of Section 9.2
herein commensurate with the severity of the problem and the timeliness and
quality of information regarding the problem received from Customer in
accordance with the Definition, Support and Time Frame for Resolution paragraphs
of the Help Desk section of Exhibit 1.
7. CUSTOMER RESPONSIBILITIES
Sections 7.1 and 7.2 of the Agreement dated January 1, 1997, are replaced with
sections 7.1, 7.2 and 7.3 below:
7.1 Customer Responsibilities. Customer acknowledges that the MPOWER
Software reflects certain interdependent relationships, such as exist among the
data variables, logic rules and system functions of the MPOWER Software.
Customer further acknowledges that it is required and has a responsibility to
understand such data variables, logic rules and system functions, and their
interdependent relationships, and to define for its own purposes such data
variables, logic rules and system functions to the MPOWER Software in such a way
that the MPOWER Software will provide the functionality desired by Customer.
Customer acknowledges that it has or will hire and will maintain on its staff
personnel who are able to understand and define such data variables, logic
rules, system functions and interdependent relationships. Customer further
acknowledges that, even though MPOWER may assist Customer personnel in
performing these tasks, the responsibility for the effective definition and
maintenance of these data variables, logic rules and system functions resides
with Customer and not with MPOWER, unless Customer specifically requests MPOWER
to perform these tasks at the Supplemental Services Fees. Notwithstanding the
foregoing, nothing herein shall relieve MPOWER of responsibility for the
assistance that it may provide to Customer hereunder.
7.2 Testing. Customer acknowledges that it will undertake testing of
the MPOWER Software and of the basic functionality and interdependency of its
customer-defined data variables, logic rules and system functions as set forth
in Section 4 herein, prior to commencing use of the MPOWER Software for its
business.
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7.3 Customer Data. Except as may be provided under an applicable Work
Order, Customer shall be responsible for inputting and ensuring the accuracy,
validity and completeness of all data variables, logic rules, system functions
and Customer data, including but not limited to group, subscriber, Member,
provider, utilization, encounter, claims, capitation, fund accounting, billing,
collection, broker, benefits, product contract, provider contract, provider
fees, standard business measures, and other similar or related data. Customer
shall also be responsible for inputting and ensuring the accuracy, validity and
completeness of all user-defined report definitions, all report and batch
production job specifications and priority scheduling criteria. Customer shall
also be responsible for initiating, monitoring, operating, printing and ensuring
the accuracy, validity, and completeness of all print outputs and file
downloads, including but not limited to all reports, premium bills, checks,
etc., determining how many and on what print stock such outputs are to be
printed or into which files or programs on Customer controlled computers such
files are to be downloaded and manipulated, at Customer's own initiative,
responsibility and risk. Customer hereby acknowledges responsibility for
generally controlling all aspects related to the production, distribution and
control of such outputs. Customer further acknowledges that, notwithstanding
the responsibility of MPOWER to have used due care and diligence in the design
and documentation of the System, the accuracy of Customer's database within the
MPOWER Software and the accuracy of the several outputs of the MPOWER Software,
including but not limited to, outputs that control the billing, receipt or
expenditure of moneys, will be dependent on the accuracy and use of the data
variables, logic rules, system. functions and Customer data input into the
MPOWER Software by Customer and verified by Customer. Notwithstanding the
foregoing, nothing herein shall relieve MPOWER of responsibility for the
assistance that it may provide to Customer hereunder.
7.4 Other Customer Obligations. section 7.3 is renumbered 7.4. In
addition to those responsibilities set forth in the former Section 7.3 of the
Agreement dated January 1, 1997, the following additional obligations of new
Section 7.4 will apply to Customer:
(a) Pay all costs of acquisition, installation and use of
equipment and services at all Customer sites.
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(b) Properly maintain the Customer equipment at all Customer
sites.
(c) Properly maintain the operating environment, operating
system, network and database software as agreed to between the parties.
8. WARRANTIES
Section 8. Warrantees of the Agreement dated January 1, 1997, is replaced in its
entirety with the following:
8.1 MPOWER warrants that it either owns the rights to the MPOWER
Software or has the right to grant the license to Customer herein, and that it
either owns or has licensed in the manner contemplated by this Agreement any
other software used in the provision of the MPOWER Services to Customer,
including but not limited to the enhancements or modifications provided by
MPOWER pursuant to an applicable Work Order. MPOWER warrants that the MPOWER
Software, including without limitation each component or part thereof, does not
and will not infringe upon or violate any patent, copyright, trademark, trade
secret or other proprietary or contractual rights of any third party.
MPOWER shall, at its own expense indemnify, defend, settle and hold harmless
Customer and its officers and employees, from and against any and all claims,
damages, losses, liabilities, costs and expenses (including reasonable legal.
fees) directly arising out of any such claim that the Shelf Version of the
MPOWER Software infringes upon or violates any United States patents,
copyrights, trademarks, trade secrets or other proprietary, contractual or
intellectual property rights of any third party; provided, however, Customer
must send MPOWER written notice of any claim relating to such infringement
promptly after Customer receives notice of the same and Customer fully
cooperates, at MPOWER'S expense, in the defense of any such claim. Following
such notice of a claim or of a threatened or actual suit, MPOWER shall, upon
written notice to Customer and at MPOWER's expense, either: (a) procure for
Customer the right to continue using such MPOWER Software; (b) replace or modify
same so that it becomes non-infringing; or, (c) grant to Customer a refund for
said MPOWER Software based upon a five (5) year straight line depreciation upon
its return to MPOWER if neither (a) nor (b) are reasonably possible, in MPOWER's
sole discretion. The foregoing states the entire liability of MPOWER and the
sole remedy of
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Customer with respect to any infringement or claimed infringement by the MPOWER
Software.
Notwithstanding the foregoing, MPOWER shall not be obligated to defend,
indemnify or hold Customer harmless from and against any claim, suit proceeding
or allegation (i.) asserted by a parent, subsidiary or affiliate of Customer or
any Related Party, (ii.) resulting from Customer's additions to, changes in, or
enhancements or modifications of the MPOWER Software, (iii.) resulting from
Customer's Use of the MPOWER Software in combination with non-MPOWER Software,
or (iv.) resulting from Customer's misuse of the MPOWER Software.
8.2 MPOWER warrants that the Shelf Version of the MPOWER Software will
function as set forth in MPOWER's User Documentation, including all updates and
enhancements thereto. Upon receipt of Customer's notice given pursuant to
Section 17.4, of the Agreement dated January !, 1997, MPOWER and Customer shall
cooperate to attempt to duplicate the problem on the Shelf Version of the MPOWER
Software. If the problem can be duplicated, MPOWER's sole obligation under this
warranty and Customer's sole remedy shall be for MPOWER to comply with the
service obligations set forth in Section 6 herein. If the problem cannot be
duplicated, MPOWER's warranty shall not apply and MPOWER shall have no
obligation to remedy the cited defect. MPOWER covenants and warrants that all
improvements and enhancements of the MPOWER Software provided by MPOWER will be
compatible with, and will not materially diminish the features or functions of,
or the specifications of the Shelf Version of the MPOWER Software, and that the
Shelf Version of the MPOWER Software will be compatible with the equipment
described in the Documentation. MPOWER warrants that User Documentation shall
reflect the operation of the MPOWER Software, and MPOWER shall, at no additional
cost to Customer, correct any User Documentation that does not conform to this
warranty.
8.3 MPOWER DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, EXCEPT
THOSE WARRANTIES EXPRESSLY SET FORTH IN THIS SECTION 8. MPOWER SPECIFICALLY
DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OF THE MPOWER SERVICES OR THE MPOWER SYSTEM, OR THE
COMPLIANCE OF THE FOREGOING WITH ANY LAW, REGULATION OR ORDER.
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9. LIMITATION OF LIABILITY
Section 9. Limitation of Liability of the Agreement Dated January 1, 1997, is
replaced in its entirety with the following:
NEITHER PARTY SHALL HAVE ANY LIABILITY WITH RESPECT TO ITS OBLIGATIONS
UNDER THIS AGREEMENT OR OTHERWISE FOR CONSEQUENTIAL, EXEMPLARY, INCIDENTAL OR
PUNITIVE DAMAGES EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
MPOWER SHALL NOT BE LIABLE FOR ANY CLAIM ARISING FROM THE USE OF SOFTWARE OR
DATA WHICH HAS BEEN MODIFIED BY ANYONE OTHER THAN MPOWER, NOR FOR ANY CLAIM
ARISING FROM THE USE OF ANY SOFTWARE OR EQUIPMENT DEVELOPED OR MODIFIED BY
CUSTOMER OR WHICH HAS BEEN PROVIDED TO OR ACQUIRED BY CUSTOMER UNDER ANY LICENSE
OR OTHERWISE FROM ANY THIRD PARTY.
EXCEPT AS PROVIDED IN SECTION 8.1 WITH RESPECT TO MPOWER's EXPRESS
OBLIGATIONS TO INDEMNIFY CUSTOMER FOR LIABILITIES TO THIRD PARTIES, MPOWER's
SOLE AND TOTAL LIABILITY TO CUSTOMER RELATED TO THIS AGREEMENT WHETHER IN
CONTRACT OR IN TORT OR OTHERWISE SHALL BE LIMITED TO CUSTOMER'S ACTUAL DIRECT
DAMAGES NOT TO EXCEED THE SUM OF THE LICENSE FEES AND REMOTE PROCESSING FEES
PAID BY CUSTOMER TO MPOWER UNDER THIS AGREEMENT DURING THE SIX (6) MONTHS'
IMMEDIATELY PRIOR TO THE BREACH OR CAUSE FOR WHICH THE DAMAGES ARE CLAIMED. THIS
LIMITATION APPLIES TO ALL CAUSES OF ACTIONS OR CLAIMS IN THE AGGREGATE INCLUDING
WITHOUT LIMITATION, BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT
LIABILITY, MISREPRESENTATION AND OTHER TORTS. FURTHER, NO CAUSE OF ACTION WHICH
ACCRUED MORE THAN TWO(2) YEARS PRIOR TO THE FILING OF A SUIT ALLEGING SUCH CAUSE
OF ACTION MAY BE ASSERTED AGAINST MPOWER, EXCEPT THAT IN NO EVENT SHALL THE
FOREGOING LIMITATION EXTEND ANY APPLICABLE STATUTORY LIMITATION PERIOD. CUSTOMER
AND MPOWER EXPRESSLY ACKNOWLEDGE AND AGREE THAT THE LIMITATIONS AND EXCLUSIONS
CONTAINED HEREIN REPRESENT THE PARTIES' AGREEMENT AS TO THE ALLOCATION OF RISK
BETWEEN THE PARTIES IN CONNECTION WITH MPOWER's OBLIGATIONS UNDER THIS
AGREEMENT. THE PAYMENTS PAYABLE TO MPOWER IN CONNECTION HEREWITH REFLECT THIS
ALLOCATION OF RISK AND THE EXCLUSION OF CONSEQUENTIAL DAMAGES IN THIS AGREEMENT.
MPOWER hereby is not assuming or otherwise responsible for, expressly or
implicitly, any obligation or liability of any kind whatsoever of Customer.
Customer shall and hereby does agree to indemnify and hold MPOWER harmless from
any and all claims, lawsuits, liabilities, expenses, costs, damages and fees
arising
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from or in connection with Customer's use or misuse of the MPOWER Services or
MPOWER Software in breach of its obligations hereunder or relative to Customer's
provision of services or products to any third party.
10. OTHER PROVISIONS
10.1 Inspection Rights. MPOWER will provide such auditors and inspectors
as Customer may from time to time designate in writing, with reasonable access
to any data center from which MPOWER is providing services hereunder for the
limited purpose of performing audits or examinations of Customer. MPOWER will
provide to such auditors and inspectors any routine assistance that they
reasonably require, rendered in connection with any such audit or inspection.
10.2 MPOWER Audits. Customer shall maintain adequate books and records
relating to its usage of the MPOWER Software and MPOWER Services and the Fees
due to MPOWER hereunder. MPOWER shall have the right, upon request, and in
connection with Customer's annual audit, to have Customer's auditors perform an
audit of Customer's books and records with respect to the MPOWER Software and
MPOWER Services and the Fees due to MPOWER hereunder. The cost of such audit
shall be borne by MPOWER solely to the extent that the auditors' services are
substantially different from or greater than those that the auditors would
ordinarily perform for Customer. Any over/under payment between the reported
usage of the MPOWER Software and the MPOWER Services and the Fees due to MPOWER
hereunder and the actual amount shall be paid by the appropriate party, or
applied as a credit by MPOWER, within thirty (30) days of notification of said
amount.
11. Additional Provisions Relating For Termination
The following provision is added to Section 13 of the Agreement dated January 1,
1997:
13.5 Termination Without Cause. In the event Customer ceases all
Customer Processing or Remote Processing Services, then MPOWER may terminate, at
its option, this Agreement and License upon thirty (30) days written notice.
Customer may terminate this Agreement without cause with one hundred eighty
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(180) days advance written notice to MPOWER subject to Customer's payment to
MPOWER of all outstanding fees incurred prior to the date of termination, all
applicable termination fees as provided in any Exhibit 2, and any applicable
early termination fees specified in Exhibit 2.
Section 13.5 Termination Assistance is renumbered Section 13.6.
Section 13.6 Outstanding Amounts is renumbered 13.7 and is amended to read as
follows:
13.7 Outstanding Amounts. Termination of this Agreement shall entitle
MPOWER to payment and Customer shall be obligated to pay for the provisions of
any and all MPOWER Services rendered by MPOWER under this Agreement prior to the
date of such termination, all outstanding fees incurred prior to the date of
termination and the lump sum of all remaining ILF payments due by Customer under
Exhibit 2 (except as provided in Section 13.3 herein).
Section 13.7 Customer Data is renumbered 13.8.
Section 13.9 is added to the Agreement dated January 1, 1997.
13.9 MPOWER Software. Unless otherwise provided in this Agreement,
Customer agrees that upon termination of this Agreement, the License granted
hereunder shall also terminate and Customer shall .cease using the MPOWER
Software and shall return to MPOWER or destroy, within thirty (30) days after
such termination, the original and all copies of such MPOWER Software and
Documentation. Except for termination resulting from the material breach on the
part of Customer, including without limitation, breach of its Confidentiality
obligations or failure to timely make any payment hereunder, Customer shall be
permitted to continue to use the MPOWER Software pursuant to all the terms and
conditions set forth in this Agreement for up to a maximum of six (6) months
following such termination for the sole purpose of transitioning Members to an
alternate processing software, provided (i.) Customer remains obligated to pay
MF during such period; (ii.) MPOWER has no further obligations to provide Core
Services, new Releases, fixes to Nonconformities or Critical Failures, and
(iii.) the MPOWER Software is no longer warranted. If Customer destroys the
MPOWER Software, all copies thereof and Documentation, within thirty (30) days
of such destruction an officer of Customer shall certify to MPOWER in writing
that the
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MPOWER Software and all copies and Documentation thereof have been destroyed.
Due to the nature of the MPOWER Software and the need for its protection as a
trade secret and confidential proprietary information, time is of the essence in
its return or destruction, and in the event of Customer's failure to do so
within the time provided herein, Customer agrees that MPOWER shall be entitled
to obtain injunctive relief to require such return or destruction and reasonable
attorneys' fees and costs incurred in obtaining such injunctive relief.
12. Provisions Relating to Confidentiality
Section 14. Confidentiality is replaced in its entirety with the following:
14. CONFIDENTIALITY
14.1 Confidential Information. "Confidential Information" shall mean
information such as customer lists, business plans, operation plans, client
information, application software programs and documentation licensed by third
parties to Customer or MPOWER, the MPOWER Software, the User Documentation,
Functional Documentation and the System Documentation, which are disclosed by
Customer or MPOWER to the other party, its employees, agents, contractors,
assignees or successors in the conduct of business under this Agreement. In
addition, Confidential Information shall also include any other materials
relating to MPOWER's business or the business of Customer which are designated
in writing as confidential at the time of disclosure by Customer or MPOWER, or
is identified orally at the time of the disclosure as confidential and confirmed
in writing within one week of such disclosure, and which are disclosed by
Customer or MPOWER to the other party, its employees, agents, contractors,
assignees or successors in the conduct of business under this Agreement. The
following information shall not-be deemed Confidential Information, and a party
and that party's employees shall have no obligation with respect to any such
information which:
a. is or falls into the public domain through no wrongful act of
a party or that party's agents or employees; or
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b. is rightfully received from a third party without restriction
and without breach of this Agreement; or
c. is approved for release by written authorization of an
officer of a party; or
d. is disclosed pursuant to the requirements of a governmental
agency or operation of law; or
e. is already in possession of a party or that party's employees
as evidenced by their records and is not the subject of a
separate non-disclosure or confidentiality agreement with
either of them.
14.2 Standard of Care. Each party hereby agrees that it and its
respective officers, employees, agents, contractors, assignees, and successors
shall (i.) keep all Confidential Information received from the other party
strictly confidential, (ii.) instruct their officers, employees, agents,
contractors, and permitted assignees and successors, who have access to such
Confidential Information, to use the same degree of care and discretion with
respect to the Confidential Information of the other party, or of any third
party utilized hereunder, that MPOWER and Customer each require with respect to
their own most confidential information, (iii.) use and disclose such
information solely for the purposes and in the manner set forth in this
Agreement, (iv.) not disclose any such information to any other person,
corporation, governmental agency or other entity without the express written
permission of the other party, except that Customer may (v.) disclose the MPOWER
Software and Documentation to outside consultants or other third parties having
a need to know such Confidential Information for purposes of this Agreement, and
provided said consultants or third parties agree to hold the MPOWER Software and
Documentation in confidence, and have executed a Non-Disclosure Agreement in the
form annexed hereto as Schedule F, and (vi.) disclose the User Documentation to
Related Parties and Non-Related Parties in order for Customer to be able to
provide and for such parties to be able to effectively receive and utilize
Customer Processing, provided said Related and Non-Related Parties agree to hold
the User Documentation in confidence subject to the provisions herein, and have
executed a Non-Disclosure Agreement in the form
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annexed hereto as Schedule F. NOTWITHSTANDING THE FOREGOING, WITH RESPECT TO
MPOWER SOURCE CODE AND SYSTEM DOCUMENTATION, IN ADDITION TO ITS OBLIGATIONS SET
FORTH HEREIN, CUSTOMER SKILL USE NO LESS THAN THE SAME DEGREE OF CARE AND
DISCRETION THAT CUSTOMER REQUIRES WITH RESPECT TO ITS MOST VALUABLE TRADE SECRET
INFORMATION. Notwithstanding the foregoing, Customer may not disclose MPOWER's
Confidential Information to any of the parties identified by MPOWER in Exhibit
3, as such Exhibit may be updated from time to time by MPOWER, or to their
employees, agents, or consultants. Customer shall institute the necessary
security policies and procedures to meet its obligations hereunder.
Notwithstanding the foregoing, the mere viewing of data input screens or the
review of output screens and reports generated by released MPOWER Software by
third parties, not in competition with MPOWER, shall not be deemed a disclosure
of MPOWER Confidential Information.
Without limiting the foregoing, Customer shall use its reasonable
efforts to cooperate with MPOWER in identifying and preventing unauthorized use,
copying, or disclosure of the MPOWER Software and MPOWER Confidential
Information, or any portion thereof.
Customer shall indemnify and hold harmless MPOWER and its officers and
employees from and against any and all damages, losses, liabilities, costs and
expenses (including reasonable legal fees) arising in any way out of use not in
compliance with this Agreement or of any breach of the Confidentiality
obligations hereunder by Customer, or its subsidiaries and affiliates, or any
entity controlling, controlled by or under common control with Customer or any
Related Party.
13. Amendments to Section 17. General
Section 17. A new Section 17.8 is added.
17.8 Publicity. Neither party shall use the name, trade name, service
marks, trademarks, trade dress or logo of the other in publicity releases,
advertising or similar activities without the prior written consent of the
other. Notwithstanding the foregoing, MPOWER shall have the right to list
Customer's name on customer lists, provided that such listing(s) does not state
or imply a recommendation, approval or testimonial by Customer.
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A new section 17.9 is added:
17.9 Export Assurance. Notwithstanding anything contained herein to the
contrary and regardless of any disclosure made by Customer to MPOWER of any
ultimate destination of the MPOWER Software, Customer shall not export or
re-export directly or indirectly the MPOWER Software acquired from MPOWER, or
any technical data derived therefrom, without first obtaining the written
approval or required export license to do so from the United States Department
of Commerce or any other agency of the United States Government or of any
foreign government having jurisdiction over such transaction, when required by
an applicable statute, regulation or order. Customer hereby assures MPOWER that
it does not intend to nor will it knowingly, without the prior written consent,
if required, of the Office of Export Administration of the U.S. Department of
Commerce, Washington, DC, transmit or ship the MPOWER Software or any
modifications thereto or product thereof, directly or indirectly, to Afghanistan
or to the Peoples Republic of China or to any Group Q, S, W, Y or Z country
specified in Supplements to Section 370 of the Export Administration Regulations
issued by the U.S. Department of Commerce, as may be amended from time to time;
or any other applicable regulation.
A new section 17.10 is added:
17.10 Governmental Restrictions. Customer shall be responsible for
complying with all applicable governmental regulations of the United States or
any foreign countries with respect to Customer's transport or use of the MPOWER
Software outside of the United States, including, but not limited to import and
export restrictions, obtaining any necessary consents, registering or filing any
documents and paying any duties, fees or taxes. Customer shall be solely
responsible for all costs associated with such compliance. Customer shall
defend, indemnify and hold MPOWER harmless from and against any and all claims,
judgments, costs, awards, expenses (including reasonable attorneys, fees) and
liability of any kind arising out of the non-compliance with applicable
governmental regulations, statute, decree or other obligation with respect to
the MPOWER Software outside the United States.
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Sections 17.8 and 17.9 of the Agreement dated January 1,1997, are renumbered
17.11 and 17.12 respectively.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
MPOWER SOLUTIONS INC. Brokerage Services, Inc.
(Customer)
By: /s/ WILLIAM F.X. O'NEIL By: /s/ TIMOTHY R. FISCHER
-------------------------------- --------------------------------
Name: William F.X. O'Neil Name: Timothy R. Fischer
Title: EVP & COO Title: CFO
Date: 7-25-97 Date: July 25, 1997
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INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 1 - DEFINITION OF CORE SERVICES
Exhibit 2 - LICENSE, PROCESSING AND SERVICE FEES
Exhibit 3 - MPOWER IDENTIFIED PARTIES FOR NON-DISCLOSURE
Exhibit 4 - DOCUMENTATION OUTLINE
Exhibit 5 - NON-DISCLOSURE AGREEMENT
Exhibit 6 - THIRD PARTY VENDOR SOFTWARE AND HARDWARE TO
IMPLEMENT MPOWER SOFTWARE ON CUSTOMER'S CLIENT
SERVER PLATFORM (TBD)
</TABLE>
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Exhibit 1
DEFINITION OF CORE SERVICES
"Core Services" are those services, in addition to the License, that are
provided to Customer by MPOWER in consideration for the payment of the License
Fees, except as otherwise provided in Schedule B. Core Services shall include
the following:
Conversion Plan: MPOWER will provide a template plan for migrating and
converting Customer members to the MPOWER Software or the MPOWER System. The
template plan will include a description of tasks to be performed, milestones,
and deliverables. Customer and MPOWER will mutually agree on initial
modifications to the template plan to fit the Customer's specific situation and
circumstances. This modified template plan shall be referred to as the
"Conversion Plan", which may be subsequently modified by agreement of the
parties from time to time.
Software Installation (if applicable): In accordance with the Conversion Plan,
MPOWER will provide up to one hundred-twenty (120) hours of systems support to
help install the MPOWER Software on a single Customer CPU(s) designated as
follows:
CPU Model Number(s):
--------------------------------------------------------
CPU Serial Number(s):
--------------------------------------------------------
Prior to installation of MPOWER Software, Customer shall have installed the
vendor software detailed on Exhibit 6.
Delivery: Unless otherwise requested in writing at the time of final delivery
to Customer of any deliverable of the MPOWER Software or of the enhancement or
modification provided under any Work Order under the License or applicable Work
Order to Customer or any Related Party, all deliverables to Customer or any
Related Party shall be by electronic delivery. Customer shall provide
appropriate communications linkages to receive such deliveries and shall pay
MPOWER the fees stated therefor in Exhibit 2.
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Documentation: MPOWER will provide User Documentation and, if applicable, System
Documentation and the Functional Documentation for the functions and in the form
outlined in Exhibit 4, Documentation.
Help Desk: MPOWER shall provide a "Level Two" Help Desk to answer Customer
questions and solve Customer problems for acceptance testing and production
activities as further described herein. (Questions that are training related, or
answers to which can be found in the User Documentation, or that are related to
initial setups and definitions should be referred to the MPOWER
implementation-support team.) The Help Desk is staffed 8:00 am to 5:00 p.m.,
Mountain Time, Monday through Friday. Calls to the Help Desk outside of these
hours are rolled over either to MPOWER Operations or pager response. An Inward
WATS number (currently 1-800-993-3677) is available for Help Desk calls at no
charge to the Customer. Calls to the Help Desk that represent problems related
to the MPOWER Software or MPOWER System are assigned a Problem Number and
entered into the MPOWER Problem Reporting and Tracking System, where current
status is available for reporting back to the Customer.
A "Level Two" Help Desk call is a call from the Customer's internal Help Desk
seeking support for questions and problems for production activities that the
Customer's Help Desk was not able to resolve on its own (each a "Service Call").
MPOWER represents that Service Calls will be logged and responded to as follows:
A. Severity Level/Priority: 1
Definition: A Critical Failure.
Support: MPOWER will provide telephone support twenty-fours (24) hours
per day, seven (7) days per week for Severity Level 1 problems.
Time Frame for Resolution: Service Calls will be responded to by
knowledgeable MPOWER staff via telephone within thirty (30) minutes of
receipt of a Service Call between the hours of 8:00 am to 5:00 p.m.,
Mountain Time, Monday through Friday, and one (1) hour during other
periods. MPOWER will use its best
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efforts to provide a resolution of the problem (permanent or temporary)
within twenty-four (24) hours of receipt of the Service Call, or
verification by MPOWER of the problem, either through replication or
receipt by MPOWER of complete documentation from Customer needed to
resolve the problem -- whichever occurs last. Customer shall maintain
immediate resource availability during all hours that MPOWER is working
on a Service Call.
B. Severity Level/Priority: 2
Definition: Production degraded -- defined as a verifiable Nonconformity
in the Shelf Version of the MPOWER Software (or verifiable failure of
the MPOWER System hardware, if the problem arises with respect to Remote
Processing) that does not disrupt critical business processing, but
causes disruption to normal work flow.
Support: MPOWER will provide telephone support twenty-fours (24) hours
per day, Mountain Time, Monday through Friday for Severity Level 2
problems.
Time Frame for Resolution: Service Calls will be responded to by
knowledgeable MPOWER staff via telephone within the same working day,
Monday through Friday, if the Service Call is received prior to 3:00
p.m. Mountain Time. Otherwise, if the Service Call is received after
3:00 p.m. Mountain Time, the call will be responded to by 10:00 a.m.,
Mountain Time, the next morning, except Saturdays and Sundays. MPOWER
will use its best efforts to provide a resolution of the problem
(permanent or temporary) within the later of three (3) business days of
receipt of the Service Call; or verification by MPOWER of the problem,
either through replication or receipt by MPOWER of complete
documentation from Customer. needed to resolve the problem.
C. Severity Level/ Priority: 3
Definition: Normal response to either non-critical questions or
non-critical problems. A non-critical problem is defined as a verifiable
Nonconformity in the Shelf Version of the MPOWER Software (or verifiable
failure of the MPOWER System hardware, if the problem arises with
respect to Remote
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Processing), that does not cause disruption to normal work flow or
degrade production.
Support: MPOWER will provide telephone support from 8:00 a.m. to 5:00
p.m. Mountain Time, Monday through Friday, for Severity Level 3
situations.
Time Frame for Resolution: Service Calls for Severity Level 3 situations
are handled differently whether the Service Call is a non-critical
question or a non-critical MPOWER Software or MPOWER System problem. If
a non-critical MPOWER Software or MPOWER System problem, it will be
entered into the MPOWER Problem Reporting and Tracking System. MPOWER
and the Customer shall jointly prioritize these non-critical problems at
least weekly up to one year after first production use, and at least
monthly thereafter. After prioritization, MPOWER shall produce a
schedule for their resolution.
Within ten (10) working days after month-end, MPOWER will provide reports and
graphs to the customer liaison (see Section 16.2) comparing Service Call
performance against standards for Severity 1, 2, and 3 Service Calls -- both
for the month and the year-to-date.
For two successive calendar quarters, beginning with the first calendar quarter
after the initial Implementation Date, the Customer shall be entitled to
unlimited Service Calls from the Customer's help desk to the Help Desk (or its
"after hours" rollover to Operations). Thereafter, Service Calls to the Help
Desk in excess of sixty (60) calls per calendar quarter shall be billed as
Supplemental Services.
Ongoing Support: MPOWER provides ongoing support in the areas of General System
Enhancements, correction of Nonconformities, and in certain specific situations,
support for modifications, whether made by Customer or MPOWER:
General System Enhancements: See Section 2.4.
Correction of Nonconformities: See Section 2.5.
Support for Modifications: See Sections 2.7 and 2.8(b).
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Annual Audit: Annually, beginning within thirty (30) days after the anniversary
of the Effective Date, MPOWER, with Customer agreement, will audit the way the
Customer is using the MPOWER Software or MPOWER System, and offer
recommendations for more efficient utilization. This MPOWER audit will be
performed only with the express proviso that Customer makes available to MPOWER
audit team knowledgeable personnel who can fully represent Customer's use of
MPOWER Software or MPOWER System.
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Exhibit 2
LICENSE, PROCESSING AND SERVICE FEES
I. LICENSE FEES
A. License Fees. MPOWER License Fees for the use of the MPOWER Software
are broken into two(2) components: (i) Initial License Fee (ILF) and
(ii) Maintenance Fee (MF) . These components are intended to provide
Customer with initial and ongoing rights to use the Software pursuant
to the terms of the License, Processing and Services Agreement.
1. Initial License Fee: The ILF is the initial fee payable by
Customer for the License to use the MPOWER Software. The ILF for
Customer and Related Parties is set forth in Section B(1) below.
2. Maintenance Fee: The MF is the fee payable by Customer for the
ongoing License and support for the MPOWER Software, as described
in Sections 3.4 and 3.5 of the Agreement
B. License Fees (ILF, and MF) and Advanced Payments for
Customer and Related Parties
1. Initial License Fee. The initial License Fee payable by Customer
for the License of the MPOWER Software for Customer and Related
Parties is $400,000 which will be payable by Customer in twelve
(12) equal installments commencing January 2, 1998.
2. Fee for Customer and Related Parties. Maintenance The Maintenance
Fee for Customer and Related Parties will be paid by Customer in
accordance with the following schedule:
* Confidential Treatment Requested
B-1
<PAGE> 61
$[*] per year paid in twelve equal monthly installments with the
first payment due January 2, 1999, for the year 1999.
3. Source Code Buyout Provisions. Customer shall have the option to
buyout the rights to the MPOWER Software source code ("Source Code
Buyout") upon providing MPOWER with three (3) months advance
written notice, according to the following schedule:
- up to the third anniversary of the date of this Agreement, upon
the single payment to MPOWER of $1,000,000 and any MF Prepayment
owed by Customer to MPOWER pursuant to paragraph B.2 above;
- upon or after the third anniversary of the date of this
Agreement, upon the single payment to MPOWER of $750,000
- upon or after the fourth anniversary of the date of this
Agreement, upon the single payment to MPOWER of $500,000; or
- upon or after the fifth anniversary of the date of this
Agreement, upon the single payment to MPOWER of $250,000.
Upon the exercise of the MF Buyout, the terms of the Agreement shall
remain unchanged except, (a) Customer shall have the right to modify
the MPOWER Software without first obtaining the consent of MPOWER and
without notifying MPOWER; (b) Customer shall no longer be entitled to
future Releases or General System Enhancements, and (c) Customer
shall not be entitled to the future provision of the Core Services.
Any services provided by MPOWER to Customer subsequent to Customer's
completion of the Source Code Buyout shall be provided
* Confidential Treatment Requested
B-2
<PAGE> 62
as Supplemental Services at MPOWER's then current rates.
V. FEES FOR SUPPLEMENTAL SERVICES
Supplemental Services Fees, as incorporated in Work Orders, may be
either fixed-price or time and materials. Time and materials will be
charged at the then-current rates for such services. Current (as of
January 1997 through December 1997) rates for time and materials shall
be held constant by MPOWER for Customer through December 31, 1997, and
are as follows:
A. Supplemented. Services are billable at the following rate: $[*] per
hour
B. Total fees for the conversion of Customer from Remote Processing to
Customer Processing shall be capped at the sum of $[*], accrued
at the amount set forth above. The cap shall apply only to MPOWER
services related directly to conversion services and shall not
include services and products of third party contractors nor shall it
include services of MPOWER related to suck third party products or
contractors. The conversion period will end when Customer commences
Customer Processing for any of its customers.
C. During conversion MPOWER shall charge Customer for third party
services as a direct pass through.
D. After Conversion, the rates for outside independent contractors
provided by MPOWER for Supplemental Services shall be the greater of
(i.) the rates set forth above (for applicable skill sets) or (ii.) a
rate to be mutually agreed upon in advance by Customer and
* Confidential Treatment Requested
B-3
<PAGE> 63
MPOWER.
VII. OTHER FEES.
Other fees may pertain to the use by Customer of the MPOWER System for
set-up, testing, training, acceptance testing or other uses not related
to the production use of the MPOWER System for processing active Members
of Customer or of a Related Party. Such other fees will be indicated in
a Work Order and may include fees for third party consultants and
vendors.
B-4
<PAGE> 64
Exhibit 3
MPOWER IDENTIFIED PARTIES FOR NON-DISCLOSURE
In accordance with Section 15 of the Agreement, Customer may not
disclose MPOWER's Confidential Information to direct competitors of MPOWER,
including but not limited to, the companies listed below, including such
companies' parents, subsidiaries and affiliates, and such parents' subsidiaries
and-affiliates:
Computer Science Corporation (CSC)
Electronic Data Systems Corporation (EDS)
ERISCO
AMISYS Managed Care Information Systems, Inc.
Health Systems Design, Inc. (HSD)
Health Systems Integration, Inc. (HSII)
GTE Health Systems
Resource Information Management Systems (RIMS)
HBO & Co. (HBOC)
TXEN
Perot Systems
IDX
H-1
<PAGE> 65
Exhibit 4
DOCUMENTATION OUTLINE
[To Be Attached]
D-1
<PAGE> 66
Exhibit 5
NON-DISCLOSURE AGREEMENT ("Agreement")
This Agreement is entered into as of __________, 19__, by and between MPOWER
Solutions Inc., a Delaware corporation ("MPOWER"), with its principal place of
business at 2305 Renard Place, S. E., Albuquerque, New Mexico 87106 and
Brokerage Services, Inc. ("Customer") with its principal place of business
located at 11200 Lomas Blvd., NE, Albuquerque, NM 87112. WHEREAS, each party
wishes to disclose and to receive from the other party certain proprietary
information for the purpose of conveying the MPOWER software license as set
forth in the Agreement.
WHEREAS, the parties wish to protect certain confidential and proprietary
information which may be disclosed between them, and for and in consideration of
the disclosures made and to be made hereunder, the parties agree as follows:
1. For purposes of this Agreement, "Owner" means the party disclosing Trade
Secrets and Confidential Information hereunder, whether such party is MPOWER
or Customer, and "Recipient" means the party receiving any Trade Secrets or
Confidential Information hereunder, whether MPOWER or the Customer.
2. Recipient acknowledges and agrees that Owner claims that the Trade Secrets
and the Confidential Information of Owner are the sole and exclusive
property of Owner (or a third party providing such information to Owner) and
that Owner owns all worldwide copyrights, trade secret rights, confidential
information rights and all other property rights therein.
3. Recipient acknowledges and agrees that disclosures of the Trade Secrets and
the other Confidential Information of Owner to Recipient does not confer
upon Recipient any license, interest or rights of any kind in and to the
Trade Secrets and Confidential Information.
4. Recipient will hold in confidence and, without the prior written consent of
Owner, will not reproduce, distribute transmit, reverse engineer, decompile,
disassemble or transfer, directly or indirectly, in any form, by any means,
or for any purpose, the Trade Secrets or the Confidential Information of
Owner or any portion thereof communicated, discussed, delivered or made
available by Owner to or received by Recipient. Notwithstanding the
foregoing, Recipient may only disclose the Trade Secrets and Confidential
Information to its employees with a need to know such information, provided
each such employee shall be obligated in writing to comply with the terms
and conditions of this Agreement. Recipient will not use the Trade Secrets
or the Confidential Information of Owner or any portion thereof
communicated, discussed, delivered or made available by Owner to or received
by Recipient with our the prior written consent of Owner.
5. Recipient acknowledges that its obligations under this Agreement with regard
to the Trade Secrets of Owner shall remain in effect for as long as such
information shall remain a Trade Secret under applicable law. Recipient
acknowledges that its obligations with regard to the Confidential
Information of Owner shall remain in effect for one (1) year after its
disclosure under this Agreement. The foregoing shall not apply if and to the
extent that information shall not be deemed proprietary and each part shall
have no obligation with respect to any information which:
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<PAGE> 67
(i.) is or falls into the public domain through no wrongful act of the
receiving party;
(ii.) is rightfully received from a third party without restriction and
without breach of this Agreement;
(iii.) is approved for release by written authorization of the
disclosing party;
(iv.) is disclosed pursuant to the requirement of a governmental agency
or operation of law; or
(v.) has been previously and independently developed by the receiving
party.
6. Recipient agrees to. return to Owner, upon request by Owner, the Trade
Secrets and Confidential Information of Owner and all materials relating
thereto, disclosed by Owner to Recipient.
7. As used herein, "Trade Secrets" means information, including, but not
limited to, technical or non-technical data, formulas, patterns,
compilations, programs, devices, methods, techniques, drawings, processes,
financial data, financial plans, product plans or a list of actual or
potential customers or suppliers, computer source code and related
documentation, which: (a) derives economic value, actual or potential, for
its Owners, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; and (b) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. "Confidential
Information" means information, other than "Trade Secrets", that is of value
to its Owner and is treated as confidential, including, but not limited to,
licensing strategies, advertising campaigns, information regarding
executives and employees, the terms and conditions of this Agreement, any
information designated by Owner as Confidential Information, and any data or
information defined herein as a Trade Secret, but which is determined by a
court of competent jurisdiction not to rise to be a trade secret under
applicable law.
8. Recipient shall use its reasonable efforts to cooperate with Owner in
identifying and preventing unauthorized use, copying, or disclosure of the
Owner's Trade Secrets and Confidential Information.
9. Recipient shall indemnify and hold harmless Owner and its officers and
employees from and against any and all damages losses, liabilities, costs
and expenses (including reasonable legal fees) arising in any way out of use
not in compliance with this Agreement or of any breach of the
confidentiality obligations hereunder by Recipient or its employees.
10. Each party hereto agrees that during the term of this Agreement and for a
period of one (1) year following termination or expiration of this Agreement
for any reason, neither party will solicit for employment, attempt to employ
or affirmatively assist any other person, entity or enterprise in employing
or soliciting for employment any person employed or hired by the other part.
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<PAGE> 68
11. If any provision or any part of any provision of the Agreement shall not be
valid for any reason, such provision shall be entirely severable from, and
shall have no effect upon, the remainder of this Agreement. Any such invalid
provision shall be subject to partial enforcement to the extent necessary to
protect the interests of the parties.
12. This Agreement shall inure to the benefit of, and be binding upon, any
successor in interest of the parties.
13. The intent of this Agreement is to provide the parties with all remedies
afforded to them under applicable law. Each party acknowledges and agrees to
the other party that monetary damages may be inadequate to compensate Owner
for any breach under this Agreement. Accordingly, Recipient agrees that
Owner will, in addition to any other remedies available to it at law or
equity, be entitled in injunctive relief to enforce the terms of this
Agreement.
14. This Agreement together with Exhibits hereto, if any, constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes any prior agreements or understandings, whether oral or written,
between the parties with respect to such subject matter. No amendment or
waiver of this Agreement or any provision hereof shall be effective unless
in a writing signed by both of the parties.
15. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New Mexico, without giving effect
to its conflict of laws.
N WITNESS WHEREOF, the parties by their duly authorized representatives have
caused this Agreement to be executed as of the date first written above.
MPOWER Solutions Inc. Customer
By: By:
-------------------------------- --------------------------------
(Authorized Signature) (Authorized Signature)
Title: Title:
----------------------------- -----------------------------
Date: Date:
------------------------------ ------------------------------
Page 3
<PAGE> 1
EXHIBIT 10.12
ADDENDUM TO PROCESSING AND SERVICES AGREEMENT
This Addendum to the Processing and Services Agreement is entered into
as of this 25th day of, July, 1997, by and between Brokerage Services,
Incorporated, a New Mexico corporation with its principal place of business
located at 11200 Lomas Blvd., NE, Albuquerque, New Mexico 87112 (hereinafter
referred to as "Customer"), and MPOWER Solutions Inc., a Delaware corporation
with its principal place of business located at 2305 Renard Place, S. E.,
Albuquerque, New Mexico 87106 (hereinafter referred to as "MPOWER").
WHEREAS, MPOWER is in the business of providing automated managed health
care information services and licensing software to businesses providing managed
health care and insurance services, and desires to provide such services, and
license such software, to Customer, subject to the terms hereof; and
WHEREAS, Customer is in the business of providing managed health care
and insurance services to its customers and desires to use the services of,
and/or software licensed by MPOWER, subject to the terms hereof; and
WHEREAS, Customer has previously engaged MPOWER to provide Remote
Processing Services as set forth in the Agreement dated January 1, 1997, and
whereas Customer wishes to invoke Section 12 of said Agreement; and
WHEREAS, Customer and MPOWER wish to more fully outline the financial
terms for MPOWER license and other services.
NOW, THEREFORE, in consideration of the mutual promises made, the terms
and conditions hereunder described and other valuable consideration, the parties
agree as follows:
Exhibit 2
LICENSE, PROCESSING AND SERVICE FEES
In addition to the license fees and other fees set forth in Exhibit 2, Customer
and MPOWER have agreed that rather than the time periods set forth in Exhibit 2,
such fees will be paid in 36 equal installments beginning on October 31, 1997,
unless changed by mutual agreement, and except as set forth in the schedules
below.
-1-
<PAGE> 2
1. FEES
<TABLE>
<CAPTION>
Hardware/Software/Service Item Charge
- ------------------------------ ----------------------------
<S> <C>
License Fee
The license fee for the MPOWER Software $400,000
Implementation Support
Support fees for installing MPOWER
Software on the RS6000 $125,000
HUBLink License Fee
Cost of the license for the HUBLink
interface engine. $50,000
HUBLink Annual Maintenance Fee
Mandatory maintenance fee for HUBLink
product at a cost of $[*] per year
for [*] years. $30,000
RS6000 Hardware/Software
Rental of fifty-five percent (55%) RS/6000 J50 Deskside Server.
8-Way SMP 200 mhz 604E chip
1gb RAM
6 9.1gb disk drives
1 8mm tape drive
1 9trk tape drive
AIX, CICS, DB2, COBOL $127,634
Subsequent software upgrades billable as pass through cost.
PC and Network Set Up Fee
Charges for PC and network customization, and CICS/DB2 definition
on the RS6000. $16,800
Subtotal of License and Other Fees $749,434
$20,817.61 per month
Monthly Support Fee*
Monthly charge for operational support of the RS6000. Includes
such support personnel as a Systems Administrator, Systems
Programmer, PC Support, Ops and Production Control. $21,000 per month
</TABLE>
Monthly Support Fee. There is a monthly support fee that varies with membership.
The base fee is $21,000 per month for an active membership base of up to [*]
members. The monthly fee will thereafter increase by an additional $5,000 per
month for every increment of [*] members or fraction thereof. The monthly
support fee may also be reduced for reductions in Customer enrollment, below the
applicable [*] step, provided that the fee will not be reduced below the
$21,000 base.
MPOWER MAINTENANCE
* Confidential Treatment Requested
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Charge
----------------------------
<S> <C>
MPOWER Annual Maintenance Fee**
Annual fee for maintenance of the MPOWER
software, commencing the beginning of year
two. $[*] per year for 2 years. $150,000 $6,250 per month
</TABLE>
** MPOWER Annual Maintenance Fee. The fee is $75,000 per year for years [*] and
[*]. The total reflects the cost of [*] years and the monthly fees are shown
to commence in year [*].
2. Term of MPOWER Monthly Support
Customer may not terminate MPOWER monthly support during the first thirty-six
(36) months of this agreement. Thereafter, this Agreement will operate month to
month, provided that beginning on the thirty-seventh (37th) month of this
agreement, Customer may, at its option and with 180 days advance written notice
to MPOWER, terminate MPOWER's monthly support. In the event that Customer elects
to terminate MPOWER monthly support, Customer will pay MPOWER MPOWER's fees
associated with installing hardware at Customer's site, if requested by
Customer, and installing the Customer licensed software at Customer's site.
Customer will be responsible for all other shipping and installation charges at
Customer's site.
3. BSI PC Upgrade Assistance
MPOWER agrees to assist Customer in Customer's PC upgrade activities as listed
below with fees listed in section one above. Customer is responsible for all
expenses associated with the project. MPOWER will act as Customer's agent in
negotiating terms and prices. All such terms and prices will be "signed-off" by
Customer. The costs set forth below are based on a 36 month rental arrangement.
At the end of the 36 month rental period Customer will receive title to the
equipment listed herein. Customer will receive rights to a MPOWER software
license subject to Customer' execution of a license agreement for the MPOWER
software. Third party software is excluded and Customer will be required to
acquire right to the use of such software directly with such third party.
Customer is responsible for all expenses associated with the project. MPOWER
will pay vendors and Customer will pay MPOWER for goods and services supplied to
Customer under this project. MPOWER retains a security interest in funds of
Customer and in hardware and software installed at Customer site(s), to the
extent of Customer's liability to MPOWER. The interest rate applied to periodic
payments will be [*]% per year.
MPOWER will provide the following services:
a. PC Set Up
* Confidential Treatment Requested
-3-
<PAGE> 4
- - Receive, un-crate and set up PCs in a staging area (e.g. training room).
- - Install Windows 95 and Rumba.
- - Configure software (per BSI standards) and test all hardware and software
components.
- - Re-package and return any hardware or software that failed tests.
- - Disassemble PC and transport to User work area.
- - Install PC in User area and test connection to LAN.
- - Isolate and correct connection failures (if any), or coordinate with cabling
supplier for correction.
b. VT Terminals
- - Disconnect terminal from network and transport to staging area.
- - Package terminal for shipment.
c. Existing PCs
- - Upgrade to Windows 95
- - Configure software (per BSI standards) and test all hardware and software
components.
- - Isolate and correct any problems encountered during testing.
<TABLE>
<CAPTION>
Service and Equipment Fees Charge
- -------------------------- -----------
<S> <C>
(Subject to revision on date of purchase by MPOWER)
Acquire New PCs
Fifty-five (55) additional PC(P200/32mb, 17" monitors)
at $2,098 per PC.
Included software is Windows/95 MS Office 97 $ 115,390
Shipping 619
Acquire Windows NT Server
Dell PowerEdge 6100 Base, 200MHz/512K Redundant
(Server includes licenses for 10 NT users)
15" monitor, Ethernet Card $ 29,776.68
Shipping 105
Acquire New Printers
Laser Jet 5N - 3 @ $1,535 $ 4,605
Laser Jet 5SI - 5 @ $3,800 $ 19,000
Hoppers for 5SI Printers (5 @ $2,000/set) $ 10,000
Cisco Router and CSU/DSU with cables $ 8,395
Total $ 187,892.60
</TABLE>
Monthly Payment $6,018.69 Principal $187,890.68 Interest $28,782.16
* Confidential Treatment Requested
-4-
<PAGE> 5
4. Network Upgrade Assistance
MPOWER will provide the following services:
a. New Server Set Up
- - Receive, un-crate and set up server in Computer Room.
- - Configure and optimize Windows NT.
- - Configure and optimize gateway software.
- - Test all hardware and software components including a load test which
simulates 150 simultaneous users.
- - Isolate and correct any problems encountered during testing or remove,
re-package and return failed component.
b. Printer Set Ups
- - Receive, un-crate and set up printers in area to be determined by BSI.
- - Install Printer Management software on all PCs in IS Department.
- - Configure Printers and test operation with sample files provided by BSI.
- - Isolate and correct and problems encountered during testing or remove,
re-package and return failed component.
The charges for the MPOWER services provided under this section will be current
MPOWER staff rates plus MPOWER expenses.
5. Recap of Payments
<TABLE>
<S> <C>
a. Year 1 $47,836.30
+ 2,780.48 (gross receipt tax)
----------
$50,616.78 per month subject to recalculation
based on final configuration of system.
b. Year 2 and 3 $54,086.30
+ 3,143.77 (gross receipt tax)
----------
$57,230.07 per month subject to recalculation
based on final configuration of system.
</TABLE>
c. For years 1 through 3, any charges for MPOWER Network Upgrade
Assistance services provided under Section 4 above, as billed.
6. Other Amendments
a. Software Installation in Exhibit 1 is superseded by this document.
b. The license and maintenance fee schedules in Section I. B. of Exhibit
2 are superseded by this document.
c. Section V. B. of Exhibit 2 pertaining to fees for the conversion from
Remote Processing are deleted. The Customer will remain on remote
processing.
* Confidential Treatment Requested
-5-
<PAGE> 6
d. Section 2.2 of Schedule E is superseded by this document.
e. The last sentence of Section 2.9 of Schedule E is deleted.
f. Section 3.4 of Schedule E is deleted.
g. Section 13.5 of Schedule E is superseded by this document.
7. In the event changes in nationally recognized accounting standards materially
affect the method of MPOWER revenue recognition contemplated by this Agreement,
Customer and MPOWER agree to modify this Agreement in such a manner as the
originally intended method of MPOWER revenue recognition is preserved.
8. This Amendment is effective upon execution and ends on the last day of the
month of the month the 36th lease payment is due.
9. All other provisions of the Agreement dated January 1, 1997, are unchanged.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
MPOWER Solutions Inc. CUSTOMER
By: /s/ WILLIAM F.X. O'NEIL BY: /s/ TIMOTHY R. FISCHER
-------------------------------- --------------------------------
Name: William F.X. O'Neil Name: Timothy R. Fischer
Title: EVP & COO Title: Chief Financial Officer
Date: 25 July 1997 Date: 25 July 1997
-6-
<PAGE> 1
EXHIBIT 10.15
MASTER LICENSE AND SERVICES AGREEMENT
This Agreement is catered into as of this 24th day of June, 1998, by and
between Employers Mutual, Inc., a Florida corporation with its principal place
of business located at 9715 San Jose boulevard, Suite 200, Jacksonville, FL
32257 (hereinafter referred to as "EMI"), and MPOWER Solutions Inc., a Delaware
corporation with its principal place of Business located at 2305 Renard Place,
S. E., Suite 128, Albuquerque, New Mexico 87106 (hereinafter referred to as
"MPOWER"). EMI together with its parent corporation, McCreary Corporation, a
Florida corporation with its principal place of business located at 700 Central
Parkway, Stuart, Florida 34994 ("McCreary") and together with McCreary's parent
corporation, FPIC Insurance Group, Inc., a Florida corporation with its
principal place of business located at 1000 Riverside Avenue, Jacksonville,
Florida 32204 ("FPIC"), shall jointly and severally be hereinafter referred to
as "Customer".
WHEREAS, MPOWER is in the business of providing automated managed health
care information services and licensing software to businesses providing managed
health care and insurance services, and desires to provide such services, and
license such software, to EMI, subject to the terms hereof; and
WHEREAS, Customer is in the business of providing managed heath care and
insurance services to its customers and desires to use the software licensed By,
and the services of MPOWER, subject to rile terms hereof, and
WHEREAS, EMI has previously engaged MPOWER to provide Remote Processing
Services as set forth in the Processing and Services Agreement dated as of
January 1, 1996 and any amendments hereto ("Prior Agreement"), and whereas EMI
wishes to enter into this Agreement to license directly the MPOWER software.
NOW, THEREFORE, in consideration of the mutual promises made, the terms
and conditions hereunder described and or her valuable consideration, the
parties agree as follows:
1. DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the
meanings indicated unless the context clearly requires otherwise;
(a) "Core Services" shall mean those services provided by MPOWER (as
described and set forth in Exhibit 1) in consideration of Customer's payment of
the License Fees.
Page 1 of 59
<PAGE> 2
(b) A "Critical Failure" shall mean a verifiable Nonconformity in
the Shelf Version of the MPOWER Software (or verifiable failure of the MPOWER
System hardware if the problem arises with respect to Remote Processing) which
has a material impact on Customer's mission critical system related functions. A
Critical Failure may include, but is not limited to, the inability of Customer
to generate checks, complete failure of availability of the on-line system,
inability to perform on-line adjudication of any types of claims, or incorrect
adjudication of any types of claims.
(c) "Customer Processing" shall mean the use of the MPOWER Software
on Customer equipment, as set forth herein.
(d) "Derivative Work" shall mean any computer program, application,
interface or related documentation of any kind that is based, to any extent, on
MPOWER Software, or any component part thereof.
(e) "Documentation" shall mean collectively, the System
Documentation, the Functional Documentation and the User Documentation.
(f) "Effective Date" shall mean the date first set forth above.
(g) "Expenses" shall mean any reasonable out of pocket expenses,
including without limitation, travel and travel-related expenses, incurred by
MPOWER in connection with the performance of this Agreement.
(h) "Fees" shall mean the fees for MPOWER. Services as described and
set forth in Exhibit 2 of this Agreement attached hereto.
(i) "General System Enhancements" shall mean enhancements, revisions
or updates to the MPOWER Software that are made available generally to licensees
of the MPOWER Software as part of the Maintenance Fee (MF), as and when such
enhancements, revisions or updates are made available generally, and shall not
include any separate products where MPOWER charges a separate license fee to its
licensees.
(j) "Implementation" shall mean the conversion and installation of
Customer's managed health care and/or insurance processing from remote
processing to Customer Processing using the MPOWER(TM) system as set forth in
this agreement.
(k) "Implementation Date" shall mean the actual date that the first
Member transaction is processed, by Customer on Customer's equipment.
"Incremental Support" shall mean Supplemental Services.
(m) "License" shall mean the license granted by MPOWER to Customer
for the MPOWER Software, to the extent set forth herein.
Page 2 of 59
<PAGE> 3
(n) "License Fees" shall include the Initial License Fee(s) ("ILF"),
the Maintenance Fee ("MF"), and any applicable License Extension Fee(s), as
hereinafter defined or described in Exhibit 2 herein.
(o) "Maintenance Services" shall include the "Maintenance Support
Services".
(p) "Maintenance Support Services" shall mean the post-production
services provided by MPOWER as part of the Core Services that do not provide for
upgrades or general enhancements to the MPOWER Software, which are provided
through the Maintenance Fee.
(q) "Member" shall mean an individual who is as of a certain
effective date eligible for certain benefits provided by or through Customer or
a Related Party, which individual becomes eligible either (a) directly as the
subscriber to a Customer or a Related Party sponsored and administered insurance
or benefit program, Co) as an eligible employee to an employer sponsored benefit
plan administered in whole or in part by Customer or a Related Party, or (c) as
a beneficiary of a government sponsored benefit plan administered in whole or in
part by Customer or a Related Party, or (d) indirectly as a dependent of that
subscriber, employee or beneficiary. For example, in a family of four (4)
individuals, where the employee is the primary participant individual, the
employee, the spouse and the two (2) dependent children are each a Member for a
total of four (4) Members.
(r) "Member Month" shall mean, respectively, as of the first of each
applicable month, the number of active eligible Members as enrolled and entered
by Customer, as of a given effective date, onto the MPOWER System (for Remote
Processing) or processed using the MPOWER Software (for Customer Processing,
adjusted for actual retroactive Customer Member enrollment or disenrollment
occurring in the prior twelve (12) months.
(s) "MPOWER Services" shall mean services furnished by MPOWER
according to the terms of this Agreement and attached Schedules and other
services described in any Work Order.
(t) "MPOWER Site" shall mean the site of the MPOWER System,
currently located at 2305 Renard Place, S. E., Albuquerque, New Mexico, 87106.
(u) "MPOWER Software" shall mean the copies of the MPOWER
Client-Server Software licensed by Customer under this Agreement. MPOWER
Software is marketed under the trade name "MPOWER(TM)"
(v) "MPOWER Client-Server Software" shall mean the
Page 3 of 59
<PAGE> 4
MPOWER(TM) software owned by MPOWER, migrated to and operating on the IBM
RS/6000 computer (or operating on other hardware to which MPOWER(TM) has been
migrated and on which the MPOWER(TM) software is generally marketed under the
name of MPOWER(TM), and any updates, revisions, enhancements, or additions
thereto supplied by MPOWER, (including but not limited to those updates,
revisions, enhancements, or additions supplied to Customer pursuant to Work
Orders under this Agreement) or made by Customer and incorporated by MPOWER, as
described in Section 2.7 of this Agreement, and shall not include any separate
products for which MPOWER charges a separate licence fee for such products. The
subsystems included with the MPOWER Client-Server Software are set forth in
Exhibit 2.
(w) "MPOWER Standard Interface Specifications" shall mean the MPOWER
written specifications for the file size, format, blocking factors, field
content and frequency of batch transmission for interfacing software programs
for data exported from or imported into the MPOWER(TM) software-maintained
databases.
(y) "Nonconformity" shall mean a failure of a specific Release of
the MPOWER Software to materially conform to the User Documentation and
Functional Documentation of such Release.
(z) "Ongoing Basic Support" shall be the support provided by MPOWER
in consideration of the License Fees and the Maintenance Fee and limited by the
conditions of Core Services as defined in Exhibit 1 and which includes the
services described in Exhibit 1, attached hereto.
(aa) "Related Party" shall mean an entity as to which Customer
directly owns a greater than fifty percent (50%) equity interest in the assets
of such entity, but excludes any entity as to which another co-owner, partner or
joint venture participant or affiliate is a competitor of MPOWER as set forth in
Exhibit 5.
(bb) A "Release" shall mean a new version or new release of the
MPOWER Software containing General System Enhancement that is made available to
MPOWER's customers generally.
(cc) A "Release Date" is the date that a Release is made available
to MPOWER's customers generally.
(dd) "Remote Processing Fees" shall mean the Fees for Remote
Processing set forth in Exhibit 2
(ee) "Remote Processing Services" shall mean the MPOWER Services
which allows Customer's use of the MPOWER Software by remote access to the
MPOWER System at the MPOWER Site, if Customer and MPOWER agree to the terms for
Remote Processing Services set forth in Exhibit 2.
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(ff) "Shelf Version" shall mean the Releases of the MPOWER Software
which are accepted by Customer pursuant to Section 4 herein.
(gg) "Source Code Buyout Option" shall mean the option of Customer
to acquire the right to make modifications to the source code of the MPOWER
Software and to no longer pay the Maintenance Services Fees, in accordance with
the Source Code Buyout Option Fees stated in Exhibit 2 hereto.
(hh) "Supplemental Service(s)" shall mean any support or services
required by Customer and agreed to be provided by MPOWER in addition to that
provided as part of the License, as fully specified in each Work Order, which
Supplemental Services may include, but not be limited to, conversion support,
modification and enhancements, and system set-ups.
(ii) "System Documentation" shall mean the MPOWER system
documentation provided to Customer pursuant to the terms of this Agreement. An
outline of the current System Documentation is set forth in Exhibit 3 attached
hereto.
(jj) "User Documentation" shall mean the MPOWER user documentation
provided to Customer pursuant to the terms of this Agreement. An outline of the
current User Documentation is set forth in Exhibit 3 attached hereto.
(kk) "Work Order" shall mean a document that is separately executed
by both parties that authorizes MPOWER to perform Supplemental Services or other
services for Customer and obligates Customer to pay for such Supplemental
Services or other services under the terms of that separate document, and which
document is incorporated and made part of this Agreement.
(ll) "Workaround" shall mean a change in the procedures followed or
data supplied to avoid a Nonconformity without materially impairing performance
of the MPOWER Software.
2. MPOWER SOFTWARE; LICENSE; CORE SERVICES
2.1 MPOWER Software License.
MPOWER grants to EMI on behalf of Customer a nonexclusive,
non-transferable (except as specified herein) license (the "License") to use one
(1) production copy of the MPOWER Software on one (1) IBM R.S/6000 computer at a
single site for Members while this Agreement is in effect, which MPOWER Software
includes the Documentation, subject to the terms and conditions set forth
herein.
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(a) MPOWER shall prepare and provide Customer either one (1) paper-based
copy or one (1) electronic copy of the User Documentation and Functional
Documentation for the MPOWER Software and update same as required due to
enhancements, upgrades, error correction or other changes made by MPOWER to the
MPOWER Software.
(b) Until such time as EMI exercises the Source Code Buyout Option,
EMI's license extends only to the right to use the object code of the MPOWER.
Software and nor to make modifications to the source code of the MPOWER
Software, even though the source code to the MPOWER Software may be resident on
a Customer computer for purposes of compiling, ease in debugging, or for some
other reason of operational ease, integrity or efficiency.
2.2 Payment.
In consideration of the License, Customer shall timely pay the ILF, the MF, and
the License Extension Fees in accordance with Exhibit 2. The ILF shall extend to
Members as of the date hereof and shall also include Members added to Customer's
business as a result of internal growth of such business. EMI may acquire a
license extension ("License Extension") to cover Members added as a result of
merger or acquisition, either of Customer, or of another corporation or of a
block of business by Customer from another corporation, by payment of the
License Extension Fee in accordance with Exhibit 2.
2.3 Scope of Use.
(a) Customer, shall use the MPOWER Software and Documentation solely for
its own use as a provider or administrator of managed health care and/or other
insurance services to its Members, solely as expressly set forth herein,
pursuant to the terms herein and nor for the behest of any other entity, and
further subject to the Related Party restrictions in the License granted.
(b) Customer shall have the right to provide the use of certain limited
functions and features of the MPOWER Software, as described in the
Documentation, to its clients, including Members, providers of health care
services to Members, the employers of Members, which employers have signed a
contract with Customer to pay for health care services or the administration of
benefit plans for their employees, or government agencies that have signed a
contract With Customer for Members for which Customer provides administration
services, and to providers of health care services, subject to the
confidentiality restrictions set forth in Section 12 of this Agreement.
(c) Customer shall not copy the MPOWER Software or permit same to be
copied, except for production copies for use within the restrictions of the
License granted herein, and for a reasonable number of backup and test copies:
(i.) for the specific data center(s) where the MPOWER Software will be installed
where Customer is performing Customer Processing, and (ii.) for testing and
modification of the MPOWER Software.
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Customer shall promptly notify MPOWER in writing as to the number of production
and test copies and location of said copies of the MPOWER Software which it
intends to make in each instance.
(d) In addition, Customer shall be permitted to make a reasonable number
of copies of the User Documentation solely for Customer's internal use and for
distribution to Related Parties and non-Related Parties pursuant to Section
12.2, not to exceed one (1) copy per workstation, and only if the original
copyright and other proprietary rights notices are preserved.
(e) In addition, Customer shall be permitted to make a reasonable number
of copies of the Functional Documentation for Customer's internal use and {or
distribution to Related Parties pursuant to Section 12.2 solely for use by
business or technical analysts with a need to know and only if the original
copyright and other proprietary rights notices are preserved.
(f) Furthermore, Customer shall be permitted to make a very limited
number of copies, but not more than five (5) of the System Documentation solely
for Customer's internal use by senior business or technical analysts with a need
to know and only if the original copyright and other proprietary rights notices
are preserved and if Customer maintains such System Documentation under the
tightest security and destroys copies that are no longer needed.
(g) Notwithstanding anything herein to the contrary, in no event shall
Customer allow any third party to copy the System Documentation.
(h) Distribution of the Functional Documentation and of the System
Documentation is to be tightly controlled, subject to a need to know. No
identifying marks, copyright or other proprietary right notices may be deleted
from any copies of the MPOWER Documentation and all backup copies of the MPOWER
Software created shall include all such notices.
(i) MPOWER Software used for Customer Processing and testing of the
MPOWER Software or of Customer data to be used with the MPOWER Software may be
temporarily transferred to backup equipment owned by Customer or by a third
party provider of disaster recovery services and used thereon only for so long
as the Customer site is inoperative or Customer is testing the backup recovery
process itself. The use of such third party provider of disaster recovery
services shall not require the consent of MPOWER provided such provider agrees
to be bound by the confidentiality restrictions set forth herein, and is not a
competitor of MPOWER as set forth in Exhibit 5. Simultaneous use of more than
the authorized number of copies of the MPOWER Software is expressly prohibited.
(j) Customer shall not modify the MPOWER Software (except as set forth
in Section 2.7) or the Documentation, nor translate, or adapt the MPOWER
Software or the
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<PAGE> 8
Documentation in any way or use it to create a Derivative Work or permit the
foregoing. Except as set forth in Section 8.2 with respect to the Shelf Version,
MPOWER shall nor be responsible for the functioning of updates, revisions,
enhancements, additions or conversions or otherwise maintaining the MPOWER
Software if the MPOWER Software is modified by Customer or if Customer installs
or attempts to install software, other than MPOWER Software, which interfaces
with the MPOWER Software in a manner which is inconsistent with MPOWER standard
interface specifications, or writes to any data files maintained by the MPOWER
Software. Customer shall be solely responsible for the results of such
modifications or interfaces, including the integrity of data used or generated
by the MPOWER Software. In the event that Customer makes a permitted
modification or enhancement to the MPOWER Software, as set forth in Section 2.7
herein, and it is subsequently determined that such modification or enhancement
was the cause of a Nonconformity in the MPOWER Software, then MPOWER shall be
reimbursed at the Supplemental Service Fees rates set forth in Exhibit 2 for the
time spent in determining that such modification or enhancement was the cause of
the Nonconformity, and MPOWER agrees to provide Supplemental Services support as
specified on a Work Order to correct such Nonconformity. Notwithstanding the
above, MPOWER acknowledges that there are certain permitted interfaces to third
party software that MPOWER supports and that are provided as part of the MPOWER
Software or as permitted interfaces thereto, as outlined in the Documentation,
or in an applicable Work Order or contract addendum. If an error occurs to the
data as a result of Customer's use of these interfaces, then MPOWER will provide
support to those interfaces in the same way that it supports the MPOWER
Software.
2.4 General System Enhancements. In consideration of the ILF and MF,
MPOWER shall provide to Customer General System Enhancements, if and when such
General System Enhancements are made available to licensees of the MPOWER
Software generally, except as otherwise provided in Exhibit 2. Any General
System Enhancements supplied to Customer by MPOWER shall become part of, and
subject to, this Agreement and License. MPOWER shall only provide General System
Enhancements for the then most current Release of the MPOWER Software. In
addition, MPOWER agrees also to provide support for the one prior Release
immediately preceding the most current Release of the MPOWER Software and to
provide support for any other Releases for up to one (1) year from the Release
Date of such other Releases. During any applicable support period, support for
any such prior Release of the MPOWER Software that has been replaced or modified
by General System Enhancements or by a subsequent Release shall be limited to
correction of identified and reproducible defects in the Shelf Version of such
prior Release from the published specifications therefor. MPOWER shall not be
obligated to provide General System Enhancements for any Release other than the
most current Release. Any additional MPOWER Services provided in connection with
an older Release of the MPOWER Software shall be provided as Supplemental
Services.
2.5 Correction of Nonconformities. In consideration of the ELF and MF,
and subject to the terms of this Agreement, upon written notification by
Customer of a Nonconformity in the most current Release of the MPOWER Software
or in the one prior
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<PAGE> 9
Release immediately preceding the most current Release of the MPOWER Software,
MPOWER will analyze the Nonconformity and notify Customer of its estimate of
when and how such Nonconformity will be corrected or any Workaround provided and
MPOWER. shall use commercially reasonable efforts to correct such Nonconformity
in accordance with the procedures and priorities established in Exhibit 1 under
Help Desk. Notwithstanding the prior sentence, MPOWER's sole obligation
hereunder shall be limited to correcting identified and reproducible
Nonconformities in the Shelf Version of the MPOWER Software in accordance with
Section 4 herein and the relevant portions of Exhibit 1 which deal with
Definitions, Support and Time Frame for Resolution of issues logged through the
MPOWER Help Desk.
2.6 Proprietary Rights and Confidentiality.
(a) MPOWER represents and Customer acknowledges that the MPOWER
Software, including the Documentation, is the sole and exclusive
property of MPOWER, including, but not limited to, all applicable
rights to patents, copyrights, trademarks and trade secrets
inherent therein and appurtenant thereto, and MPOWER retains
title to the MPOWER Software and any copies thereof. Customer is
not purchasing title to the MPOWER Software or copies thereof,
but rather is being granted a license to use the MPOWER Software
pursuant to the terms herein. Customer shall not sell, License,
transfer, or otherwise make available (except as expressly
provided herein) any portion of the MPOWER Software to others,
including but not limited to Related Parties and non-Related
Parties for which Customer is providing processing services
pursuant to the terms hereof, nor permit the foregoing, except
for disclosure of the MPOWER Software to Customer consultants and
auditors pursuant to the provisions of Section 12.2 herein, and
the disclosure of the User Documentation to Related Parties and
non-Related Parties, pursuant to the provisions of Sections 2.3
and 12.2 herein.
(b) MPOWER represents and Customer acknowledges that all
information, data, designs, the structural definitions of any
system setups, benefit plans, provider contracts, fee groups, ad
hoc reports, letter formats, sample letter, content, business
process workflow diagrams, and any other structural templates and
other similar information provided by, developed or reviewed by
or in conjunction with MPOWER, or used by MPOWER in assisting
Customer in the installation, implementation or on-going use of
the MPOWER Product, and methodologies related thereto
("Proprietary Information") are the exclusive property of MPOWER
or MPOWER's suppliers and that such Proprietary Information is
confidential, has tangible value and includes trade secret
information of MPOWER and/or MPOWER's suppliers. MPOWER
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<PAGE> 10
and/or MPOWER's suppliers shall retain all rights to the
Proprietary Information, including all copyright fights therein,
except to the extent to which MPOWER grants rights to Customer to
use the Proprietary Information pursuant to this Agreement.
Customer may not create Derivative Works based upon the
Proprietary Information in whole or in part. All improvements,
enhancements and modifications to the Proprietary Information
shall be owned exclusively by MPOWER or MPOWER's suppliers.
Without MPOWER's prior written consent, Customer shall nor
decompile, disassemble or reverse engineer any Proprietary
Information.
(c) Notwithstanding the above, Customer and MPOWER acknowledge
that the structural definitions of any system setups, benefit
plans, provider contracts, fee groups, ad hoc reports, letter
formats, sample letter content, workflow diagrams of Customer
business processes, and any other structural templates, that have
been provided, developed, reviewed or verified in whole or in
part by or with the support of MPOWER, its employees or agents,
do not constitute Proprietary Information of Customer within the
meaning of this Section 2,6, but that the License to the MPOWER
Software granted in Section 2.1 includes the right to use under
license such Proprietary Information; provided, however, that
specific provider and benefit contract rates, the names,
demographic information, contractual relationships, and medical
information of any group, member, provider or other entity with a
contractual relationship with Customer shall be considered
Proprietary Information of Customer, unless such information is
available through public sources (that have not been released by
or through the agency of MPOWER) or through publicly available
filings with any insurance or health care regulatory agency or
with any industry accreditation or reporting body.
(d) Customer agrees to use at least commercially reasonable
methods to secure and protect the MPOWER Software and the
Documentation as MPOWER Confidential Information as defined
herein, in a manner consistent with the manner in which it
protects its own most sensitive confidential information.
(e) MPOWER agrees to use at least commercially reasonable methods
to secure and protect the Confidential Information of Customer as
defined herein, in a manner consistent with the manner in which
it protects its own most sensitive confidential information.
2.7 Modification by Customer. In the event that Customer exercises its
option for the Source Code Buyout Option, Customer shall have the right to
modify the MPOWER
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<PAGE> 11
Software for Customer Processing without notifying MPOWER and without obtaining
MPOWER's consent provided that (i.) Customer's ownership of such modifications
shall be subject to MPOWER's proprietary rights in the MPOWER Software and to
the provisions of this Section, (ii.) MPOWER's warranties and support
obligations related to the MPOWER Software shall apply only to the Shelf
Version, and (iii.) Customer shall not market or distribute such modifications
(except Customer may distribute descriptions and/or documentation of such
modifications to Related Parties and non-Related Parties) which distribution or
marketing shall be deemed a violation of MPOWER's proprietary rights in the
MPOWER Software. If Customer desires MPOWER to continue to provide support
services, Customer shall offer all modifications made by Customer to MPOWER for
inclusion in the MPOWER Software, subject to the mutual agreement by the parties
as to the consideration, if any, to be paid to Customer in return for Customer
costs and efforts in development of such modification(s). MPOWER shall have the
right to distribute such modifications as General System Enhancements, and if
MPOWER does so, such modification shall be covered by the MPOWER warranty and
support obligations as set forth in this Agreement. Subject to the foregoing,
Customer agrees that all modifications accepted by MPOWER in writing shall be
owned by MPOWER. All right, tide and interest in such accepted modifications are
hereby irrevocably assigned by Customer to MPOWER. All such modifications shall
belong exclusively to MPOWER, with MPOWER having the right to obtain and to hold
in its own name copyright registrations, patents and such other intellectual
property protection as may be appropriate to the subject matter and any
extensions and renewals thereof. Customer agrees to give MPOWER reasonable
assistance, at MPOWER's expense, required to perfect MPOWER's rights set forth
herein.
2.8 Support for Modifications.
(a) Modifications Not Included in the MPOWER Software; Support
Costs. In the event (i.) MPOWER modifies or enhances the MPOWER Software at
Customer's request pursuant to Section 3.2, or Customer modifies the MPOWER
Software pursuant to Section 2.7; and (ii.) such modifications or enhancements
do not have general applicability for MPOWER's customers and are not offered as
General Systems Enhancements, in order to provide support for such modifications
and enhancements, MPOWER will need to agree, in writing, to provide support for
such modifications and enhancements, and Customer agrees that there may need to
be an increase in the MF and/or the Fees for Maintenance Support Services. In
the event that MPOWER agrees, in writing, to provide such support, and
reasonably believes that an increase in the MF or the Fees for Maintenance
Support Services is required due to Customer Specific modifications, the parties
shall meet and discuss the nature of the increase. In the event that MPOWER does
not agree to provide such support, or if the parties fall to agree upon the
amount of the increase to the MF or the Fees for Maintenance Support Services,
MPOWER shall have no obligation to support such modifications and enhancements.
(b) Modifications Included in the MPOWER Software. Modifications
made to the MPOWER Software either by Customer, pursuant to Section 2.7, or by
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<PAGE> 12
MPOWER, pursuant to Section 3.2, which are included in the MPOWER Software as
General System Enhancements by MPOWER shall be supported by MPOWER as set forth
in Section 2.4.
2.9 Core Services. In consideration of the payment of the License Fees
by Customer, M. POWER shall, during the term of this Agreement, provide the Core
Services set forth in Exhibit 1, except as otherwise provided in Exhibit 2.
3. SUPPLEMENTAL SERVICES
3.1 Supplemental Services. Supplemental Services may include as
applicable (i.) conversion services to convert Customer data; (ii.) system setup
such as the establishment of benefit plans, pricing information, tracking
information, capitation rules, procedure and diagnosis code files and fund
accounting and billing rules; (iii.) services for modifying the MPOWER Software
for enhancements and modifications; (iv.) training support after initial
training; (v.) consulting services; and (vi.) project coordination and
management for the above Supplemental Services. All such Supplemental Services
shall be described in an applicable Work Order and shall be undertaken by MPOWER
only pursuant to a Work Order. For services requested by Customer which are
beyond the scope of the services generally contemplated hereunder, for special
circumstances, or if the geographic location in which any MPOWER services are to
be provided for Customer demands higher labor or resource costs, MPOWER will
provide Customer with written notice, and MPOWER reserves the right to propose a
new fee structure or different rates, which fee structure or rates will be
detailed in the appropriate Work Order.
3.2 Enhancements and Modifications Under Work Orders. Pursuant to this
Section 3.2 and the applicable Work Order, Customer may identify enhancements or
modifications which it desires to have MPOWER make to the MPOWER Software, such
as integration to other software systems, modifications for legal requirements,
and other functional enhancements. Customer shall be responsible for providing
to MPOWER a description of the changes which Customer requests to be made in the
MPOWER Software. MPOWER shall have the right to design any Customer requested
enhancements or modifications in a way which, in MPOWER's reasonable opinion,
will not adversely affect the MPOWER Services or the structure or performance of
the MPOWER Software or will have general applicability. In the event MPOWER
agrees to provide such enhancements or modifications to the MPOWER Software,
such enhancements or modifications shall be owned by MPOWER and licensed to
Customer as part of the MPOWER Software subject to Section 2. Resources utilized
by MPOWER in providing services pursuant to any such requests will be detailed
in applicable Work Orders.
3.3 Data Integrity. Customer acknowledges that, although MPOWER may, as
part of Supplemental Services, perform certain conversion tasks (for which
MPOWER shall be responsible), including development of files and programs for
the conversion of Customer data into formats for the MPOWER Software, the
quality and integrity of all Customer data
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provided to MPOWER, and the results obtained or resulting from poor or
inaccurate data are solely Customer's responsibility.
3.4 Access. In order for the Supplemental Services to be completed in a
timely and successful manner, Customer shall provide MPOWER with such access to
applicable information and key Customer personnel as MPOWER may reasonably
request from time to time during the period the Supplemental Services are being
performed. In connection with the Supplemental Services, MPOWER will be entitled
to submit various materials, including time schedules, business requirements,
specifications, and test results, for Customer's review, comment, sign-off, or
approval. Customer will respond to each such request as soon as reasonably
practicable, and, in any event, in a time frame consistent with the applicable
project plan, and shall not unreasonably withhold any sign-off or approval
requested by MPOWER.
4. ACCEPTANCE
For all deliverables, including the MPOWER Software and General System
Enhancements and Customer-specific enhancements and modifications provided
pursuant to an applicable Work Order, whether for MPOWER Processing or for
Customer Processing, Customer shall, within thirty (30) days of receipt of the
deliverable, or within such other time period as may be agreed to in writing by
the parties, review and, if applicable, test the deliverable and approve it or
notify MPOWER in writing of non-approval, documenting in reasonable detail any
and all material defects in the deliverable which prevent it from conforming to
the Documentation or specifications therefor, as applicable. Work Orders for
Customer enhancement requests will include specification of an acceptance text
period that is mutually agreed to by Customer and MPOWER and which shall be
reflective of the estimated size and complexity of the deliverable specified by
the Work Order. MPOWER shall, upon receipt of such notice, use its best efforts
to correct any such material failures and shall notify Customer of its
completion thereof. Customer shall, after receipt of said notice, review the
deliverable and report. Customer shall do so promptly using diligent efforts,
but in no event shall such process exceed fifteen (15) days. The above cycle
shall be repeated as is necessary. A deliverable shall be deemed accepted by
Customer if either:
(a) Customer notifies MPOWER in writing of its acceptance and the
acceptance date shall then be the date of such notice;
(b) Customer fails to notify MPOWER in writing within the applicable
time period of any material defect in the deliverable and the acceptance date
shall then be the last day of said period; or
(c) Customer places in productive use any portion of the deliverable
and the acceptance date shall then be the thirtieth day of such productive use.
Productive use for purposes of the foregoing shall not include the use by
Customer of the MPOWER Software in a parallel processing environment where
Customer is utilizing the MPOWER Software to
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<PAGE> 14
process a limited number of Members during a reasonable period of time for the
purpose of testing the MPOWER Software. Furthermore, notwithstanding the above,
the acceptance date shall not be considered completed as long as any online
production processing is still being conducted by Customer on the MPOWER
mainframe because of MPOWER's inability to transfer all of Customer's business
processing from the mainframe platform to Customer's client-server platform.
Customer agrees that it will so test any modifications or enhancements
made by MPOWER for Customer under an applicable Work Order and made part of a
Release and all General System Enhancements. The version and release of the
MPOWER Software so accepted by Customer shall be deemed the current Shelf
Version. Customer and MPOWER shall maintain copies of each Shelf Version. The
obligation of MPOWER to maintain any enhancements or modifications made
specifically for Customer that are nor part of either General System
Enhancements or a Release shall be specified in the Work Order that authorizes
such enhancements or modifications or in a subsequent Work Order.
5. FEES AND CHARES
5.1 Fees and Charges. The Fees for the MPOWER License and Services are
described in Exhibit 2 attached hereto.
5.2 Timeliness of Payment. All Fees payable by Customer hereunder shall
be paid by Customer on a monthly basis. Any applicable Remote Processing Fees
shall be due and payable in advance at the beginning of each month. Any other
sum due MPOWER hereunder for which a time for payment is not otherwise specified
will be due and payable within twenty (20) days after the date of Customer's
receipt of an invoice therefor from MPOWER. If Customer fails to pay any amount
due within thirty (30) days from the due date, late charges of 1 1/2% per month
shall also become payable by Customer to MPOWER. In addition, failure of
Customer to fully pay any amount due within sixty (60) days after the due date
shall be deemed a material breach of this Agreement and shall be sufficient
cause for immediate termination hereof. If Customer fails to pay, when due, any
amount payable hereunder or fails to fully perform its obligations hereunder,
Customer agrees to pay, in addition to any amount past due, plus interest
accrued thereon, all reasonable expenses incurred by MPOWER in enforcing this
Agreement including but not limited to all expenses of any legal proceeding
related thereto and all reasonable attorneys' fees incurred in connection
therewith. No failure by MPOWER to request any such payment or to demand any
such performance shall be deemed a waiver by MPOWER of Customer's obligations
hereunder or a waiver of MPOWER's right to terminate this Agreement.
5.3 Fee Changes. Not Applicable.
5.4 Taxes. There will be added to any charges under this Agreement, and
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Customer will pay to MPOWER, amounts equal to any taxes, however designated or
levied, based upon such charges, or upon this Agreement or the services or
materials provided hereunder, or Customer's use thereof, including state and
local sales, use, privilege or excise taxes based on gross revenue, and any
taxes or amounts in lien thereof paid or payable by MPOWER in respect of the
foregoing, but excluding any franchise taxes, taxes based on the adjusted gross
income of MPOWER, and employee withholding, FICA., and other taxes relating to
MPOWER personnel performing services hereunder.
6. PROBLEM RESOLUTION
Subject to the limitations in support for prior Releases provided by
MPOWER as set forth in Section 3 hereof, in the event MPOWER receives notice
from Customer of a Critical Failure in the most current Release of the MPOWER
Software or in the one prior Release immediately preceding the most current
Release of the MPOWER Software, pursuant the notice provisions of Section 16.4,
MPOWER agrees to respond to such notice by assigning a qualified individual to
attempt to remedy the Critical Failure, and agrees to use commercially
reasonable efforts to remedy the Critical Failure in accordance with the
provisions of Section 8.2 herein commensurate with the severity of the problem
and the timeliness and quality of information regarding the problem received
from Customer in accordance with the Definition, Support and Time Frame for
Resolution paragraphs of the Help Desk section of Exhibit 1.
7. CUSTOMER RESPONSIBILITIES
7.1 Customer Responsibilities. Customer acknowledges that MPOWER
Software reflects certain interdependent relationships, such as exist among the
data variables, logic rules and system functions of the MPOWER Software.
Customer further acknowledges that it is required and has a responsibility to
understand such data variables, logic rules and system functions, and their
interdependent relationships, and to define for its own purposes such data
variables, logic rules and system functions to the MPOWER Software in such a way
that the MPOWER Software will provide the functionality desired by Customer.
Customer acknowledges that it has or will hire and will maintain on its staff
personnel who are able to understand and define such data variables, logic
rules, system functions and interdependent relationships. Customer further
acknowledges that, even though MPOWER may assist Customer personnel in
performing these tasks, the responsibility for the effective definition and
maintenance of these data variables, logic rules and system functions resides
with Customer and not with MPOWER, unless Customer specifically requests MPOWER
to perform these tasks at the Supplemental Services Fees. Notwithstanding the
foregoing, nothing herein shall relieve MPOWER of responsibility for the
assistance that it may provide to Customer hereunder.
7.2 Testing. Customer acknowledges that it will undertake testing of the
MPOWER Software and of the basic functionality and interdependency of its
customer-
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defined data variables, logic rules and system functions as set forth in Section
4 herein, prior :o commencing use of the MPOWER Software for its business.
7.3 Customer Data. Except as may be provided under an applicable Work
Order, Customer shall be responsible for inputting and ensuring the accuracy,
validity and completeness of all data variables, logic rules, system functions
and Customer data, including but not limited to group, subscriber, Member,
provider, utilization, encounter, claims, capitation, fund accounting, billing,
collection, broker, benefits, product contract, provider contract, provider
fees, standard business measures, and other similar or related data. Customer
shall also be responsible for inputting and ensuring the accuracy, validity and
completeness of all user-defined report definitions, all report and batch
production job specifications and priority scheduling criteria. Customer shall
also be responsible for initiating, monitoring, operating, printing and ensuring
the accuracy, validity, and completeness of all print outputs and file
downloads, including but not limited to all reports, premium bills, checks,
etc., determining how many and on what print stock such outputs are to be
printed or into which files or programs on Customer controlled computers such
files are to be downloaded and manipulated, at Customer's own initiative,
responsibility and risk. Customer hereby acknowledges responsibility for
generally controlling all aspects related to the production, distribution and
control of such outputs. Customer further acknowledges that, notwithstanding the
responsibility of MPOWER to have used due care and diligence in the design and
documentation of the System, the accuracy of Customer's database within the
MPOWER. Software and the accuracy of the several outputs of the MPOWER Software,
including but not limited to, outputs that control the billing, receipt or
expenditure of moneys, will be dependent on the accuracy and use of the data
variables, logic rules, system functions and Customer data input into the MPOWER
Software by Customer and verified by Customer. Notwithstanding the foregoing,
nothing herein shall relieve/MPOWER of responsibility for the assistance that it
may provide to Customer hereunder.
7.4 Other Customer Obligations. In addition to its obligations
hereunder, Customer will on a timely basis:
(a) Establish appropriate priorities for Customer, on a regular
basis and no less frequently than every three months, that relate
to MPOWER Services and communicate the same to MPOWER. Customer
recognizes that changes in such priorities may result in
additional fees hereunder for additional staff, as Incremental
Support, or reordering of other priorities to provide MPOWER
Services within the current Fee structure;
(b) Cooperate with MPOWER by, among other things, making
available, as reasonably requested by MPOWER, management
decisions, information, approvals, and acceptances in order that
MPOWER may properly accomplish its obligations and
responsibilities hereunder;
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(c) Carefully inspect and review all MPOWER generated reports and
other output and notify MPOWER of any incorrect reports or
output;
(d) Personalize, maintain, reproduce and distribute (solely for
Customer's internal use) procedure manuals and documentation used
by Customer personnel in connection with the MPOWER Services and
Software;
(e) Train applicable Customer personnel in the proper use of
MPOWER Software;
(f) Pay all costs of acquisition, installation, use and
maintenance of equipment at Customer's site, as required for the
performance of MPOWER Software and Services;
(g) Properly maintain the Customer equipment at all Customer
sites;
(h) Properly maintain the operating environment, operating
system, network and database software as agreed to between the
parties;
(i) Such other responsibilities as set forth herein.
Customer agrees that to the extent its failure to meet its obligations set forth
in this Section affects the ability of MPOWER to perform MPOWER's obligations
under this Agreement, MPOWER shall be relieved of such obligations.
8. WARRANTIES
8.1 MPOWER warrants that it either owns the rights to the MPOWER
Software or has the right to grant the license to Customer herein, and that it
either owns or has licensed in the manner contemplated by this Agreement any
other software used in the provision of the MPOWER Services to Customer,
including but not limited to the enhancements or modifications provided by
MPOWER pursuant to an applicable Work Order. MPOWER warrants that the MPOWER.
Software, including without limitation each component or part thereof, does not
and will not infringe upon or violate any patent, copyright, trademark, trade
secret or other proprietary or contractual rights of any third party.
MPOWER shall, at its own expense indemnify, defend, settle and hold harmless
Customer and its officers and employees, from and against any and all claims,
damages, losses, liabilities, costs and expenses (including reasonable legal
fees) directly arising out of any such claim that the Shelf Version of the
MPOWER Software infringes upon or violates any United States patents,
copyrights, trademarks, trade secrets or other proprietary, contractual or
intellectual property rights of any third party; provided, however, Customer
must send MPOWER written notice of any claim relating to such infringement
promptly after Customer receives
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notice of the same and Customer fully cooperates, at MPOWER's expense, in the
defense of any such claim. Following such notice of a claim or of a threatened
or actual suit, MPOWER shall, upon written notice to Customer and at MPOWER's
expense, either: (a) procure for Customer the right to continue using such
MPOWER Software; (b) replace or modify same so that it becomes non-infringing;
or, (c) grant to Customer a refund for said MPOWER Software based upon a five
(5) year straight line depreciation if neither (a) nor (b) are reasonably
possible, in MPOWER's sole discretion. The foregoing states the entire liability
of MPOWER and the sole remedy of Customer with respect to any infringement or
claimed infringement by the MPOWER Software.
Notwithstanding the foregoing, MPOWER shall not be obligated to defend,
indemnify or hold Customer harmless from and against any claim, suit proceeding
or allegation (i.) asserted by a parent, subsidiary or affiliate of Customer or
any Related Party; (ii.) resulting from Customer's additions to, changes in, or
enhancements or modifications of the MPOWER Software; (iii.) resulting from
Customer's use of the MPOWER Software in combination With non-MPOWER Software,
unless MPOWER has agreed to provide support for the interface in which case,
MPOWER agrees to the warranties described in the applicable Work Order or
contract addendum; or (iv.) resulting from Customer's misuse of the MPOWER
Software.
8.2 MPOWER warrants that the Shelf Version of the MPOWER Software will
function as set forth in MPOWER's User Documentation, including all updates and
enhancements thereto. MPOWER covenants and warrants that all improvement and
enhancements of the MPOWER. Software provided by MPOWER will be compatible with,
and will not materially diminish the features or functions of, or the
specification of the Shelf Version of the MPOWER Software, and that the Shelf
Version of the MPOWER Software will be compatible with the equipment described
in the Documentation. MPOWER warrants that User Documentation shall reflect the
operation of the MPOWER Software, and MPOWER shall, at no additional cost to
Customer, correct any User Documentation that does not conform to this warranty.
If the Shelf Version of the MPOWER Software fails to meet the warranty described
in this Section 8.2 and Customer gives MPOWER notice thereof, MPOWER shall
correct the failure, provided that Customer gives MPOWER derailed information
regarding such failure.
8.3 MPOWER DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, EXCEPT
THOSE WARRANTIES EXPRESSLY SET FORTH IN THIS SECTION 8. MPOWER SPECIFICALLY
DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS
FOR. A PARTICULAR PURPOSE OF THE MPOWER SERVICES OR THE MPOWER SYSTEM, OR THE
COMPLIANCE OF THE FOREGOING WITH ANY LAW, REGULATION OR ORDER.
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<PAGE> 19
9. LIMITATION OF LIABILITY
NEITHER PARTY SHALL HAVE ANY LIABILITY WITH RESPECT TO ITS OBLIGATIONS
UNDER THIS AGREEMENT OR OTHERWISE FOR CONSEQUENTIAL, EXEMPLARY, INCIDENTAL OR
PUNITIVE DAMAGES EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
MPOWER SHALL NOT BE LIABLE FOR ANY CLAIM ARISING FROM TILE USE OF SOFTWARE OR
DATA WHICH HAS BEEN MODIFIED BY ANYONE OTHER THAN MPOWER, NOR FOR ANY CLAIM
ARISING FROM THE USE OF ANY SOFTWARE OR EQUIPMENT DEVELOPED OR MODIFIED BY
CUSTOMER OR WHICH HAS BEEN PROVIDED TO OR ACQUIRED BY CUSTOMER UNDER ANY LICENSE
OR OTHERWISE FROM ANY THIRD PARTY.
EXCEPT AS PROVIDED IN SECTION 8.1 WITH RESPECT TO MPOWER's EXPRESS
OBLIGATIONS TO INDEMNIFY CUSTOMER FOR LIABILITIES TO THIRD PARTIES, MPOWER's
SOLE AND TOTAL LIABILITY TO CUSTOMER RELATED TO THIS AGREEMENT WHETHER IN
CONTRACT OR TORT OR OTHERWISE SHALL BE LIMITED TO CUSTOMER'S ACTUAL DIRECT
DAMAGES NOT TO EXCEED THE SUM OF THE LICENSE FEES AND REMOTE PROCESSING FEES
PAID BY CUSTOMER TO MPOWER UNDER THIS AGREEMENT DURING THE SIX (6) MONTHS
IMMEDIATELY PRIOR TO THE BREACH OR CAUSE FOR WHICH THE DAMAGES ARE CLAIMED. THIS
LIMITATION APPLIES TO ALL CAUSES OF ACTIONS OR CLAIMS IN THE AGGREGATE INCLUDING
WITHOUT LIMITATION, BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT
LIABILITY, MISREPRESENTATION AND OTHER TORTS. FURTHER, NO CAUSE OF ACTION WHICH
ACCRUED MORE THAN TWO (2) YEARS PRIOR TO THE FILING OF A SUIT ALLEGING SUCH
CAUSE OF ACTION MAY BE ASSERTED AGAINST MPOWER, EXCEPT THAT IN NO EVENT SHALL
THE FOREGOING LIMITATION EXTEND ANY APPLICABLE STATUTORY LIMITATION PERIOD.
CUSTOMER AND MPOWER EXPRESSLY ACKNOWLEDGE AND AGREE THAT THE LIMITATIONS AND
EXCLUSIONS CONTAINED HEREIN REPRESENT THE PARTIES' AGREEMENT AS TO THE
ALLOCATION OF RISK BETWEEN THE PARTIES IN CONNECTION WITH MPOWER's OBLIGATIONS
UNDER THIS AGREEMENT. THE PAYMENTS PAYABLE TO MPOWER IN CONNECTION HEREWITH
REFLECT THIS ALLOCATION OF RISK AND THE EXCLUSION OF CONSEQUENTIAL DAMAGES IN
THIS AGREEMENT.
MPOWER hereby is not assuming or otherwise responsible for, expressly or
implicitly, any obligation or liability of any kind whatsoever of Customer.
Customer shall and hereby does agree to indemnify and hold MPOWER harmless from
any and all claims, lawsuits, liabilities, expenses, costs, damages and fees
arising from or in connection with Customer's misuse of the MPOWER Services or
MPOWER Software in breach of its
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obligations hereunder. Customer, and not MPOWER, shall be responsible for
Customer's provision of services or products to any third party.
10. OTHER PROVISIONS
10.1 Inspection Rights. If MPOWER provides Remote Processing Services to
Customer, MPOWER will provide such auditors and inspectors as Customer may from
time to time designate in writing, with reasonable access to any data center
from which MPOWER is providing services hereunder for the limited purpose of
performing audits or examinations of Customer. MPOWER will provide to such
auditors and inspectors any routine assistance that they reasonably require,
rendered in connection with any such audit or inspection.
10.2 MPOWER Audits. Customer shall maintain adequate hooks and records
relating to its usage of the MPOWER Software and MPOWER Services and the Fees
due to MPOWER hereunder. MPOWER shall have the right, upon request, and in
connection with Customer's annual audit, to have Customer's auditors perform an
audit of Customer's books and records with respect to the MPOWER Software and
MPOWER Services and the Fees due to MPOWER hereunder. The cost of such audit
shall be borne by MPOWER solely to the extent that the auditors' services are
substantially different from or greater than those that the auditors would
ordinarily perform for Customer. Any over/under payment between the reported
usage of the MPOWER Software and the MPOWER Services and the Fees due to MPOWER
hereunder and the actual amount shall be paid by the appropriate party, or
applied as a credit by MPOWER, within thirty (30) days of notification of said
amount.
11. TERM OF AGREEMENT AND PROVISIONS FOR TERMINATION
11.1 Term of Agreement. The term of this Agreement shall commence on the
Effective Date and shall continue for seven (7) years unless otherwise
terminated pursuant to this Agreement. The agreement will be extended for an
additional 36 months upon the mutual written agreement of the parties. The
parties mutually agree to inform the other party, at least 120 days prior to the
Termination of this Agreement, as to whether or not they wish to negotiate a new
agreement which would be effective upon the Termination of this Agreement.
11.2 Termination for Cause. In the event that either party hereto
materially or repeatedly defaults in the performance of any of its duties or
obligations hereunder (except for a default in payments to MPOWER) and does not
substantially cure such default within one hundred twenty (120) days after being
given written notice specifying the default, or, with respect to those defaults
which cannot reasonably be cured within one hundred twenty (120) days, if the
defaulting party fails to proceed promptly after being given such notice to
commence curing the default and thereafter to proceed to cure the same, then the
party not in
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<PAGE> 21
default may, by giving written notice thereof to the defaulting party, terminate
this Agreement as of a date specified in such notice of termination.
11.3 Termination for Nonpayment. In the event that Customer defaults in
the payment when due of any amount due to MPOWER hereunder, and does not cure
such default within sixty (60) days after the date of receipt the invoice, then
MPOWER may, by giving written notice thereof to Customer, terminate this
Agreement as of a date specified in such notice of termination.
11.4 Termination for Insolvency. In the event that either party hereto
becomes or is declared insolvent or bankrupt, is the subject of any proceedings
relating to its liquidation, insolvency or for the appointment of a receiver or
similar officer {or k, makes an assignment for the benefit of all or
substantially all of its creditors, or enters into an agreement for the
composition, extension, or readjustment of all or substantially all of its
obligations, then the other party hereto may, by giving written notice thereof
to such party, terminate this Agreement as of a date specified in such notice of
termination. Furthermore, in the event that MPOWER becomes or is declared
insolvent or bankrupt, is the subject of any proceedings relating to its
liquidation, insolvency or for the appointment of a receiver or similar officer
for it, makes an assignment for the benefit of all or substantially all of its
creditors, or enters into an agreement for the composition, extension, or
readjustment of all or substantially all of its obligations, then Customer may
exercise the Source Code Buyout for 50% of the fees shown in Exhibit 2,
provided, however, that Customer may only use the source code for the same
purposes granted by the object code License and may nor create Derivative Works
therefrom, not use the source code for relicense nor resale.
11.5 Termination Without Cause. In the event Customer ceases all
Customer Processing or Remote Processing Services, then MPOWER may terminate, at
ks option, this Agreement and License upon thirty (30) days written notice.
Customer may terminate this Agreement without cause with one hundred eighty
(180) days advance written notice to MPOWER subject to Customer's payment to
MPOWER of all outstanding fees incurred prior to the date of termination, all
applicable termination fees as provided in any Exhibit 2, and any applicable
early termination fees specified in Exhibit 2.
11.6 Termination Assistance. Upon the termination of this Agreement for
any reason, MPOWER will provide to Customer such termination assistance, at
MPOWER's Personnel Resources Rate plus Expenses, as may be reasonably requested
by Customer and scheduled by MPOWER. If this Agreement is terminated, then
Customer will pay MPOWER, on the first day of each month and as a condition to
MPOWER's obligation to provide such termination assistance to Customer during
that month, an amount equal to MPOWER's reasonable estimate of the total amount
payable to MPOWER for such termination assistance for that month.
11.7 Outstanding Amounts. Termination of this Agreement shall entitle
MPOWER to payment and Customer shall be obligated to pay for the provisions of
any and all
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MPOWER Services rendered by MPOWER under this Agreement prior to the date of
such termination, all outstanding fees incurred prior to the date of termination
and the lump sum of all remaining ILF payments due by Customer under Exhibit 2
(except as provided in Section 11.2 herein).
11.8 Customer Data. In the event that either party terminates this
Agreement, Customer retains ownership of all membership data and all other
Customer data in the MPOWER System. If MPOWER is providing Customer with Remote
Processing Services, MPOWER shall return same go Customer at the time of
termination in MPOWER's standard tape record format. Any support by MPOWER to
provide data in other than MPOWER's standard format shall be billed as
Termination Assistance per section 11.5 above.
11.9 MPOWER Software. Unless otherwise provided in this Agreement,
Customer agrees that upon termination of this Agreement, the License granted
hereunder shall also terminate and Customer shall cease using the MPOWER
Software and shall return to MPOWER or destroy, within thirty (30) days after
such termination, the original and all copies of such MPOWER Software and
Documentation. Except for termination resulting from the material breach on the
part of Customer, including without Limitation, breach of its Confidentiality
obligations or failure to timely make any payment hereunder, Customer shall be
permitted to continue to use the MPOWER Software pursuant to all the terms and
conditions set forth in this Agreement for up to a maximum of six (6) months
following such termination for the sole purpose of transitioning Members to an
alternate processing software, provided (i.) Customer remains obligated to pay
MF during such period; (ii.) MPOWER has no further obligations to provide Core
Services, new Releases, fixes to Nonconformities or Critical Failures, and
(iii.) the MPOWER Software is no longer warranted. If Customer destroys the
MPOWER Software, all copies thereof and Documentation, within thirty (30) days
of such destruction an officer of Customer shall certify to MPOWER in writing
that the MPOWER Software and all copies and Documentation thereof have been
destroyed. Due to the nature of the MPOWER Software and the need for its
protection as a trade secret and confidential proprietary information, time is
of the essence in its return or destruction, and in the event of Customer's
failure to do so within the time provided herein, Customer agrees that MPOWER
shall be entitled to obtain injunctive relief to require such return or
destruction and reasonable attorneys' fees and costs incurred in obtaining such
injunctive relief.
12. CONFIDENTIALITY
12.1 Confidential Information. "Confidential Information" shall mean
information such as customer lists, business plans, operation plans, client
information, application software programs and documentation licensed by third
parties to Customer or MPOWER, the MPOWER Software, the User Documentation,
Functional Documentation and the System Documentation, which are disclosed by
Customer or MPOWER to the other party, its employees, agents, contractors,
assignees or successors in the conduct of business
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under this Agreement. In addition, Confidential Information shall also include
any other materials relating to MPOWER's business or the business of Customer
which are designated in writing as confidential at the time of disclosure by
Customer or MPOWER, or is identified orally at the time of the disclosure as
confidential and confirmed in writing within one week of such disclosure, and
which are disclosed by Customer or MPOWER to the other party, its employees,
agents, contractors, assignees or successors in the conduct of business under
this Agreement. The following information shall not be deemed Confidential
Information, and a party and that party's employees shall have no obligation
with respect to any such information which:
(a) is or falls into the public domain through no wrongful act
of a party or that party's agents or employees; or
(b) is rightfully received from a third party without
restriction and without breach of this Agreement; or
(c) is approved for release by written authorization of an
officer of a party; or
(d) is disclosed pursuant to the requirements of a
governmental agency or operation of law; or
(e) is already in possession of a party or that party's
employees as evidenced by their records and is not the
subject of a separate non-disclosure or confidentiality
agreement with either of them.
12.2 Standard of Care. Each party hereby agrees that it and its
respective officers, employees, agents, contractors, assignees, and successors
shall (i.) keep all Confidential Information received from the other party
strictly confidential, (ii.) instruct their officers, employees, agents,
contractors, and permitted assignees and successors, who have access to such
Confidential Information, to use the same degree of care and discretion with
respect to the Confidential Information of the other party, or of any third
party utilized hereunder, that MPOWER and Customer each require with respect to
their own most confidential information, (iii.) use and disclose such
information solely for the purposes and in the manner set forth in this
Agreement, (iv.) not disclose any such information to any other person,
corporation, governmental agency or other entity without the express written
permission of the other party, except that Customer may (a) allow, with Customer
applying reasonable standards of system security, Customer's clients, providers,
Members, Members' employers and others with a need to use the MPOWER. Software
as users in the normal course of the Customer's business and may disclose to
such persons as much of the User Documentation as is necessary for their
effective use of the MPOWER Software in the normal course of the Customer's
business without obtaining a Non-Disclosure Agreement and (b) Customer may
disclose the MPOWER Software and Documentation to outside consultants or other
third parties having a need to know such Confidential Information for purposes
of this Agreement,
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and provided said consultants or third parties agree to hold the MPOWER Software
and Documentation in confidence, and have executed a Non-Disclosure Agreement in
the form annexed hereto as Exhibit 4, and (c) disclose the User Documentation to
Related Parties and Non-Related Parties in order for Customer to be able to
provide and for such parties to be able to effectively receive and utilize
Customer Processing, provided said Related and Non-Related Parties agree to hold
the User Documentation in confidence subject to the provisions herein, and have
executed a Non-Disclosure Agreement substantially in the form annexed hereto as
Exhibit 4. NOTWITHSTANDING THE FOREGOING, WITH RESPECT TO MPOWER SOURCE CODE AND
SYSTEM DOCUMENTATION, IN ADDITION TO ITS OBLIGATIONS SET FORTH HEREIN, CUSTOMER
SHALL USE NO LESS THAN THE SAME DEGREE OF CARE AND DISCRETION THAT CUSTOMER
REQUIRES WITH RESPECT TO ITS MOST VALUABLE TRADE SECRET INFORMATION.
Notwithstanding the foregoing, Customer may not disclose MPOWER's Confidential
Information to any of the parties identified by MPOWER in Exhibit 5, as such
Exhibit may be updated from time to time by MPOWER, or to their employees,
agents or consultants. Customer shall institute the necessary security policies
and procedures to meet its obligations hereunder. Notwithstanding the foregoing,
the mere viewing of data input screens or the review of output screens and
reports generated by released MPOWER Software by third parties, not in
competition with MPOWER, shall not be deemed a disclosure of MPOWER Confidential
Information.
Without limiting the foregoing, Customer shall use its reasonable
efforts to cooperate with MPOWER in identifying and preventing unauthorized use,
copying, or disclosure of the MPOWER Software and MPOWER Confidential
Information, or any portion thereof.
Customer shall indemnify and hold harmless MPOWER and its officers and
employees from and against any and all damages, losses, liabilities, costs and
expenses (including reasonable legal fees) arising in any way out of use not in
compliance with this Agreement or of any breach of the Confidentiality
obligations hereunder by Customer, or its subsidiaries and affiliates, or any
entity controlling, controlled by or under common control with Customer or any
Related Party. Customer's liability shall be limited to MPOWER's actual direct
damages not to exceed the sum of the license fees and remote processing fees
paid by Customer to MPOWER under this Agreement during the six (6) months
immediately prior to the breach or cause for which the damages are claimed.
MPOWER shall indemnify and hold harmless Customer and its officers and
employees from and against any and all damages, losses, liabilities, costs and
expenses (including reasonable legal fees) arising in any way out of use not in
compliance with this Agreement or of any breach of the Confidentiality
obligations hereunder by MPOWER, or its subsidiaries and affiliates, or any
entity controlling, controlled by or under common control with MPOWER, subject
to the limitations of liability outlined in Section 9.
13. DISPUTE RESOLUTION
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In the event of a dispute between the parties arising out of or relating
to this Agreement, then, upon the written request of either party, each of the
parties will appoint a designated representative to endeavor to resolve such
dispute. The designated representatives will negotiate in good faith to resolve
the dispute. Initially, disputes will be handled by the MPOWER Account
Representative and the Customer's designated liaison with MPOWER, or his/her
equivalent, and if they are unable to reach a resolution, the dispute will be
presented to the Chief Executive Officer of MPOWER and the Chief Executive
Officer of Customer for resolution. If the matter has not been resolved pursuant
to the aforesaid mediation procedure within sixty (60) days of the commencement
of such procedure (which period may be extended by mutual agreement), the
controversy shall be serried by arbitration in accordance with the American
Arbitration Association (the "Association) under the Commercial Arbitration
Rules of the Association there in effect, by a panel of three (3) arbitrators
knowledgeable in the computer area. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
by the arbitrator may be entered by any court having jurisdiction thereof. The
place of arbitration shall be in the jurisdiction in which the principal place
of business of the party not filing arbitration is located (i.e., Albuquerque,
New Mexico for MPOWER and Jacksonville, Florida for Customer). Each party shall
pay its own costs and expenses.
14. BACKUP AND DISASTER RECOVERY SERVICES AND AUDIT
14.1 Backup. In the event that MPOWER provides Customer with Remote
Processing Services, MPOWER will establish and maintain reasonable safeguards
against the destruction, loss or alteration of Customer data in the possession
of MPOWER. In the event that additional safeguards for Customer data are
reasonably requested by Customer, MPOWER will provide such additional safeguards
and Customer shall reimburse MPOWER for any additional costs incurred by MPOWER.
14.2 Disaster Recovery. In the event that MPOWER provides Customer with
Remote Processing Services, MPOWER shall maintain an agreement or arrangement
with a third party to provide MPOWER a disaster recovery sire with facilities
sufficient to enable MPOWER to provide a continuation of MPOWER Services in the
event the MPOWER System is unavailable for an extended period of time.
14.3 Notification. In the event that MPOWER provides Customer with
Remote Processing Services, MPOWER will provide customer with a current copy of
MPOWER's Backup and Disaster Recovery procedures and the results from Annual
Testing and EDI Audit.
15. RELATIONSHIP MANAGEMENT
15.1 Meetings. MPOWER and Customer agree to regularly discuss business
and relationship strategies affecting both parties. MPOWER and Customer further
agree to have
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regularly scheduled communications to summarize current activities, performance
results, error corrections and work efforts, as well as the future planned
activities.
15.2 Liaison. During the term of this Agreement, each party will provide
a liaison who (i) will have overall management responsibility for the
performance by the party hereunder, (ii) will have primary operational
responsibility, and (iii) will serve as the party's primary liaison with the
other party with respect to performance under this Agreement. Customer may have
primary liaison replaced for cause.
16. GENERAL
16.1 Independent Contractor. MPOWER, in performing its obligations under
this Agreement, is acting only as an independent contractor of Customer and the
rights and responsibilities of the parties shall be determined accordingly.
16.2 Force Majeure. Each party hereto shall be excused from performance
hereunder for any period and to the extent that it is prevented from performing
any services pursuant hereto, in whole or in part, as a result of delays caused
by the other party or an act of God, war, civil disturbance, court order, labor
dispute of the other party or any third party, or other cause beyond its
reasonable control and which it could not have prevented by reasonable
precautions, and such nonperformance shall not be a default hereunder or a
ground for termination hereof. In the event that either party is excused from
performance hereunder pursuant to this Section, then that party shall take all
reasonable actions to resume, or provide alternative performance of its
obligations hereunder as soon as feasible.
16.3 Governing Law: Jurisdiction and Venue. This Agreement shall be
construed and enforced according to the laws of the State of New Mexico without
reference to principles of conflicts of laws. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the
jurisdiction in which the defendant's principal place of business is located
(i.e., the State and Federal courts of Albuquerque, New Mexico for MPOWER and
the State and Federal courts of Jacksonville, Florida for Customer), and each of
the parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
16.4 Notices. All notices and other communications under this Agreement
shall be in writing and may be given by any of the following methods: (a)
personal delivery against signed receipt; (b) facsimile transmission; (c)
registered or certified mail, postage prepaid, return receipt requested; or (d)
over-night delivery service. Notices shall be sent to the appropriate party at
its address or facsimile number given below (or at such other address or
facsimile number for such party as shall be specified by notice given
hereunder):
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16.4.1. If to MPOWER, to:
MPOWER Solutions Inc.
2300 Buena Vista S. E., Suite 128
Albuquerque, NM 87106
Attn.: Chief Executive Officer
Fax 505.244.5913
16.4.2. If to Customer, to:
Employers Mutual, Inc.
9716 San Jose Boulevard, Suite 200
Jacksonville, FL 32257
Attn.: Chief Executive Officer
Fax 904.262.0663
All such notices and communications shall be deemed delivered upon (a) actual
receipt thereof by the addressee, (b) actual delivery thereof to the appropriate
address, or (c) in the case of a facsimile transmission, upon transmission
thereof by the sender and issuance by the transmitting machine of a confirmation
slip confirming that the number of pages constituting the notice have been
transmitted without error. In the case of notices sent by facsimile
transmission, the sender shall contemporaneously dispatch a copy of the notice
to the addressee at the address(es) provided for above by an overnight courier
service. However, such mailing shall in no way alter the time at which the
facsimile notice is deemed received.
16.5 Insurance. During the term of this Agreement, each party will
maintain insurance coverage, such coverage to bear the risks associated with the
performance of this Agreement as is reasonable, prudent and advisable under the
circumstances and will provide evidence of or otherwise demonstrate such
capability to the other party upon the other party's reasonable request from
time to time.
16.6 Assignment. Customer may assign this Agreement, upon notice to, but
without the consent of, MPOWER, to a third party which is not a direct
competitor, as set forth in Exhibit 5, of MPOWER's software business if all, or
substantially all, of Customer's business utilizing the MPOWER Software is
concurrently sold, assigned or transferred to such third party, and, further
provided, that such third party agrees in writing to adhere to the limitations
of the license granted herein, including that the license extends only to the
business transferred or to logical extensions thereof, and not to other business
conducted by the third party at the time of the assignment, transfer or sale, or
thereafter acquired, unless additional license fees are paid to MPOWER. This
Agreement and Customer's rights or obligations hereunder may not be otherwise
assigned or transferred by Customer to another entity whether by assignment,
merger, transfer of assets, sale of stock of Customer, operation of law or
otherwise without the prior written consent of MPOWER. MPOWER may assign this
Agreement upon notice to, but without the consent of, Customer, provided that
the assignee
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agrees to continue the obligations of the Agreement, otherwise, MPOWER may not
assign this Agreement to a third party without the prior written consent of
Customer. This Agreement shall inure to the benefit of and be binding upon the
parties, their permitted successors and their permitted assigns.
16.7 Termination of the Prior Agreement. Customer and MPOWER agree that
upon (i) the conversion of Customer data from the MPOWER mainframe computer to
Customer's RS6000 computer, (ii) the processing of such data in a live
transaction environment, and (iii) the payment by Customer, and receipt by
MPOWER, of the first installment of the ILF, rhea the Prior Agreement shall be
considered thereby immediately terminated according to the terms thereof,
provided that any terms of the Prior Agreement that survive the termination
thereof shall, in accordance with the terms of the Prior Agreement, survive the
termination thereof. It is the intention of this Agreement that Customer shall
not be liable for duplicate payment in any month of the Remote Processing Fees
defined in the Prior Agreement and the ILF in this Agreement, unless Customer
decides to prepay an ILF installment prior to the commencement of production
processing under this Agreement.
16.8 Entire Agreement. This Agreement, including any Exhibits or
Schedules referred to herein and attached hereto, constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and there are no representations, understandings or agreements relative hereto
which are not fully expressed herein. No amendment, change, waiver, or discharge
hereof shall be valid unless in writing and signed by an authorized
representative of the party against which such amendment, change, waiver, or
discharge is sought to be enforced.
16.9 Publicity. It is the intent of Customer to reference MPOWER's name
and the MPOWER Software in its sales and marketing material. It is the intent
MPOWER to use Customer's name in its customer list and in marketing and sales
material. Customer shall have the right to list MPOWER's name and the MPOWER
Software in its sales and marketing materials and presentations, provided that
such listing(s) does not state or imply a recommendation, approval or
testimonial by MPOWER, and MPOWER shall have the right to list Customer's name
on customer lists, provided that such listing(s) does not state or imply a
recommendation, approval or testimonial by Customer. Each party hereby gives the
other party approval to use its name, trade name, service marks, trademarks,
trade dress or logo in such publicity releases, advertising or similar
activities. Each party agrees to cooperate with the other party- in developing
case study or other material that may be used in sales and marketing material
that may state a recommendation, approval or testimonial of the other party.
16.10 Export Assurance. Notwithstanding anything contained herein to the
contrary and regardless of any disclosure made by Customer to MPOWER of any
ultimate destination of the MPOWER Software, Customer shall not export or
re-export directly or indirectly the
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<PAGE> 29
MPOWER Software acquired from MPOWER, or any technical data derived therefrom,
without first obtaining the written approval or required export license to do so
from the United States Department of Commerce or any other agency of the United
States Government or of any foreign government having jurisdiction over such
transaction, when required by an applicable statute, regulation or order.
Customer hereby assures MPOWER that it does not intend to nor will it knowingly,
without the prior written consent, if required, of the Office of Export
Administration of the U.S. Department of Commerce, Washington, DC, transmit or
ship the MPOWER Software or any modifications thereto or product thereof,
directly or indirectly, to Afghanistan or to the Peoples Republic of China or to
any Group Q, S, W, Y or Z country specified in Supplements to Section 370 of the
Export Administration Regulations issued by the U.S. Department of Commerce, as
may be amended from time to time, or any other applicable regulation.
16.11 Governmental Restrictions. Customer shall be responsible for
complying with all applicable governmental regulations of the United States or
any foreign countries with respect to Customer's transport or use of the MPOWER
Software outside of the United States, including, but nor limited to import and
export restrictions, obtaining any necessary consents, registering or filing any
documents and paying any duties, fees or taxes. Customer shall be solely
responsible for all costs associated with such compliance. Customer shall
defend, indemnify and hold MPOWER harmless from and against any and all claims,
judgments, costs, awards, expenses (including reasonable attorneys' fees) and
liability of any kind arising out of the non-compliance with applicable
governmental regulations, statute, decree or other obligation with respect to
the MPOWER Software outside the United States.
16.12 General. All provisions of this Agreement relating to
confidentiality, nondisclosure, publicity, proprietary rights and indemnity
shall survive the cancellation, termination or expiration of this Agreement. The
waiver or failure of either party to exercise any right in any instance shoji
not be deemed a waiver of any other or further right hereunder. If for any
reason a court of competent jurisdiction finds any provision of this Agreement,
or portion thereof to be unenforceable, that provision shall be enforced to the
maximum extent permissible so as to effect the intent of the parties, and the
remainder of this Agreement shall continue in full force and effect. The section
headings used herein are for reference and convenience only and shall not enter
into the interpretation thereof.
16.13 Provided Customer signs a Work Order authorizing the following
interfaces, MPOWER will provide Customer with eligibility interfaces to Customer
for OneCare, Pacificare and PCA within sixty (60) days after live production on
the MPOWER ClientServer Software, through an interface engine recommended by
MPOWER. and licensed by Customer, provided however that Customer and Customer's
clients (OneCare, Pacificare and PCA) support the implementation and eligibility
interface processes, as described and to the extent described in the applicable
Work Order(s), and authorizes the Work Order(s) in sufficient time to accomplish
the tasks. If MPOWER is not able to achieve such interfaces within the timeframe
designated in the Work Order, then MPOWER will reimburse
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<PAGE> 30
Customer for the equivalent cost of one full time equivalent employee at an
annual cost of $30,000 until such time as the interfaces are working.
16.14 MPOWER will sub-license to Customer for additional license and
support fees an interface engine to facilitate electronic data interchange. In
no event shall the initial sub-license for such an interface engine exceed
$50,000 for the initial license fee, nor $10,000 per year for annual maintenance
for at least the first three (3) years of annual maintenance.
16.15 MPOWER has provided to Customer, a benchmark study. Customer may
review this benchmark study to judge whether the RS/6000 equipment configuration
that MPOWER has recommended for Customer's current and projected Member volume.
16.16 Customer and MPOWER will use their best efforts to migrate
Customer from Remote Processing Services on MPOWER's mainframe computer to
Remote Processing on Customer's RS/6000 equipment at the MPOWER. site.
16.17 MPOWER and Customer agree as follows:
a. Customer will serve as a development site and "test lab"
implementing MPOWER Solutions new mid-range Implementation plan for MPOWER.
b. Customer will assist MPOWER Solutions in marketing the MPOWER
Software and will serve as a reference site, provide interviews, allow
Customer's name and logo to be used in promotional materials and attend selected
conferences and presentations on MPOWER's behalf. There will be no use of
Customer's clients' names and logos without written consent. MPOWER Solutions
will pay Customer for any reasonable travel, lodging or other expenses related
to Customer's performance of services under this section 16.17.
c. MPOWER Solutions will provide reasonable assistance to Customer
in "selling" MPOWER capabilities to current and future clients, which shall
include, but not be limited to, on-site presentations, providing promotional
materials and participating in proposals. Customer will pay MPOWER for any
reasonable travel, lodging or other expenses related to MPOWER's performance of
services under this section 16.17.
* Confidential Treatment Requested
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<PAGE> 31
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
MPOWER Solutions Inc. CUSTOMER
By: By: [SIGNATURE ILLEGIBLE]
--------------------------- -----------------------------
Name: Name: [ILLEGIBLE]
------------------------- ---------------------------
- ------------------------------ --------------------------------
Title: Title: CEO
------------------------ --------------------------
Date: Date: 6/24/98
------------------------- ---------------------------
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<PAGE> 32
INDEX OF EXHIBITS
Exhibit 1 - DEFINITION OF CORE SERVICES
Exhibit 2 - LICENSE, PROCESSING AND SERVICE FEES
Exhibit 3 - DOCUMENTATION OUTLINE
Exhibit 4 - NON-DISCLOSURE AGREEMENT
Exhibit 5 - MPOWER IDENTIFIED PARTIES FOR NON-
DISCLOSURE
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<PAGE> 33
Exhibit 1
DEFINITION OF CORE SERVICES
"Core Services" are those services, in addition to the License, that are
provided to Customer by MPOWER in consideration for the payment of the License
Fees, except as otherwise provided in Schedule B. Core Services shall include
the following:
Conversion Plan: MPOWER will provide a template plan for migrating and
converting Customer members to the MPOWER Soft, are or the MPOWER System. The
template plan will include a description of tasks to be performed, milestones,
and deliverables. Customer and MPOWER will mutually agree on initial
modifications to the template plan to fit the Customer's specific situation and
circumstances. This modified template plan shall be referred to as the
"Conversion Plan"; which may be subsequently modified by agreement of the
parties from time to time.
Software Installation (if applicable): In accordance with the Conversion Plan,
MPOWER will provide up to one hundred-twenty (120) hours of systems support to
help install the MPOWER Software on a single Customer CPU(s) designated as
follows:
CPU Model Number(s): RS6000/050
------------------------
CPU Serial Number(s): 1063136
-----------------------
Prior to installation of MPOWER Software, Customer shall have installed rise
vendor software detailed on Exhibit 6.
Delivery: Unless otherwise requested in writing at the time of final delivery to
Customer of any deliverable of the MPOWER Software or of the enhancement or
modification provided under any Work Order under the License or applicable Work
Order to Customer or any Related Party, all deliverables to Customer or any
Related Party shall be by electronic delivery. Customer shall provide
appropriate communications linkages to receive such deliveries and shall pay
MPOWER the fees stated therefor in Exhibit 2.
Documentation: MPOWER will provide User Documentation and, if applicable, System
Documentation and the Functional Documentation for the functions and in the form
outlined in Exhibit 4, Documentation.
Help Desk: MPOWER shall provide a "Level Two" Help Desk to answer Customer
questions and solve Customer problems for acceptance testing and production
activities as further described herein. The Help Desk is staffed 8:00 am to 5:00
p.m., Mountain Time, Monday through Friday. Calls to the Help Desk outside of
these hours are rolled over either
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<PAGE> 34
to MPOWER Operations or pager response. An Inward WATS number (currently
1-800-993- 3677) is available for Help Desk calls at no charge to the Customer.
Calls to the Help Desk that represent problems related to the MPOWER. Software
or MPOWER System are assigned a Problem Number and entered into the MPOWER.
Problem Reporting and Tracking System, where current status is available for
reporting back to the Customer.
A "Level Two" Help Desk call is a call from the Customer's internal Help Desk
seeking support for questions and problems for production activities that the
Customer's Help Desk was notable to resolve on its own (each a "Service Call").
MPOWER represents that Service Calls will be logged and responded to in
accordance with its then current Help Desk protocols for severity designation
and related response times. MPOWER's current severity designations and related
response time protocols are shown in Exhibit 1-A hereto.
Ongoing Support: MPOWER provides ongoing support in the areas of General System
Enhancement, correction of Nonconformities, and in certain specific situations,
support for modifications, whether made by Customer or MPOWER:
General System Enhancements: See Section 2.4.
Correction of Nonconformities: See Section 2.5.
Support for Modifications: See Sections 2.7 and 2.8(b).
Annual Audit: Annually, beginning within thirty (30) days after the anniversary
of the Effective Date, MPOWER, with Customer agreement, will audit the way the
Customer is using the MPOWER. Software or MPOWER System, and offer
recommendations for more efficient utilization. This MPOWER audit will be
performed only with the express proviso that Customer makes available to MPOWER
audit team knowledgeable personnel who can fully represent Customer's use of
MPOWER Software or MPOWER System.
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<PAGE> 35
Exhibit 1-A
Severity Definitions and Resolution Process
- - Severity 1.
The problem causes complete loss of service ha the production and
staging environment and work cannot reasonably continue. The problem or defect
has one or more of the following characteristics:
- Data corruption. Physical or logical data is unavailable or
incorrect. Examples: Block format corruption, invalid indices,
corruption of meta-data, incorrect results.
- Critical functionality is not available.
- System hangs. The process hangs indefinitely or there is severe
performance degradation, causing unreasonable waits for resources or
response, as if the system is hanging.
- The entire MPOWER application crashes repeatedly.
- Database process or background processes fall and continue to fall
after restart attempts.
- Potential for above occurrences is deemed imminent.
Resolution of severity 1: Until the issue is resolved MPOWER Solutions will work
on Severity 1 around the dock (7x24). As a result of the severity, the customer
must provide MPOWER with a point of contact during the 7x24 period. The
customer's point of contact will assist the MPOWER customer support and
development scarf in gathering data, testing fixes in the customer's tearing
region, and applying fixes to the customer production environment.
- - Severity 2:
Problem or product defect causes a severe impact on the customer's
business regardless of customer environment. No workaround is available, however
operations can continue in a restricted fashion. The problem or defect has one
or more of the following characteristics:
- Business Impact Examples: The customer can handle current volume,
but will not be able to handle quarter dose, At dose, customer finds
totals wrong, but close is not for a few weeks.
- Internal software error, causing the application to fail to run to
completion, or return wrong results, or software error severely
decades performance.
- Some important functionality is unavailable, yet the system can
continue to operate in a restricted fashion.
- Potential for above occurrences is defined imminent.
Resolution of Severity 2: MPOWER Solutions will work on Severity 2 bug
based on customer assigned priority. Severity 2 fixes will be added in the next
scheduled maintenance or patch release.
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<PAGE> 36
- - Severity 3.
Problem or product defect causes minimal impact on the Customer's
business. The impact of the problem or defect is minor or an inconvenience, such
as a manual bypass to restore product functionality. The problem or defect has
one or more of the following characteristics:
- A software error for which there is an acceptable workaround.
- Software error minimally degrades performance. Software error or
- incorrect behavior has minor impact the operation of the system.
Resolution of Severity 3: Fixes for severity 3 bugs will be added to the
priority list for the next major scheduled release of the product. The order of
priority for resolving severity 3 issues will be assigned jointly by the
Customer and MPOWER.
- - Severity 4.
The problem or product defect causes NO impact on the Customer's
business. The problem or defect is a minor error, incorrect behavior, or a
documentation error that in no way impedes the operation of a system.
Resolution of Severity 4: Fixes for severity 4 bugs will be added to the
priority list for the next major scheduled release of the product. The order of
priority for resolving severity 4 issues will be assigned jointly by the
Customer and MPOWER.
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<PAGE> 37
Exhibit 2
LICENSE, PROCESSING AND SERVICE FEES
I. LICENSE FEES
A. License Fees. MPOWER License Fees for the use of the MPOWER Software
are broken into three(3) components: (i.) Initial License Fee (ILF) (ii) License
Extension Fee and (iii) Maintenance Fee (MF). These components are intended to
provide Customer with initial and ongoing rights to use the Software pursuant to
the terms of the License, Processing and Services Agreement.
1. Initial License Fee: The ILF is the initial fee payable by
Customer for the License to use the MPOWER Software. The
ILF for Customer is set forth in Section B(1) below.
2. License Extension Fee. The License Extension Fee covers
Members added to Customer's business beyond Members
covered by the ILF. It is set forth in Section B (2)
below.
2. Maintenance Fee: The MF is the fee payable by Customer for
the ongoing License and support for the MPOWER Software,
as described in Sections 3.4 and 3.5 of the Agreement.
B. License Fees (ILF, and MF) and Advanced Payments for Customer and
Related Parties
1. Initial License Fee.
The Initial License Fee payable by Customer for the
License of the MPOWER Software for the Subsystems listed
below in Subsection II. in this Exhibit B for Customer is
$400,000 (less a credit of $95,848.69) which will be
payable by Customer in twelve (12) equal installments
commencing as of the processing of Members on Customer's
RS6000 in a live production environment. The ILF shall
permit Customer to use the MPOWER Software for Members
that are Members as of the date of this Agreement and for
Members that become Members as the result of the natural
growth of Customer's existing business. It is the intent
of this Agreement that the first month for which Remote
Processing Fees under the Prior Agreement are not due is
the month when the first installment of the ILF under this
Agreement is due.
2. License Extension Fee. Members added to Customer's
business as a result of merger or acquisition, either of
Customer, or of another corporation or of a block of
business by Customer from another
* Confidential Treatment Requested
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<PAGE> 38
corporation, may be added to the License by payment of a
license extension fee ("License Extension Fee") of [*]
($[*]) per Member when such Members are initially added
to the MPOWER Software in a production environment.
Subsequent normal growth of Members to this business shall
then be covered under the License
3. Extension Fee thus paid. Maintenance Fee for Customer and
Related Parties. The Maintenance Fee for the MPOWER
Software for the Subsystems listed below in Subsection II
in this Exhibit B for use by Customer will be paid by
Customer in accordance with the following schedule:
a. $[*] per year paid in twelve equal monthly
installments with the first payment due
July 1, 1999 for Members covered under
the ILF.
b. For Members covered under a License
Extension, the MF shall be an annual fee of
[*]% of the License Extension Fee paid by
Customer, payable in twelve equal monthly
installments with the first payment due in
the month following the occurrence of the
event triggering the License Extension.
4. Source Code Buyout Provisions. Customer shall have the
option to buyout the rights to the MPOWER Software source
code ("Source Code Buyout") upon providing MPOWER with
three (3) months advance written notice, according to the
following schedule:
- up to the third anniversary of the date of this
Agreement, upon the single payment to MPOWER of
$1,000,000 and any MF payment owed by Customer to
MPOWER pursuant to paragraph B.3 above;
- upon or after the third anniversary of the date of
this Agreement, upon the single payment to MPOWER of
$750,000;
- upon or after the fourth anniversary of the date of
this Agreement, upon the single payment to MPOWER of
$500,000; or
- upon or after the fifth anniversary of the date of
this Agreement, upon the single payment to MPOWER of
$250,000.
* Confidential Treatment Requested
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<PAGE> 39
Upon the exercise of the Source Code Buyout, the terms of the
Agreement shall remain unchanged except, (a) Customer shall have
the right to modify the MPOWER Software without first obtaining
the consent of MPOWER and without notifying MPOWER; (b) Customer
shall no longer be entitled to future Releases or General System
Enhancements, and (c) Customer shall not be entitled to the
future provision of the Core Services. Any services provided by
MPOWER to Customer subsequent to Customer's completion of the
Source Code Buyout shall be provided as Supplemental Services at
MPOWER's then current rates. Upon exercise of the Source Code
Buyout, Customer's License shall not change and Customer may use
the source code only to the same extent as Customer's License and
License Extensions permit. Furthermore, it is explicitly noted
that Customer is not permitted to create Derivative Works from
the source code not to use it for re-license or re-sale nor on
behalf of entities not covered by the License or License
Extension.
II. SUBSYSTEMS OF MPOWER SOFTWARE INCLUDED WITHIN LICENSE FEE
Group &: Subscriber/Member Enrollment
Premium Billing & AR
Provider
Certification
Claims
Capitation & Fund Accounting
Accounting & Financial Reports (Batch Only)
Letter Writing
Communications Tracking
Data Listing &: Row & Columns Reporting
III. FEES FOR SUPPLEMENTAL SERVICES
Supplemental Services Fees, as incorporated in Work Orders, may be
either fixed-price or time and materials. Time and materials rates will
include the Personnel Resources
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<PAGE> 40
Fees for MPOWER personnel and its subcontractors relative to the MPOWER
Software. The Personnel Resource Fees are as follows:
A. Personnel Resource Fees for MPOWER personnel and its
subcontractors relative to Supplemental Services for the MPOWER
Software are billable at the following rates:
For 1998:$[*] per hour
For 1999:$[*] per hour
Thereafter: at MPOWER's then current applicable fee schedule.
B. Total fees for the conversion of Customer from Remote Processing
to Customer Processing shall be capped at the sum of $[*],
accrued at the mount set forth above as Personnel Resource Fees.
The cap shall apply only to MPOWER services related directly to
conversion services and shall nor include services and products
of third party contractors for third party products, nor shall it
include services of MPOWER related to such third party products
or contractors. The conversion period will end when Customer
commences Customer Processing for any of its customers.
C. During conversion MPOWER shall charge Customer for third party
services as a direct pass through.
D. After conversion, the rates for outside independent contractors
provided by MPOWER for Supplemental Services shall be the greater
of (i.) the rates set forth above (for applicable skill sets) or
(ii.) a rate to be mutually agreed upon in advance by Customer
and MPOWER and set forth in an applicable Work Order
IV. COMPUTER OPERATIONS FEES
MPOWER will, at Customer's request, provide, as part of the ILF,
computer operations services for Customer by operating Customer's RS6000
computer at MPOWER's facility without additional charge to Customer for
the first month of a live production environment on the RS6000, provided
Customer is current with its payment of the ILF. After Customer has been
in a live production environment for one (1) month, MPOWER will continue
to provide computer operations services for Customer by operating
Customer's RS6000 computer at MPOWER's facility, at Customer's request,
at the rate of [*] dollars ($[*]) per month. Customer must remain
current in its payment of the ILF. Computer operations services shall
be indicated in an applicable Work Order.
* Confidential Treatment Requested
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<PAGE> 41
V. REMOTE PROCESSING FEES
Remote Processing Fees shall continue under the Prior Agreement until
Customer commences a live production environment under this Agreement.
It is not anticipated that there will be Remote Processing Fees under
this Agreement, as that term is used in the Prior Agreement. There may
be computer operations services under this Agreement and, if so, they
will be covered under an applicable Work Order.
VI. OTHER FEES.
Other fees may pertain to the use by Customer of the MPOWER System for
set-up, testing, training, acceptance testing or other uses not related
to the production use of the MPOWER System for processing active Members
of Customer or of a Related Party. Such other fees will be indicated in
a Work Order and may include fees for third party consultants and
vendors.
VII. PAYMENT BY MPOWER TO EMI FOR CONVERSION OF EMI CUSTOMER
TO MPOWER LICENSE
Each Party acknowledges that from time to time a customer of EMI may
elect to acquire a license to use the MPOWER Software on its own, and
not through EMI. In those cases, where a customer of EMI elects to
acquire a license from MPOWER and uses the data and data setups from
EMI, MPOWER will pay to EMI a royalty payment of $[*], over the
timeframe of the implementation of such customer and initial use by such
customer of its own licensed software instance for the MPOWER Software,
in consideration of the reduced implementation effort for the MPOWER
Software because MPOWER and such customer can use the data and setups
already accomplished by EMI. For this consideration, EMI permits MPOWER
to use such setups and data for the respective customer. Notwithstanding
the above, MPOWER will owe no such payment to EMI for customers that are
jointly marketed to and signed as "joint" customers by both MPOWER and
EMI under the MPOWER QuickStart program or a similar program. And
further, notwithstanding anything else in this Agreement, such
QuickStart customers will not be covered under this Agreement and will
be assessed computer license or usage fees outside of this Agreement and
under a separate agreement or agreements among the parties, including
EMI and MPOWER.
* Confidential Treatment Requested
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<PAGE> 42
Exhibit 3
DOCUMENTATION OUTLINE
MPOWER - USER REFERENCE MANUAL
TABLE OF CONTENTS
BATCH SYSTEM VOLUME 1
GROUP & SUBSCRIBER/MEMBER ENROLLMENT SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Batch Group & Subscriber/Member Enrollment Overview
Chapter 3 Group Termination - GRPTRM
Chapter 4 Change Member identification - CHGSID
Chapter 5 Dual / Duplicate Member Report - DUPMEM
Chapter 6 Special Identification Card Program - IDCARD
Chapter 7 Member Month Report - MBRMTH
Chapter 8 Ad Hoc Membership Reporting System - MBRRPT
Chapter 9 MEMCHG
Chapter 10 MEMELG
Chapter 11 Member Outputs - MEMOUT
Chapter 12 Member Listing - NEWLST
Chapter 13 Overage Dependent Label & Listing Program - OVDPLB
Chapter 14 Health Care Financing Administration Reply Data Report
Chapter 15 Subscriber Mailing Labels - SBLBGR
Chapter 16 Subscriber Mailing Labels By Primary Care Physician
(PCP) - SBLBPV
Chapter 17 Send HCFA Transmission - SDHCFA
Chapter 18 Senior Choice Enrollment - SRCHOI
Chapter 19 Subscriber Labels - SUBLBL
BATCH SYSTEM VOLUME 2
PREMIUM BILLING & ACCOUNTS RECEIVABLE SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Batch Premium Billing & Accounts Receivable Subsystem Overview
Chapter 3 Aged Accounts Receivable Report - AGARMO
Chapter 4 Detailed Accounts Receivable Report - ARDET
Chapter 5 Accounts Receivable Reconciliation - ARRECN
Chapter 6 Cash Receipts List - CSHRCP
Chapter 7 Current Accounts Receivable Report - CURAR
Chapter 8 Produce Premium Bills - PRMBIL
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<PAGE> 43
Chapter 9 Detail Of Premium Revenue - PRMREV
Chapter 10 Reset Billing Run - RESBIL
BATCH SYSTEM VOLUME 4
PROVIDER SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Batch Provider Subsystem Overview
Chapter 3 Provider List By Hospital -
Chapter 4 Independent Practice Association Eligibility - IPAELG
Chapter 5 Primary Care Physician Availability Report - PCPAVL
Chapter 6 Provider Information Report - PVINFO
Chapter 7 Provider Mailing Labels - PVLBLS
Chapter 8 Terminated Provider's List Of Members - TRMPCP
BATCH SYSTEM VOLUME 5
CERTIFICATION SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Batch Certification Subsystem Overview
Chapter 3 Acute & Sub-Acute Bed days Report - ASABED
Chapter 4 Catastrophic Utilization Management Report - CATUMA
Chapter 5 Medical Management Detail Report - CRTMMI
Chapter 6 Quality Management Detail - CRTQMI
Chapter 7 Pended Certification Reports - CRTPND
Chapter 8 Hospital Log Listing Report - GENLOG
Chapter 9 Hospital Census Reports - HOSCEN
Chapter 10 Inpatient Summary by Hospital Admissions Report - INPHOS
Chapter 11 inpatient Summary By Physicians Admissions - INPPHY
Chapter 12 Mortality Report - MRTLTY
Chapter 13 Certification By Procedure Grouping - PXAPXG
Chapter 14 Hospital Service Category Report - SVCCAT
Chapter 15 Certification Monthly Statistical Summary - UMSTAT
BATCH SYSTEM VOLUME 6
CLAIMS SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Batch Claims Subsystem Overview
Chapter 3 Aging Report - Claims Set To Pay - AGECLM
Chapter 4 Member Claim Audit - AUDCLM
Chapter 5 Carrier List With Comments - CARCOM
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<PAGE> 44
Chapter 6 Carrier Listing - CARLST
Chapter 7 Check Run Program - CHKRUN
Chapter 8 Catastrophic Claims Report - CLMCAT
Chapter 9 Claims Control Listing - CLMCTL
Chapter 10 Claims Processing Performance Report - CLMPPL
Chapter 11 Claim Transaction Report - CLMTRN
Chapter 12 COB Suspended Claims Processing - COBSUS
Chapter 13 Explanation Of Benefits - EOB
Chapter 14 Denial Letter Generation - DENLTR KLM
Chapter 15 Hold Claims - HLDCLM
Chapter 16 Member Claim Detail Report - MBRCDR
Chapter 17 Provider Claim Detail Report - PRVCDR
Chapter 18 Reset Checking Account Codes - RESACT
Chapter 19 Reset Check Run - RESCKS
Chapter 20 Reverse / Unset Claims - REVUNS
Chapter 21 Set Checking Account Code - SETACT
Chapter 22 Disconnect Paid Claims - SETCHK
Chapter 23 Claims Summary By Employee - SUBCLM
Chapter 24 Suspended Claims List - SUSCLA
Chapter 25 Suspended Claims Summary - SUSSUM
Chapter 26 Unpaid Claims Report - UNPDCL
Chapter 27 Batch Claims Processing - BATCLM
BATCH SYSTEM VOLUME 7
CAPITATION & FUND ACCOUNTING
Chapter 1 Users Reference Manual System Overview
Chapter 2 Batch Capitation & Fund Accounting Overview
Chapter 3 Capitation And Fund Budgeting - CAP JOB
Chapter 4 Fund Status - CFSRPT
Chapter 5 Capitation Deduction Run - CAPDED
Chapter 6 Batch Capitation & Fund Accounting Subsystem Output
Error Messages
BATCH VOLUME 8
ACCOUNTING & FINANCIAL REPORTS
Chapter 1 Users Reference Manual System Overview
Chapter 2 Batch Accounting & Financial Reports
Chapter 3 Claims Lag Report - AETLAG
Chapter 4 Define Report Grouping Codes - DEFINC
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<PAGE> 45
Chapter 5 Display Report Grouping Codes - DISINC
BATCH SYSTEM VOLUME 9
LETTER WRITING SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Letter Writing Subsystem Overview
Chapter 3 Submit Batch Letters - BATLTR KLM
Chapter 4 Print Letters - PRTLTR
BATCH SYSTEM VOLUME 10
INTERFACES SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Interfaces Subsystem Overview
Chapter 3 Dental
Chapter 4 Pharmacy Management Interface - INTAPM
Chapter 5 Accounts Receivable Reconciliation - AR Interface
Chapter 6 Autocoder(R) Interface
Chapter 7 Claims Reporting System Interface - CRS
Chapter 8 Electronic Eligibility
Chapter 9 Electronic Encounters
Chapter 10 Enterprise Provider Database Interface - EPDB
Chapter 11 General Ledger Interface
Chapter 12 Lockbox Interface - LOCKBOX
Chapter 13 Marketing Survey Interface
Chapter 14 Medsyte(TM) Interface
Chapter 15 Provider Eligibility Rosters Interface
Chapter 16 Regional Event Tracking System Interface - RETS
Chapter 17 Sales Performance & Compensation System Interface - SPCS
Chapter 18 Data Migrator
Chapter 19 MCI interface
Chapter 20 Electronic Claims EDI Interface
Chapter 21 Accounts Payable/General Ledger Interface
Chapter 22 Send HCFA Transmission - SDHCFA
Chapter 23 Health Care Financing Administration Reply Data Report
BATCH SYSTEM VOLUME 11
SET-UPS & REFERENCE INFORMATION SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Batch Set-Ups & Reference Information Subsystem Overview
Chapter 3 Procedure File Listing Editing Information - C4EDIT
Chapter 4 Procedure File Listing Pricing Information - C4PRIC
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<PAGE> 46
Chapter 5 Document File Listing - DOCLST
Chapter 6 Diagnosis Listing - DXLST
Chapter 7 Fee File Listing - FEELST
Chapter 8 Fee Schedule Report - FEESCH
Chapter 9 ICD9-CM Procedure File Listing - ICD9PX
Chapter 10 Provider Participation Area Report - PPDRPT
- -------------------------------------------------------------------------------
ON-LINE SYSTEM
SET-UPS, REFERENCE & UVAM SUBSYSTEM VOLUME 1
Chapter 1 Users Reference Manual System Overview
Chapter 2 On-Line Group Enrollment Subsystem Overview
Chapter 3 Add New Group - ADDGRP
Chapter 4 Adding Group Contract - ADDGRP
Chapter 5 Adding Benefits - ADDGRP
Chapter 6 Adding Premium Billing Rates - ADDGRP
Chapter 7 Adding Average Contract Size Definitions - ADDGRP
Chapter 8 Adding Benefit Riders Information - ADDGRP
Chapter 9 Display Group - DISGRP
Chapter 10 Displaying Contract For Group - DISGRP
Chapter 11 Displaying Benefits For Group - DISGRP
Chapter 12 Displaying Rates For Group - DISGRP
Chapter 13 Displaying The Average Contract Size - DISGRP
Chapter 14 Modify Group - MODGRP
Chapter 15 Modifying Group Contract - MODGRP
Chapter 16 Modifying Benefits For Group - MODGRP
Chapter 17 Modifying Benefit Riders Information - MODGRP
Chapter 18 Modifying Premium Billing Rates - MODGRP
Chapter 19 Modifying Average Contract Size Definitions - MODGRP
Chapter 20 Add Market Projections - ADDPRJ
Chapter 21 Display Market Projections - DISPRJ
Chapter 22 Add Group Comments - ADDGCO
Chapter 23 Display Group Comments - DISGCO
Chapter 24 Group Name List - NAMGRP
Chapter 25 Define Group Contract Riders - DEFRDR
Chapter 26 Display Rider Details - DISRDR
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<PAGE> 47
ON-LINE SYSTEM VOLUME 2
SUBSCRIBER & MEMBER ENROLLMENT SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 On-Line Subscriber & Member Enrollment Subsystem Overview
Chapter 3 Add Family - ADDFAM
Chapter 4 Display Family - DISFAM
Chapter 5 Modify Family - MODFAM
Chapter 6 Display Commercial Member Status History - DISMST
Chapter 7 Display Other Billing Information - DISOTH
Chapter 8 Display Subscriber Status - DISSST
Chapter 9 Subscriber Identification Number Assignment - NEXTID
Chapter 10 Add Duplicate Insurance Coverage Information - ADDDCI
Chapter 11 Duplicate Coverage Comments - DClCOM
Chapter 12 Display Duplicate Coverage - DISDCI
Chapter 13 Update Pre-Existing Condition - ADDPEC
Chapter 14 Display Pre-Existing Medical Conditions - DISPEC
Chapter 15 Add Family Comments - ADDFCO
Chapter 16 Display Family Comments - DISFCO
Chapter 17 Find Member List - FNDMBR
Chapter 18 Cross Reference Identification Number - IDXREF
Chapter 19 Member Name List - NAMMBR
Chapter 20 Title 19 Member - T19MBR
Chapter 21 Adding Member Dual Coverage - ADDMDC
Chapter 22 Display Member Dual Coverage - DISMDC
Chapter 23 Add Medicare Member - ADDMED
Chapter 24 Display Medicare Member - DISMED
Chapter 25 Modify Medicare Member - MODMED
ON-LINE SYSTEM VOLUME 3
PREMIUM BILLING & ACCOUNTS RECEIVABLE
Chapter 1 Users Reference Manual System Overview
Chapter 2 On-Line Premium Billing & Accounts Receivable
Chapter 3 Define Premium Rate Table - DEFRTB
Chapter 4 Display Premium Rate Table - DISRTB
Chapter 5 Define Premium Billing Format - BILFMT
Chapter 6 Add Customer Account - ADDCUS
Chapter 7 Display Customer Account - DISCUS
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<PAGE> 48
Chapter 8 Add Payment - ADDPAY
Chapter 9 Adjust Customer Account - ADJACT
Chapter 10 Add Customer Account Comments - ADDCAC
Chapter 11 Display Customer Account Comments - DISCAC
Chapter 12 Add Premium Billing History Records - ADDHST
Chapter 13 Display Subscriber Premium Billing History - DISHST
Chapter 14 Modify Premium Billing History Records - MODHST
Chapter 15 Change Billed Through Date - CHGBIL
ON-LINE SYSTEM VOLUME 5
PROVIDER SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 On-Line Provider Subsystem Overview
Chapter 3 Define Provider Category - DEFCAT
Chapter 4 Display Provider Category - DISCAT
Chapter 5 Add New Provider - ADDPRV
Chapter 6 Adding A Provider In Multiple Networks - The IPA Equals 99999
Chapter 7 Adding Discount And Interest Data
Chapter 8 Display Provider- DISPRV
Chapter 9 Displaying Network/HIO/POE Data
Chapter 10 Modify Provider Information - MODPRV
Chapter 11 Modifying A Provider In Multiple Networks - MODPRV - The IPA
Equals 99999
Chapter 12 Modifying Discount And Interest Data - MODPRV
Chapter 13 Add Provider Practice Addresses - ADDPRA
Chapter 14 Display Provider Practice Addresses - DISPRA
Chapter 15 Add Provider Payment Address - ADDPPA
Chapter 16 Provider Payment Addresses Display - DISPPA
Chapter 17 Define Tax Identification Owner - DEFTAX
Chapter 18 Display Tax identification Owner - DISTAX
Chapter 19 Add Provider Comments - ADDPCO
Chapter 20 Display Provider Comments - DISPCO
Chapter 21 Display Providers By Drug Enforcement Agency Number - DEAPRV
Chapter 22 Provider internal Revenue Service Name List - IRSPRV
Chapter 23 Provider Name List - NAMPRV
Chapter 24 Title 19 Member Lookup - T19PRV
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<PAGE> 49
ON-LINE SYSTEM VOLUME 6
CERTIFICATION SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 On-Line Certification Subsystem Overview
Chapter 3 Adding Procedure Authorizations - ADDPXA
Chapter 4 Adding Procedure Authorization Review Lines - ADDPXA
Chapter 5 Displaying Procedure Certifications - DISPXA
Chapter 6 Modifying Procedure Authorizations - MODPXA
Chapter 7 Modifying Procedure Authorization Review Lines - MODPXA
Chapter 8 Adding Outpatient Surgery Authorizations - ADDOSA
Chapter 9 Adding Outpatient Authorization Comments - ADDOSA
Chapter 10 Display Outpatient Surgery Authorization - DISOSA
Chapter 11 Modifying Outpatient Surgery Authorizations - MODOSA
Chapter 12 Modifying Outpatient Authorization Comments - MODOSA
Chapter 13 Add Inpatient Certification - ADDLOG
Chapter 14 Adding Inpatient Certification Review Data - ADDLOG
Chapter 15 Display Inpatient Certification - DISLOG
Chapter 16 Modify Inpatient Certification - MODLOG
Chapter 17 Modifying Inpatient Certification Review Data - MODLOG
Chapter 18 List Hospital Certification - HOSLOG
Chapter 19 Member Certifications - MBRCRT
Chapter 20 Display Member Certification Eligibility - DISMCE
Chapter 21 List Member Certification - MBRLOG
Chapter 22 Member Procedure Certification List - MBRPXA
Chapter 23 Provider Procedure Certification List - PRVPXA
Chapter 24 Delete Procedure Authorization - DELPXA
Chapter 25 Delete Inpatient Certification - DELLOG
Chapter 26 Add Referral Certification - ADDREF
Chapter 27 Modify Referral Certification - MODREF
Chapter 28 Display Referral Certification - DISREF
Chapter 29 Member Referral Certification - MBRREF
Chapter 30 Provider Referral Certification Listing - PRVREF
ON-LINE SYSTEM VOLUME 7
CLAIMS SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 On-Line Claims Subsystem Overview
Chapter 3 Add General Claim - ADDGEN
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<PAGE> 50
Chapter 4 Adding Additional Claim Lines - ADDGEN
Chapter 5 Modifying & Viewing General Claim Pricing & Payments - ADDGEN
Chapter 6 Displaying Payment Address Verifications - ADDGEN
Chapter 7 Add Inpatient Claim - ADDINP
Chapter 8 Adding Claim Line Details -ADDINP
Chapter 9 Inpatient Claim Payment Category Billing Breakout - ADDINP
Chapter 10 Modifying Inpatient Claim Pricing & Payments - ADDINP
Chapter 11 Displaying Payment Address Verifications - ADDINP
Chapter 12 Modify General Claims - MODCLM
Chapter 13 Modify Inpatient Claims - MODCLM
Chapter 14 Modify Credit Claims - MODCLM
Chapter 15 Displaying Payment Address Verifications - MODCLM
Chapter 16 Display Old Claim Numbers - OLDCLM
Chapter 17 Suspended Claim List - SUSCLM
Chapter 18 Add Coordination Of Benefits Recovery- ADDCOB
Chapter 19 Add Credit Claim - ADDCRE
Chapter 20 Adjust Claim - ADJCLM
Chapter 21 Batch Reprocessing Suspended Claims - BRSCLM
Chapter 22 Manual Claim Payment - PAYCLM
Chapter 23 Add Refund - REFUND
Chapter 24 Unset Claim To Pay - UNSCLM
Chapter 25 Void Check - VODCHK
Chapter 26 Claim Comments - CLMCOM
Chapter 27 BATCLM - Batch Claims Processing
Chapter 28 Check Input - CHKINP
Chapter 29 Check Input By Run Type Code - CKINP2
Chapter 30 Add Transfer Business Data - ADDTBD
Chapter 31 Modify Transfer Business Data - MODTBD
Chapter 32 Display Benefit Thresholds - BENINQ
Chapter 33 Claims Associated With Benefits - BENINQ
Chapter 34 Check Claim List - CHKCLM
Chapter 35 Reverse / Voided Check Claim - CHKCLM
Chapter 36 Display General Claim - DISCLM
Chapter 37 Display Inpatient Claims - DISCLM
Chapter 38 Display Credit Claim - DISCLM
Chapter 39 Member Claim List - MBRCLM
Chapter 40 Provider Claim List - PRVCLM
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<PAGE> 51
Chapter 41 Set To Pay Claim List - STPCLM
Chapter 42 Add New Carrier - ADDCAR
Chapter 43 Display Carrier - DISCAR
Chapter 44 Modify Carrier - MODCAR
Chapter 45 Carrier Name List - NAMCAR
Chapter 46 Add Claim Comments - ADDCMC
Chapter 47 Display Claim Comments - DISCMC
Chapter 48 Modify Claim Comments - MODCMC
ON-LINE SYSTEM VOLUME 8
CAPITATION & FUND ACCOUNTING SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Capitation & Fund Accounting Subsystem Overview
Chapter 3 Define Capitation Claim Deduction Report - DEFCCR
Chapter 4 Display Capitation Claim Deduction Report Definition - DISCCR
Chapter 5 Define Capitation Detail Report - DEFCDR
Chapter 6 Display Capitation Detail Report Definition - DISCDR
Chapter 7 Define Capitation Summary Report - DEFCSR
Chapter 8 Display Capitation Summary Report - DISCSR
Chapter 9 Define Cluster Code - DEFCLC
Chapter 10 Display Cluster Code - DISCLC
Chapter 11 Add Entity - ADDENT
Chapter 12 Adding Entity Contract - ADDENT
Chapter 13 Displaying Rate Verification -
Chapter 14 Adding / Modifying Entity Comments - ADDENT
Chapter 15 Display Entity - DISENT
Chapter 16 Modify Entity - MODENT
Chapter 17 Adding and Modifying Entity Contracts - MODENT
Chapter 18 Displaying Rate Verification - MODENT
Chapter 19 Adding / Modifying Entity Comments - MODENT
Chapter 20 Define Completion And Credibility Factors - DEFCCF
Chapter 21 Display Completion And Credibility Factors - DISCCF
Chapter 22 Update Member Capitation Status - ADDMCS
Chapter 23 Display Member Capitation Status - DISMCS
Chapter 24 Capitation Processes Run Dates - CAPDTE
Chapter 25 Display Capitation Payment Data - DISCAP
Chapter 26 Manual Capitation Adjustment - CAPADJ
Chapter 27 Cluster Codes By Name Within Type - NAMCLC
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<PAGE> 52
Chapter 28 Entity List By Name - NAMENT
ON-LINE SYSTEM VOLUME 9
LETTER WRITING SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 On-Line Letter Writing Subsystem Overview
Chapter 3 Add Letter Paragraph - ADDLPA
Chapter 4 Display Letter Paragraph - DISLPA
Chapter 5 Modify Letter Paragraph - MODLPA
Chapter 6 Add Letter Run Type - ADDLRT
Chapter 7 Display Letter Run Type - DISLRT
Chapter 8 Modify Letter Run Type - MODLRT
Chapter 9 Add Letter Type - ADDLTP
Chapter 10 Display Letter Type - DISLTP
Chapter 11 Modify Letter Type - MODLTP
Chapter 12 Add Letter Series - ADDSRS
Chapter 13 Display Letter Series - DISSRS
Chapter 14 Modify Letter Series - MODSRS
Chapter 15 Add Letter Definition - ADDLTR
Chapter 16 Defining Database Inserts - ADDLTR
Chapter 17 Defining Letter Text - ADDLTR
Chapter 18 Display Letter Definition - DISLTR
Chapter 19 Displaying Letter Text - DISLTR
Chapter 20 Modify Letter Definition - MODLTR
Chapter 21 Defining Database Inserts - MODLTR
Chapter 22 Modifying Letter Text - MODLTR
Chapter 23 Find Letter - FINLTR
Chapter 24 Send Letter - SNDLTR
Chapter 25 Display Review Letters - DISRLT
Chapter 26 Display Letter By User - LTRENT
Chapter 27 Response to Letter- LTRRSP
Chapter 28 Review Letter - RVWLTR
Chapter 29 Display History Letter - DISHLT
Chapter 30 Find Letters In History File - FINHLT
ON-LINE SYSTEM VOLUME 10
SET-UPS, REFERENCE & UVAM INFORMATION SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
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<PAGE> 53
Chapter 2 Set-Ups, Reference & UVAM Information Overview
Chapter 3 HIO / POE User Value Assignment Module
Chapter 4 Type Of Service User Value Assignment Module
Chapter 5 Certification Requirement User Value Assignment Module
Chapter 6 Certification Action User Value Assignment Module
Chapter 7 Care Set User Value Assignment Module
Chapter 8 Point of Service User Value Assignment Module
Chapter 9 Fee Group User Value Assignment Module
Chapter 10 Checking Account User Value Assignment Module
Chapter 11 Member Class User Value Assignment Module
Chapter 12 Certification Number User Value Assignment Module
Chapter 13 Group Access User Value Assignment Module
Chapter 14 Member Network User Value Assignment Module
Chapter 15 Benefit Plan
Chapter 16 Element Variables
Chapter 17 Display HMO Information - DISHMO
Chapter 18 Display Control E File - DISCTE
Chapter 19 Display Control 2 File - DISCT2
Chapter 20 Display Object Module - DISOBJ
Chapter 21 Display Benefit Plan - DISPLN
Chapter 22 Define Procedure - DEFPX
Chapter 23 Display Procedure -
Chapter 24 Display Diagnosis - DISDX
Chapter 25 Document Definition Codes - DOCDEF
Chapter 26 Define Account Code - DEFACT
Chapter 27 Display Checking Account Number - DISACT
Chapter 28 Define Provider Pricing Data - ADDPPD
Chapter 29 Adding Hospital Fees
Chapter 30 Display Provider Pricing Data - DISPPD
Chapter 31 Define General Fee - DEFFEE
Chapter 32 Display Fee History - DISFEE
Chapter 33 Add Conversion Factors - ADDCFC
Chapter 34 Display Conversion Factors - DISCFC
Chapter 35 Define Procedure Modifier - DEFMOD
Chapter 36 Display Procedure Modifier- DISMOD
Chapter 37 Display Usual & Customary Rate Data
Chapter 38 DEFVMP - Define Place Of Service Codes
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<PAGE> 54
Chapter 39 DISVMP - Display Place Of Service Codes
Chapter 40 Define Adjusted Average Per Capita Cost - DEFAPC
Chapter 41 Display Adjusted Average Per Capita Cost - DISAPC
Chapter 42 Internal Security System - SECURE
Chapter 43 HMO2 Record
Chapter 44 Outpatient Case Rate Pricing
Chapter 45 Case Rate User Value Assignment Module
ON-LINE SYSTEM VOLUME 11
COMMUNICATIONS TRACKING SUBSYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Communications Tracking Subsystem Overview
Chapter 3 Add Telephone Log
Chapter 4 Displaying Telephone Logging - DISTEL
Chapter 5 Modify Telephone Logging Records-MODTEL Function
Chapter 6 List of Logged Calls - LSTTEL
DATA LISTING REPORTING SYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Data Listing Reporting System Overview
Chapter 3 Define List Report - DEFLST
Chapter 4 List Report - LSTRPT
ROWS AND COLUMNS REPORTING SYSTEM
Chapter 1 Users Reference Manual System Overview
Chapter 2 Define Rows And Columns Report - DEFRAC
Chapter 3 Submit Rows And Columns Report - RACRPT
Page 54 of 59
<PAGE> 55
Exhibit 4
NON-DISCLOSURE AGREEMENT ("Agreement")
This Agreement is entered into as of 24th June, 1998, by and between MPOWER
Solutions Inc., a Delaware corporation ("MPOWER"), with its principal place of
business at 2305 Renard Place, S.E., Albuquerque, New Mexico 87106 and Employers
Mutual, Inc. ("Customer") with its principal place of business located at 5716
San Jose Blvd., Jacksonville, Florida. WHEREAS, each party wishes to disclose
and to receive from the other party certain proprietary information for the
purpose of conveying the MPOWER software license as set forth in the Agreement.
WHEREAS, the parties wish to protect certain confidential and proprietary
information which may be disclosed between them, and for and in consideration of
the disclosures made and to be made hereunder, the parties agree as follows:
1. For purposes of this Agreement, "Owner" means the party disclosing Trade
Secrets and Confidential Information hereunder, whether such party is
MPOWER or Customer, and "Recipient" means the party receiving any Trade
Secrets or Confidential Information hereunder, whether MPOWER or the
Customer.
2. Recipient acknowledges and agrees that Owner claims that the Trade Secrets
and the Confidential Information of Owner are the sole and exclusive
property of Owner (or a third party providing such information to Owner)
and that Owner owns all worldwide copyrights, trade secret fights,
confidential information rights and all other property rights therein.
3. Recipient acknowledges and agrees that disclosures of the Trade Secrets
and the other Confidential Information of Owner to Recipient does not
confer upon Recipient any license, interest or rights of any kind in and
to the Trade Secrets and Confidential Information.
4. Recipient will hold in confidence and, without the prior written consent
of Owner, will not reproduce, distribute transmit, reverse engineer,
decompile, disassemble or transfer, directly or indirectly, in any form,
by any means, or for any purpose, the Trade Secrets or the Confidential
Information of Owner or any portion thereof communicated, discussed,
delivered or made available by Owner to or received by Recipient.
Notwithstanding the foregoing, Recipient may only disclose the Trade
Secrets and Confidential Information to its employees with a need to know
such information, provided each such employee shall be obligated in
writing to comply with the terms and conditions of this Agreement.
Recipient will not use the Trade Secrets or the Confidential Information
of Owner or any portion thereof communicated, discussed, delivered or made
available by Owner to or received by Recipient with our the prior written
consent of Owner.
Page 55 of 59
<PAGE> 56
5. Recipient acknowledges that its obligations under this Agreement with
regard to the Trade Secrets of Owner shall remain in effect for as long as
such information shall remain a Trade Secret under applicable law.
Recipient acknowledges that its obligations with regard to the
Confidential Information of Owner shall remain in effect for one (1) year
after its disclosure under this Agreement. The foregoing shall not apply
if and to the extent that information shall not be deemed proprietary and
each part shall have no obligation with respect to any information which:
(i.) is or falls into the public domain through no wrongful act of the
receiving party;
(ii.) is rightfully received from a third party without restriction and
without breach of this Agreement;
(iii.) is approved for release by written authorization of the
disclosing party;
(iv.) is disclosed pursuant to the requirement of a governmental agency
or operation of law; or
(v.) has been previously and independently developed by the receiving
party.
6. Recipient agrees to return to Owner, upon request by Owner, the Trade
Secrets and Confidential Information of Owner and all materials relating
thereto, disclosed by Owner to Recipient.
7. As used herein, "Trade Secrets" means information, including, but not
limited to, technical or non-technical data, formulas, patterns,
compilations, programs, devices, methods, techniques, drawings, processes,
financial data, financial plans, product plans or a list of actual or
potential customers or suppliers, computer source code and related
documentation, which: (a) derives economic value, actual or potential, for
its Owners, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; and Co) is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy.
"Confidential Information" means information, other than "Trade Secrets",
that is of value to its Owner and is treated as confidential, including,
but not limited to, licensing strategies, advertising campaigns,
information regarding executives and employees, the terms and conditions
of this Agreement, any information designated by Owner as Confidential
Information, and any data or information defined herein as a Trade Secret,
but which is determined by a court of competent jurisdiction not to rise
to be a trade secret under applicable law.
8. Recipient shall use its reasonable efforts to cooperate with Owner in
identifying and preventing unauthorized use, copying, or disclosure of the
Owner's Trade Secrets and Confidential Information.
Page 56 of 59
<PAGE> 57
9. Recipient shall indemnify and hold harmless Owner and its officers and
employees from and against any and all damages losses, liabilities, costs
and expenses (including reasonable legal fees) arising in any way our of
use not in compliance with this Agreement or of any breach of the
confidentiality obligation hereunder by Recipient or its employees.
10. Each party hereto agrees that during the term of this Agreement and for a
period of one (1) year following termination or expiration of this
Agreement for any reason, neither party will solicit for employment,
attempt to employ or affirmatively assist any other person, entity or
enterprise ha employing or soliciting for employment any person employed
or hired by the other part.
11. If any provision or any part of any provision of the Agreement shall not
be valid for any reason, such provision shall be entirely severable from,
and shall have no effect upon, the remainder of this Agreement. Any such
invalid provision shall be subject to partial enforcement to the extent
necessary to protect the interests of the parties.
12. This Agreement shall inure to the benefit of, and be binding upon, any
successor in interest of the parties.
13. The intent of this Agreement is to provide the parties with all remedies
afforded to them under applicable law. Each party acknowledges and agrees
to the other party that monetary damages may be inadequate to compensate
Owner for any breach under this Agreement. Accordingly, Recipient agrees
that Owner will, in addition to any other remedies available to it at law
or equity, be entitled in injunctive relief to enforce the terms of this
Agreement.
14. This Agreement together with Exhibits hereto, if any, constitutes the
entire agreement of the parties with respect to the subject matter hereof,
and supersedes any prior agreements or understandings; whether oral or
written, between the parties with respect to such subject matter. No
amendment or waiver of this Agreement or any provision hereof shall be
effective unless ha a writing signed by both of the parties.
15. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New Mexico, without giving effect
to its conflict of laws.
Page 57 of 59
<PAGE> 58
IN WITNESS WHEREOF, the parties by their duly authorized representatives have
caused this Agreement to be executed as of the date first written above.
MPOWER Solutions Inc. Customer
By: By: [Signature Illegible]
------------------------- ------------------------
(Authorized Signature) (Authorized Signature)
Title: Title: CEO
---------------------- ---------------------
Date: Date: 6/24/98
----------------------- ----------------------
Page 58 of 59
<PAGE> 59
Exhibit 5
MPOWER IDENTIFIED PARTIES FOR NON-DISCLOSURE
In accordance with Section 12 of the Agreement, other references in the
Agreement, and certain other conditions regarding disaster backup and recovery,
Customer may not disclose MPOWER's Confidential Information to direct
competitors of MPOWER, including but not limited to, the companies listed below,
including such companies' parents, subsidiaries and affiliates, and such
parents' subsidiaries and affiliates:
Computer Science Corporation (CSC)
Electronic Data Systems Corporation (EDS)
ERISCO
AMISYS Managed Care In:formation Systems, Inc.
Health Systems Design, Inc. (HSD)
Health Systems Integration, Inc. (HSII)
GTE Health Systems
Resource Information Management Systems (RIMs)
HBO & Co.
TXEN
Perot Systems
IDX
Sunquest
Paragon Systems
Electronic Healthcare Systems
The Medical Manager
Synertek
Page 59 of 59
<PAGE> 1
EXHIBIT 10.19
MASTER AGREEMENT
THIS MASTER AGREEMENT (the "Agreement"), effective 24 Aug., 1998 the "Effective
Date"), between MPOWER SOLUTIONS INC., a Delaware corporation with its principal
place of business located at 6400 S. Fiddler's Green Circle, Suite 540,
Englewood, CO 80111 ("MPOWER") and QUEST DIAGNOSTICS INCORPORATED, a Delaware
corporation with its principal place of business located at One Malcolm Avenue,
Teterboro, NJ 07608 ("Customer") sets forth the promises of the parties with
respect to the products and services of MPOWER which are described in this
Agreement.
WHEREAS, MPOWER is in the business of providing automated managed health care
information software and services to businesses providing managed health care
and insurance services, and desires to provide such services and software to
Customer, subject to the terms hereof; and
WHEREAS, Customer is in the business of providing laboratory services to its
customers, including managed health care providers, and desires to use the
software and services provided by MPOWER, subject to the terms hereof.
NOW THEREFORE, in consideration of the mutual promises made, the terms and
conditions hereunder described and other valuable consideration, the parties
agree as follows:
I. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
A. CPI
"CPI" shall mean the Consumer Price Index for All Urban Consumers, U.S.
City Average, for All Items (1982-1984= 100), as published by the Bureau
of Labor Statistics of the U.S. Department of Labor. If the Bureau of
Labor Statistics ceases to publish or substantially changes the content,
calculation or format of the CPI, the parties will substitute another
comparable index published by a mutually agreeable source; provided,
however, that if the change is merely to redefine the base period to some
other period, the parties will continue to use the affected index but will
convert either the current or prior level of such index to the same basis
as the other by using an appropriate conversion factor.
B. Documentation
"Documentation" shall mean the standard operational instructions, manuals
and
Page 1 of 43
<PAGE> 2
related material regarding MPOWER Products (as defined below) which MPOWER
will deliver to Customer as set out in the Attachments to this Agreement.
C. MPOWER(R) Product(s)
"MPOWER(R) Product(s)" shall mean those product(s) which MPOWER will
deliver to Customer as set out in the Attachments to this Agreement.
D. Release
"Release" shall mean a set of computer programs and/or associated
Documentation regarding an MPOWER Product which MPOWER makes available for
use by its customers who are covered under warranty or a maintenance
agreement regarding such MPOWER Product. MPOWER reserves the right to
charge an additional license fee for any optional modules which MPOWER
reasonably determines contains significant additional functionality. Such
significant additional functionality shall mean (a) new modules or
subsystems that are not a mere enhancement nor extension of existing
functionality, which enhancements and extensions are covered under
maintenance agreements, or (b) different hardware, operating system
platforms or databases. The major modules and/or functionality initially
covered under a given MPOWER Product are listed in an Exhibit to the
applicable Attachment to this Agreement.
E. Site(s)
"Site(s)" shall mean the physical location(s) at which Customer conducts
its business.
F. Live Production Environment
A live production environment ("Live Production Environment') is defined
whereby MPOWER(TM) is managing on-line the enrollment and processing of
subscribers or members, and, at a minimum, one line of business.
G. Plan(s)
A "Plan" (" Plans") shall mean a health benefit in which Customer or a
Plan Sponsor is operating
H. Enrollee
"Enrollee" shall mean an individual who is currently enrolled with a Plan
entitled to receive Covered Services or who has been enrolled in such Plan
at some time during the then-previous twelve (12) months, whether or not
such covered member has presented a valid claim to such Plan.
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<PAGE> 3
I. Covered Services
"Covered Services" shall mean those healthcare or related benefits that an
Enrollee is entitled to receive from a Participating Provider or other
Provider pursuant to the applicable Enrollee Group Benefits Agreement.
J. Participating Provider
"Participating Provider" means Provider that has entered into an Agreement
with Customer or Customer's customer to provide Covered Services to
Enrollees.
K. Group Benefits Agreement
"Group Benefits Agreement" means the document distributed by Plan to its
Enrollees describing all Covered Services in the Plan.
L. Work Order
"Work Order" shall mean a document that is separately executed by both
parties, that (a) describes a scope of services that Customer wishes
MPOWER to perform for Customer, (b) authorizes MPOWER to perform services
for Customer, (c) obligates MPOWER to perform such services and (d)
obligates Customer to pay for such services, all under the terms of that
separate document, and which document, when executed, is incorporated and
made part of this Agreement.
M. Derivative Work
"Derivative Work" shall mean any computer program, application, interface
or related documentation that is based on an M. POWER Product, or any
component part thereof, that is used or intended to be used as a
commercial software product or as a competitive product to MPOWER.
N. Source Code
"Source Code" shall mean the commonly accepted source code of a computer
program describing in a formal language certain logic functions, from
which source code a computer program is compiled or interpreted to perform
certain functions in a computer.
O. Object Code
"Object Code" shall mean the commonly accepted object code of a computer
program, which is that version of the computer program logic that has been
translated from the Source Code into instructions that can be run directly
within a
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<PAGE> 4
computer in a predefined operating system environment.
P. Plan Sponsor
"Plan Sponsor" shall mean the health plan, organization or legal person
that offers a Plan either directly or through another organization or
legal entity to Enrollees.
Q. Provider
"Provider" shall mean a medical services provider, clinic, laboratory or
other institution or facility that customarily provides Covered Services
or other medical, surgical, laboratory, radiology, therapies, alternative
medical services or any other commonly accepted services of a medical or
medically related nature, whether licensed or unlicensed, to Enrollees of
Customer or Customer's customers.
R. Claim Transaction
"Claim Transaction" shall mean a medical, surgical, laboratory, radiology,
therapy or other service claim or encounter, whether for a Covered Service
or any other service or product, submitted to Customer by a Provider
detailing services or products provided by such Provider to an Enrollee.
S. Encounter File
"Encounter File" shall mean the codified output of one or more of the
aforementioned services performed by such Provider to an Enrollee,
resulting in claim transaction(s) to be processed.
T. "Life" ("Lives")
"Life" ("Lives") shall mean an Enrollee.
U. End User
"End User" shall mean all such authorized individuals deemed by Customer
to require access to the then current release of MPOWER Product in Object
Code form, based upon conformance to the terms and conditions set forth in
Paragraph II (Confidential and Proprietary Information) of this Agreement.
V. Customer
"Customer" means Quest Diagnostics Incorporated, its wholly owned
subsidiaries
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<PAGE> 5
and affiliates, and any other entity in which Quest Diagnostics
Incorporated's ownership interest is no less than 45% of that entity.
II. CONFIDENTIAL AND PROPRIETARY INFORMATION
MPOWER, on behalf of itself, its employees, agents, vendors, successors,
and assigns, agrees to keep in confidence all data relating to Customer's
business to which MPOWER may have access as a result of performing its
obligations under this Agreement and the terms of this Agreement.
MPOWER asserts and Customer acknowledges that all MPOWER Products, the
Documentation and the Releases, and all information, data, designs, MPOWER
Product structure definitions of any system setups, benefit plans,
provider contracts, fee groups, adhoc reports, letter formats, sample
letter content, business process workflow diagrams, and any other
structural templates and other similar information provided by, developed
or reviewed by or in conjunction with MPOWER, and used by MPOWER in
assisting Customer in the installation, implementation or on-going use of
the MPOWER Product, and methodologies related thereto ("Proprietary
Information") are the exclusive property of MPOWER or MPOWER's suppliers
and that the Proprietary Information is confidential, has tangible value
and includes trade secret information of MPOWER and/or MPOWER's suppliers.
MPOWER and/or MPOWER's suppliers shall retain all rights to the
Proprietary Information, including all copyright rights therein, except to
the extent to which MPOWER grants rights to Customer to use the
Proprietary Information pursuant to this Agreement. Customer may not
create Derivative Works based upon the Proprietary Information in whole or
in part. All improvements, enhancements and modifications to the
Proprietary Information shall be owned exclusively by MPOWER or MPOWER's
suppliers. Without MPOWER's prior written consent, Customer shall not
decompile, disassemble or reverse engineer any Proprietary Information.
Customer agrees not to sell, lease, assign or otherwise transfer, disclose
or make available, in whole or in part, any portion of the Proprietary
Information or the terms of this Agreement and Customer shall prevent
disclosure of any pan of the Proprietary Information or the terms of this
Agreement to any third party for any reason (except for disclosure or
access to Customer's employees, contracted entities, or Customer's
customers which is necessary for Customer to be able to use the
Proprietary Information in accordance with this Agreement). Customer
agrees to notify those employees, contracted entities or customers to whom
Customer gives access to the Proprietary Information of the restrictions
contained in this Section II and to ensure their compliance with such
restrictions.
The duties and obligations which are included in this Section II shall
survive any
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<PAGE> 6
termination of this Agreement and/or Customer's right and license to use
any MPOWER Product.
If Customer desires to disclose any Proprietary Information to any third
party or to permit any third party to have access to any Proprietary
Information, such third party must have a legitimate need to have access
to such Proprietary Information (consistent with the purpose[s] for which
such disclosure was made to Customer) and, prior to any such disclosure or
access, Customer and such third party must enter into a nondisclosure
agreement with MPOWER in substantially the form set out in the Addendum
which is attached to this Master Agreement and made a part hereof. In no
event shall Customer disclose any Proprietary Information to any
competitor of MPOWER.
Customer and MPOWER specifically acknowledge that specific provider and
benefit contract rates, the names, demographic information, contractual
relationships, and medical information of any group, member, provider or
other entity with a contractual relationship with Customer shall be
considered Proprietary Information of Customer or of such other entity
contracted with Customer, unless such information is available through
public sources or through publicly available filings with any insurance or
health care regulatory agency or with any industry accreditation or
reporting body.
Further notwithstanding the above, Customer and MPOWER acknowledge that
Customer may create and distribute reports and data from its licensed use
of the MPOWER Products in the normal course of its business to its
customers, to health care providers, Enrollees, employers or Plan
Sponsors, government agencies and others with a legitimate purpose in the
conduct of the Customer's business and the data processed by the licensed
MPOWER Products, and that such reports and distributed data do not
constitute Derivative Works, unless they are used to create commercial
software products for reuse and / or license to other parties.
Customer and MPOWER agree that MPOWER has no rights in the data that is
input by Customer or its agents in the use of the MPOWER Products, and
agree that all of such data, and any subsequent information developed from
such data by Customer in its use of the MPOWER Products is confidential
information solely for the use of Customer. MPOWER shall not use the data
and subsequent information developed by Customer in any manner, and it is
agreed that such data and information is Proprietary Information of
Customer.
III. COPYING
Customer, for each licensed instance of the MPOWER Product being used in a
Live Production Environment, may make one (I) copy of each MPOWER Product
in machine-readable form in a test region for the purpose of testing new
releases or
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<PAGE> 7
fixes and also one (1) copy of each MPOWER Product in machine-readable
form for backup purposes only. Customer agrees that upon copying any
MPOWER Product, Customer shall place a label on the outside of each copy
medium showing the program name, version number and any/all copyright and
proprietary notices in the same form as contained on the original copy.
In addition, Customer may make automated backup copies of its production
and testing regions for operational backup purposes without applying the
above labels, provided that such operational backup copies are maintained
with the acceptable industry standard security measures and not made
available to outside parties except for the case of disaster recovery
purposes, in which case the disaster recovery agent will be bound to all
the confidentiality and Proprietary Information restrictions to which
Customer is bound hereunder, and further that no such disaster recovery
agent may be a competitor of MPOWER.
IV. SOURCE CODE ESCROW
At the request of Customer, MPOWER and Customer will enter into an
agreement with MPOWER's escrow agent ("Custodian") for the depositing of
the MPOWER Products' Source Code ("Source Code Copy"). [The current
Custodian is NORWEST Bank.] MPOWER shall notify Customer at least ten (10)
business days prior to a change in the entity identified as the Custodian.
Subject to Customer's payment of all fees due under this Agreement in
accordance with the applicable payment terms and Customer's payment of all
fees related to' Custodian's administration of said escrow (the current
rate as of the date of this Agreement being One Thousand Five Hundred
($1,500.00) Dollars per annum), the Source Code Copy so deposited will be
maintained during the period Customer shall use and purchase, and MPOWER
shall provide, software maintenance services for the particular MPOWER
Product. The Source Code Copy will be updated by MPOWER within thirty (30)
days after each new Release of the particular MPOWER Product.
The parties agree that the Source Code Copy shall be held by the Custodian
for delivery to Customer under the conditions that this Agreement is
terminated as a result of a material breach of the terms of this Agreement
by MPOWER or MPOWER riles for bankruptcy under Chapter 7, and its business
is not continued by virtue of a merger, consolidation, the sale of all or
substantially all of its assets, or through some other transaction by
another fiscally sound and technically qualified corporation or entity,
and the Custodian of the Source Code has received from Customer or from
MPOWER, or from a court of competent jurisdiction: (i) written
notification of any such event or condition; (ii) demand that a copy of
the Source Code Copy be mailed to Customer; (iii) written undertaking from
Customer, which shall be legally binding, that the copy 'of the Source
Code Copy to be supplied to Customer will be used only for Customer's
maintenance of the
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<PAGE> 8
MPOWER Products at a specified location and will be promptly returned to
the Custodian at the expiration of the period during which Customer, under
its agreement with MPOWER, has the right to use the MPOWER Products, and
that the copy of the Source Code and the information and material
contained therein shall be held confidentially by Customer, its employees
and agents who are involved in the use and technical maintenance of the
MPOWER Products, and shall not, under any circumstances, be disclosed or
made available to any other person or entity; and (iv) specific
instructions from Customer for the delivery of a copy of the Source Code
Copy, with a copy of such instructions to MPOWER. Customer will pay the
costs and expenses of the Custodian in carrying out the requirements of
this Section.
In addition, if Customer uses the MPOWER Product Source Code, it will only
be for the purposes for which the Object Code is licensed under this
Agreement and not for re-license, reverse engineering or to create a
derivative product. The Confidential and Proprietary Information
provisions of Section II apply also to the Source Code.
V. TERMINATION
Should Customer fail to pay any sum due and payable under this Agreement,
MPOWER shall notify Customer in writing of such failure to pay. Customer
shall then have thirty (30) days from the delivery of MPOWER's written
notice to pay such amount(s). The foregoing sentence in no way relieves
Customer from its obligation to pay any and all late charges which may
become due as set forth in Section VI below. If payment is not made within
such thirty (30) days, MPOWER shall have the immediate right to
discontinue any and all services under this Agreement. Furthermore, if
payment is not made within sixty (60) days from the delivery of MPOWER's
written notice, MPOWER shall have the immediate right to terminate this
Agreement, except that the License granted hereunder shall not be
terminated unless the sum due and unpaid is specifically for the License
granted hereunder.
Should either party commit a material breach of its obligations under this
Agreement, other than failing to pay money, the non-breaching party may
notify the breaching party in writing, setting out the breach, and the
breaching party shall have thirty (30) days to remedy such breach. If the
breaching party fails to remedy the breach during this thirty (30)-day
period, or, with respect to those breaches which cannot reasonably be
remedied within thirty (30) days, if the breaching party fails to proceed
promptly after being given such notice to commence remedying the breach
and thereafter to diligently proceed to remedy the same, the other party
shall have the right to terminate this Agreement, provided such party
gives the breaching party ten (10) days' prior written notice to that
effect. Notwithstanding the foregoing, either party shall have the right
to
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<PAGE> 9
immediately terminate this Agreement upon any breach by the other of its
obligations under Section II above.
Termination of this Agreement shall be without prejudice to all accrued
rights and remedies either party may have and shall not affect any
continuing rights and obligations of the parties under this Agreement.
Upon the termination of this Agreement and/or any Attachment to this
Agreement, Customer shall return to MPOWER all Proprietary Information
regarding the MPOWER Product whose license is being terminated, within
thirty (30) days after such termination and MPOWER shall return to
Customer any proprietary information obtained in the performance of this
Agreement within thirty (30) days after such termination.
Notwithstanding anything to the contrary herein, the License granted
hereunder shall not be terminated due to any breaches that relate to
Software Maintenance services; Implementation services; Training services;
Conversion services and/or Other services as identified in this Agreement
or the Attachments hereto. In the instances of such breaches MPOWER'S
termination remedies shall be limited to termination of this Agreement as
it applies to such services.
VI. INVOICES AND CHARGES
Unless a specific payment date is set out in an Attachment to this
Agreement, Customer agrees to remit all payments under this Agreement so
that MPOWER shall receive such payments no later than thirty (30) days
from the date of Customer's receipt of MPOWER's invoice. Customer also
agrees that MPOWER shall have the right to charge interest of one percent
(1.0%) of the outstanding balance per month, and Customer agrees to pay
such charges if assessed. All prices mentioned in this Agreement are in
U.S. Dollars. The parties agree that the prices set out in this Agreement
do not include any sales, use or gross receipts taxes, any duties, any
similar assessments, or any other tax imposed on any party by virtue of
this Agreement, all of which, excluding only taxes based on MPOWER's
income, shall be the sole liability of, and shall be paid solely by,
Customer.
VII. FORCE MAJEURE
Neither party shall be liable to the other for failing to fulfill any
obligation under this Agreement if such failure is caused by an event
which is beyond such party's reasonable control and which is not caused by
such party's fault or negligence, including without limitation, acts of
God, acts of war, fires, strikes, lightning, floods, epidemics, civil
unrest, power shortages, a third party's equipment failure,
Page 9 of 43
<PAGE> 10
delays in transportation, or either party's inability to obtain necessary
labor, material or components due to causes beyond such party's reasonable
control.
VIII. CUSTOMER RESPONSIBILITIES
A. Customer Responsibilities
Customer acknowledges that MPOWER(R) reflects certain interdependent
relationships, such as exist among the data variables, logic rules and
system functions of MPOWER(R). Customer further acknowledges that it is
required and has a responsibility to understand such data variables, logic
rules and system functions, and their interdependent relationships, and to
define for its own purposes such data variables, logic rules and system
functions to MPOWER(R) in such a way that MPOWER(R) will provide the
functionality desired by Customer. Customer acknowledges that it has or
will hire and will maintain on its staff personnel who are able to
understand and define such data variables, logic rules, system functions
and interdependent relationships. Customer further acknowledges that, even
though MPOWER may assist Customer personnel in performing these tasks, the
responsibility for the effective definition and maintenance of these data
variables, logic rules and system functions resides with Customer and not
with MPOWER, unless Customer specifically requests MPOWER to perform these
tasks at agreed upon rates specified in a Work Order.
B. Customer Data
Customer shall be responsible for inputting and ensuring the accuracy,
validity and completeness of all data variables, logic rules, system
functions and Customer data, including but not limited to group,
subscriber, member, provider, utilization, encounter, claims, capitation,
fund accounting, billing, collection, broker, benefits, product contract,
provider contract, provider fees, standard business measures, and other
similar or related data. Customer shall also be responsible for inputting
and ensuring, the accuracy, validity and completeness of all user-defined
report definitions, all report and batch production job specifications and
priority scheduling criteria. Customer shall also be responsible for
initiating, monitoring, operating, printing and ensuring the accuracy,
validity, and completeness of all print outputs and file downloads, such
as but not limited to all reports, premium bills, checks, and the like,
determining how many and on what print stock such outputs are to be
printed or into which files or programs on Customer-controlled computers
such files are to be downloaded and manipulated, at Customer's own
initiative, responsibility and risk. Customer hereby acknowledges
responsibility for generally controlling all aspects related to the
production, distribution and control of such outputs. Customer further
acknowledges that, notwithstanding the responsibility of MPOWER to have
used
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<PAGE> 11
due care and diligence in the design, programming, documentation and
operation of the System, the accuracy of Customer's data base within
MPOWER(R) and the accuracy of the several outputs of the MPOWER(R),
including but not limited to, outputs that control the billing, receipt or
expenditure of monies, will be dependent on the accuracy and use of the
data variables, logic rules, system functions and Customer data input into
MPOWER(R) by Customer and verified by Customer.
C. Other Customer Obligations
In addition to its other obligations hereunder, Customer will on a timely
basis:
1. Establish appropriate priorities for Customer, on a regular
basis and no less frequently than every ninety (90) days, that
relate to MPOWER(R) and communicate the same to MPOWER.
Customer recognizes that changes in such priorities may result
in additional fees hereunder for additional staff, as
incremental support, or reordering of other priorities to
provide MPOWER services within the current fee structure.
2. Cooperate with MPOWER by, among other things, making
available, as reasonably requested by MPOWER, management
decisions, information, approvals, and acceptances in order
that MPOWER may properly accomplish its obligations and
responsibilities hereunder.
3. Carefully inspect and review all MPOWER generated reports and
other output and notify MPOWER of any incorrect reports or
output.
4. Personalize, maintain, reproduce and distribute (solely for
Customer's internal use) procedure manuals and documentation
used by Customer personnel in connection with the MPOWER
services hereunder.
5. Train applicable Customer personnel to properly prepare input
for and to effectively utilize output from the systems
operated by MPOWER hereunder.
6. Pay all costs of acquisition, installation, use and
maintenance of equipment at Customer's site, as required for
the performance of MPOWER services.
7. Such other responsibilities as set forth herein.
Customer agrees that to the extent its failure to meet its obligations set
forth in this Section VIII C affects the ability of MPOWER to perform
MPOWER's obligations under this Agreement, MPOWER shall be relieved of
such
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<PAGE> 12
obligations, and Customer shall indemnify MPOWER against any claims or
liabilities arising, out of such failure by Customer, subject to the
liability limitations set forth elsewhere herein.
D. Reprocessing or Reconstructing of Data
During any period of use of MPOWER(R), to the extent that any Customer
data must be corrected, recreated, restored or reprocessed due to the
fault or negligence of Customer, its employees or agents, or by a breach
by Customer of any of its obligations hereunder, MPOWER will do so, and in
such event Customer shall pay MPOWER at the service fee rates outlined in
an applicable Work Order and reimburse MPOWER for any reasonable direct
costs incurred by MPOWER in correcting, recreating, restoring or
reprocessing such data or in providing assistance therewith.
IX. LIMITATION OF LIABILITY
CUSTOMER AGREES THAT MPOWER SHALL HAVE NO LIABILITY TO CUSTOMER FOR
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF MPOWER IS ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR LOSS OF USE OR OTHER COMMERCIAL
LOSS (INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUES AND/OR PROFITS),
HOWEVER OCCASIONED AND WHATEVER THE FORM OF ACTION, FOR ACTUAL OR IMPUTED
NEGLIGENCE, BREACH OF CONTRACT, BREACH OF WARRANTY OR OTHERWISE.
FURTHERMORE, CUSTOMER AGREES THAT IN NO EVENT SHALL MPOWER BE LIABLE FOR
DIRECT DAMAGES IN EXCESS OF ALL FEES CUSTOMER SHALL HAVE PAID MPOWER UNDER
THIS AGREEMENT.
The parties agree that no action, regardless of form, which may arise out
of the transactions under this Agreement may be brought by either party
more than two (2) years after the cause of action is known, or ought
reasonably to have been known, to the party bringing the action.
MPOWER AGREES THAT CUSTOMER SHALL HAVE NO LIABILITY TO MPOWER FOR
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF CUSTOMER IS ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR LOSS OF USE OR OTHER COMMERCIAL
LOSS (INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUES AND/OR PROFITS),
HOWEVER OCCASIONED AND WHATEVER THE FORM OF ACTION, FOR ACTUAL OR IMPUTED
NEGLIGENCE, BREACH OF CONTRACT, BREACH OF WARRANTY OR OTHERWISE.
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<PAGE> 13
X. INFRINGEMENT
MPOWER agrees to defend, indemnify and hold Customer harmless against any
and all claims that any MPOWER Product infringes a U. S. Letter Patent,
copyright, trade secret or the proprietary fights of others, provided that
MPOWER, shall have received timely written notice of any such claim and
that MPOWER shall have sole control of the defense of such claim and all
negotiations for the settlement or compromise of such claim.
As of the date first written above, MPOWER warrants that it is not aware
of any infringement, and has not been notified by any third party that it
may be infringing, any U.S. Letter Patent, copyright, trade secret or the
proprietary fights of others.
If use of an MPOWER Product by Customer is enjoined, or becomes, or, in
MPOWER's sole opinion, is likely to become, the subject of a claim of
infringement, MPOWER will, at its option and expense, either:
1. procure for Customer the right to continue using the MPOWER Product
in question; or
2. replace or modify the same so that it is functionally equivalent
[i.e. the MPOWER Product will achieve the same or similar business
logic result] (or contains more functionality) and is
non-infringing.
Notwithstanding the foregoing, if MPOWER determines that neither of the
alternatives set forth above is reasonably available, MPOWER will refund
to Customer any unamortized portion of the infringing MPOWER Product's
license fee which has then been paid by Customer. Amortization shall be
based upon a seven (7)-year life of the infringing MPOWER Product,
beginning on the date the infringing MPOWER Product was licensed by
Customer from MPOWER. Should such refund occur, Customer agrees to return
the infringing MPOWER Product to MPOWER.
Should any refund described above occur, the license for the infringing
MPOWER Product shall be terminated and MPOWER, its affiliates,
subsidiaries, assigns and successor corporations shall be released from
any and all liability arising from any and all claims, losses,
liabilities, damages, costs or deficiencies which are then-existing or
which may arise in the future with regard to such infringing MPOWER
Product(s) for which MPOWER has refunded fees pursuant to this Section X.
Notwithstanding anything contained herein to the contrary, MPOWER shall
have no liability for any loss, cost, claim or expense caused by:
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<PAGE> 14
1. alteration of any MPOWER Product provided hereunder by any party
other than MPOWER;
2. any loss, expense or liability resulting from any infringement which
is a consequence of MPOWER's compliance with designs or code
submitted to MPOWER by Customer;
3. the use of any MPOWER Product in combination with products not
licensed to customer by MPOWER;
4. continuation of the allegedly infringing activity by Customer after
Customer is notified in writing thereof and after the conclusion of
a reasonable grace period afforded Customer in the notice to migrate
from the infringing activity to an alternate solution; or
5. Customer's use of an MPOWER Product other than in compliance with
the terms and conditions of this Agreement.
Notwithstanding the foregoing, MPOWER shall not be obligated to defend,
indemnify or hold Customer harmless from and against any claim, suit
proceeding or allegation asserted by a parent, subsidiary or affiliate of
Customer.
The foregoing remedy set forth in this Section X represents the exclusive
remedy of Customer and MPOWER's sole liability with regard to any claim
that an MPOWER Product infringes the rights of others.
XI. RESOLUTION OF DISPUTES
If any dispute shall arise between the parties under this Agreement, the
parties shall make every effort to amicably resolve the dispute by
providing written notice of the dispute, setting forth the nature of the
dispute in sufficient detail for the other party to evaluate the matter
and respond to the claims of the other party. The other party will provide
a written response in reasonable detail (to the extent allowable based on
the sufficiency of details provided by the notifying party), within a
reasonable time, but no greater than 30 business days after receipt of
such notice, to the allegations of the notifying party. If the parties are
unable to resolve the dispute within 30 business days of the receiving
party's response to the notifying party, then the parties may seek to
invoke the arbitration provision set forth below.
If the matter has not been resolved pursuant to the aforesaid dispute
resolution procedures (which may be extended by mutual agreement) the
controversy shall be settled by arbitration in accordance with the
American Arbitration Association.
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<PAGE> 15
(the "Association) under the Commercial Arbitration Rules of the
Association then in effect, by an arbitrator knowledgeable in the computer
area. The arbitrator shall be selected by mutual agreement of MPOWER and
Customer. If MPOWER and Customer can not agree upon an arbitrator, an
arbitrator shall be appointed by the Court with jurisdiction over the
dispute. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award by the
arbitrator may be entered by any court having jurisdiction thereof. The
place of arbitration shall be in Bergen County, New Jersey. Each party
shall pay its own costs and expenses.
XII. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective successors and (to the extent specified in
any assignments) assigns. Customer shall not assign or otherwise transfer
this Agreement without the prior written consent of MPOWER. Customer,
however, may assign this Agreement to any subsidiary or affiliate of
Customer in which Customer owns an equity position of 51% or more, or to
any successor company to Customer in the event that Customer conveys
substantially all of its assets (or stock) to, or merges with, another
Company, by giving notice to MPOWER within 30 days of any such conveyance.
XIII. OMNIBUS RECONCILIATION ACT COMPLIANCE
As applicable under the Omnibus Reconciliation Act of 1980, until the
expiration of four (4) years after the furnishing of services under this
Agreement, MPOWER shall, upon receipt of written request, and if then
required to make such information available under the then-existing law,
make available to the Secretary of the United States Department of Health
and Human Services ("Secretary"), the Comptroller General, or any of their
duly authorized representatives, this Agreement, books, documents, and/or
records of MPOWER that are necessary to certify the nature and extent of
products and services delivered under this Agreement and costs associated
therewith. Furthermore, if MPOWER carries out any of the duties of this
Agreement through a subcontract with a value or cost of Ten Thousand
Dollars ($10,000.00) or more over a twelve (12)-month period, such
subcontract will contain a clause to the effect that, until the expiration
of four (4) years after the furnishing of such services under such
subcontract, the subcontractor shall, upon receipt of written request and
if then required to make such information available under the
then-existing law, make available to the Secretary, Comptroller General,
or any of their duly authorized representatives, the subcontract, books,
documents, and/or records of such subcontractor that are necessary to
verify the nature and extent of such costs.
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<PAGE> 16
XIV. RELATIONSHIP MANAGEMENT
A. Meetings. MPOWER and Customer agree to discuss business and
relationship strategies affecting both parties, as is required to
effectively manage the relationship between the parties. MPOWER and
Customer further agree to have regularly scheduled communications to
summarize current activities, performance results, error corrections
and work efforts, as well as the future planned activities.
B. Release Discussions. MPOWER agrees to discuss with Customer its
planned future Releases and share with Customer at least sixty (60)
to ninety (90) days in advance of a projected future Release its
then current Release priorities, release notes and expectations
regarding new or expanded functionality to be included in such
future Release.
C. Liaison. During the term of this Agreement, each party will provide
a liaison who (i) will have overall management responsibility for
the performance by the party hereunder, (ii) will have primary
operational responsibility, and (iii) will serve as the party's
primary liaison with the other party with respect to performance
under this Agreement.
XV. MISCELLANEOUS
A. Invalidity. If any of the provisions, or portions thereof, of this
Agreement are deemed to be invalid under any applicable statute or
rule of law, they are to that extent to be deemed omitted, and the
parties agree to negotiate in good faith to bring such provisions,
or portions thereof, into compliance.
B. Headings. The headings of Sections in this Agreement and in the
Attachments are included for convenience only and shall not be
considered by either parry in construing the meaning of this
Agreement or any Attachment.
C. Notices. Any notice given under this Agreement shall be in writing,
sent by Certified Mail, Return Receipt Requested or overnight
courier such as FedEx or equivalent, and shall be deemed to be
delivered upon receipt by the receiving party.
All notices remitted to MPOWER shall be remitted to the attention
of: Chief Executive Officer. All notices remitted to Customer shall
be remitted to the attention of Vice President, General Manager of
Quest Informatics, with a cc: Deputy General Counsel.
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<PAGE> 17
D. Waiver. Neither party shall be deemed to have waived any term or
provision of this Agreement, nor consented to any breach of this
Agreement, unless such party shall waive such term or provision, or
shall consent to such breach, in writing. Any such written waiver
and/or consent must be signed by the party which is waiving such
term or provision or is consenting to a breach. Either party's
consenting to a waiver, or a breach, by the other, whether express
or implied, shall not constitute consent or waiver of any other
different or subsequent breach by the other.
E. Governing Law. This Agreement and all Attachments hereto shall be
governed by and construed according to the laws of the State of New
Jersey.
The parties have each read this Agreement and agree to be bound by all of its
provisions, and further agree that it constitutes the complete and exclusive
statement of the agreement between them with regard to the subject matter
referenced herein, and supersedes any and all prior agreements and
understandings between them pertaining to the subject matter of this Agreement
and takes precedence over the provisions of any purchase orders submitted to
MPOWER by Customer. This Agreement may be amended only in writing signed by
authorized representatives of both of the parties.
QUEST DIAGNOSTICS INCORPORATED MPOWER SOLUTIONS INC.
("CUSTOMER") ("MPOWER")
GERALD C. MARRONE MARK S. RENGELL
- -------------------------------- -----------------------------------
SIGNATURE SIGNATURE
GERALD C. MARRONE MARK S. RENGELL
- -------------------------------- -----------------------------------
NAME PRINTED NAME PRINTED
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
- -------------------------------- -----------------------------------
TITLE TITLE
Page 17 of 43
<PAGE> 18
ADDENDUM TO MASTER AGREEMENT
NONDISCLOSURE AGREEMENT FOR PROPRIETARY INFORMATION
In consideration of _____________________________________ ("Customer")
disclosing certain confidential and proprietary information relating to the
MPOWER(R) Managed Care Information System (and / or other MPOWER Product
involved) and information, data, designs, documentation and methodologies
related thereto (collectively, "Proprietary Information") to __________________,
located at _____________________________________,("Third Party") for the sole
purpose of allowing Third Party to facilitate Customer's use of the Proprietary
Information, Third Party agrees to the following:
Third Party acknowledges that the Proprietary Information is the exclusive
property of MPOWER SOLUTIONS INC., a Delaware corporation, located at 6400 S.
Fiddler's Green Circle, Suite 540, Englewood, CO 80111("MPOWER") and that such
Proprietary Information is confidential, has tangible value and includes trade
secret information of MPOWER. MPOWER shall retain all rights to the Proprietary
Information, including all copyright rights therein, except to the extent to
which Third Party is allowed to use the Proprietary Information pursuant to this
Nondisclosure Agreement. All improvements, enhancements and modifications to the
Proprietary Information shall be owned exclusively by MPOWER.
Third Party agrees not to sell, lease, assign or otherwise transfer, disclose or
make available, in whole or in part, any portion of the Proprietary Information
and Third Party shall prevent disclosure of any part of the Proprietary
Information to any other third party for any reason (except for disclosure or
access to Third Party's and Customer's employees which is necessary for Third
Party to be able to use the Proprietary Information in accordance with this
Nondisclosure Agreement). Third Party agrees to notify its employees to whom
Third Party gives access to the Proprietary Information of the restrictions
contained in this Nondisclosure Agreement and to ensure their compliance with
such restrictions.
Third Party agrees to return all Proprietary Information promptly to Customer or
MPOWER upon the earlier of (i) MPOWER's or Customer's request or (ii) completion
of Third Party's assignment for Customer. Third Party agrees that it shall not
use, and it shall not permit the use of, the Proprietary Information for any
purpose other than as expressly authorized in this Nondisclosure Agreement.
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<PAGE> 19
This Nondisclosure Agreement shall be governed by the laws of the State of New
Jersey. If any provision of this Nondisclosure Agreement is invalid under any
applicable statute, it is to be deemed omitted. If any action is instituted to
enforce or interpret the terms of this Nondisclosure Agreement, the prevailing
party shall be entitled to reasonable attorney's fees and expenses in addition
to any other entitled relief. This Nondisclosure Agreement shall be effective as
of the date the Proprietary Information is first disclosed to Third Party.
- --------------------------------------
("Third Party")
- --------------------------------------
Signature of Authorized Signatory
- --------------------------------------
Name Printed
- --------------------------------------
Title
- --------------------------------------
Date
In consideration of MPOWER's approval of the disclosure of Proprietary
Information to Third Party, Customer agrees to use its best efforts to ensure
the adherence by Third Party of all the terms of this Nondisclosure Agreement,
and shall support MPOWER in pursuing its remedies in the event of any breach by
Third Party of this Nondisclosure Agreement.
- --------------------------------------
Customer
- --------------------------------------
Signature of Authorized Signatory
- --------------------------------------
Name Printed
- --------------------------------------
Title
- --------------------------------------
Date
Page 19 of 43
<PAGE> 20
ATTACHMENT 1
I. DEFINITIONS
Except as set forth in this Section I of this Attachment, all capitalized
terms used in this Attachment shall have the same meaning as set forth in
the Master Agreement.
A. Master Agreement
"Master Agreement" shall mean the agreement to which this Attachment 1 is
attached.
B. Agreement
"Agreement" shall mean the Master Agreement and all Addenda, Exhibits and
Attachments thereto.
C. MPOWER(R)
"MPOWER(R)" shall mean the software product marketed by MPOWER which is
being licensed by Customer under this Attachment and the Master Agreement.
The high level modules that are included in' MPOWER(R) as of the date of
this Attachment are listed in Exhibit F hereto.
II. GRANT OF LICENSE
In consideration of Customer's paying the Initial License Fee (as
hereinafter defined) MPOWER grants Customer a non-exclusive,
nontransferable (except as allowed in Section XI of the Master Agreement)
and perpetual license to operate an Object Code instance version of
MPOWER(TM) on a Windows NT platform for a Live Production Environment for
claims processing of encounter files up to an aggregate of [*] per
month ("Initial License"), with additional volume of up to [*]% due to
reprocessing of denials, associated with the first client of Customer's
laboratory network business initiative. The License granted hereunder is
an enterprise wide License, subject to the claims processing volume
adjustments referenced herein, which will allow Customer to operate MPOWER
on as many platforms, and at as many of Customer's sites as Customer deems
necessary to service its needs.
Customer may extend the license for such single, Object Code instance of
MPOWER(R) ("License Extension(s)") for additional encounter file
transaction processing per month by paying MPOWER the fees for such
additional transactions per month defined in Section VIII below, and
abiding by the terms
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<PAGE> 21
therein stipulated, and by providing the number of such additional
encounter file transactions per month in writing to MPOWER within sixty
(60) days of Customer's determination that the monthly encounter file
transaction per month exceeds the total of [*] referenced above.
Customer may copy MPOWER(R) and/or the Documentation as allowed under
Section III of the Master Agreement. Furthermore, Customer may copy the
Documentation in order to supply a copy of the Documentation to each End
User of MPOWER at each Site. Customer agrees that any and all copies of
MPOWER and/or the Documentation made by Customer shall include any/all
copyright and proprietary notices in the same form as contained on the
original copy. Except as allowed in Section III of the Master Agreement
and this paragraph, Customer may not otherwise make copies of MPOWER(R) or
the Documentation or any part thereof without the prior written consent of
MPOWER. Customer agrees there shall be no other use of MPOWER(R) or the
Documentation without the prior written consent of MPOWER except as
allowed in Section II of the Master Agreement.
In order to ensure that MPOWER(R) is being used in conformity with the
license being granted under this Attachment, MPOWER shall have the right
to conduct audits (either on-site or remotely, at MPOWER's option) of
Customer's use of MPOWER(R) at periodic intervals, no more frequently than
semi-annually. MPOWER agrees that any such on-site audit shall be
scheduled in advance and at a time so as not to unduly interfere with
Customer's business operations. Customer agrees that any audit revealing
unauthorized use of MPOWER(R) will result in Customer's being liable for
the payment of additional fees to MPOWER equal to MPOWER's fees as stated
in Section VIII A of this Attachment.
III. DELIVERY AND MEDIA
Promptly after the full execution of this Attachment, MPOWER will deliver
to Customer:
A. one (1) copy of the then-current Release of MPOWER(R) in Object Code
form; and
B. one (1) set of the then-current version of the Documentation in
electronic form in conformance with the hardware and software
requirements identified in Exhibit H.
MPOWER and Customer agree that time is of the essence in performance of
this Agreement, and the following Milestones constitute material
performance dates under this Agreement:
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<PAGE> 22
1. [*] after signing of the Agreement, the ,Implementation Workplan
Schedule (Exhibit K) will be completed.
2. No later than [*] the MPOWER Products provided hereunder will be ready
to test for operational performance with sample transactions as specified
in lines 347 through 355 of Exhibit K.
3. The MPOWER Products provided hereunder will be capable of full on-line
business operation no later than [*].
IV. WARRANTY
A. General Terms
M-POWER represents and warrants to Customer that MPOWER(R) will function
in accordance with the Documentation in all ways which materially affect
the performance of MPOWER(R) Products. Tiffs warranty is contingent upon
Customer's using: 1) certain prerequisite hardware and software, a list of
which has been provided to Customer by MPOWER (Exhibit H) for the Windows
NT Release; and 2) the most recent Release of MPOWER(R), provided such
Release has been available for Customer's use for thirty (30) days, or
more. If Customer wishes to use certain third party software that is
similar to but not the MPOWER defined "prerequisite software" to perform
the functions required by such "prerequisite software", MPOWER and
Customer agree to negotiate in good faith under an appropriate Work Order
for MPOWER to certify whether such third party software will qualify as
"prerequisite software" which is a contingency to the warranties herein.
MPOWER further represents and warrants that MPOWER owns the MPOWER
Products, that it has the right to grant the licenses granted hereunder
without violating the rights of any third parties, and that the licenses
are free and clear of all liens and encumbrances, other than security
interests related to financial instruments between MPOWER and lending
institutions.
B. Year 2000 Compliance
MPOWER represents and warrants that the MPOWER Product(s) subject to the
Agreement shall be Year 2000 Compliant. Year 2000 Compliant means that
performance and functionality is not affected by dates prior to, during,
and after January 1, 2000. Specifically: no value for current dates will
cause any interruption in operation; date-based functionality must behave
consistently for dates prior to, during and after January 1, 2000; in all
interfaces and data storage, the century in any date should be specified
explicitly (CCYY); the Year 2000
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<PAGE> 23
must be recognized as a leap year.
In the event the MPOWER Product(s) require(s) modification to prevent
MPOWER from being in breach of the foregoing warranty, MPOWER represents
and warrants to Quest Diagnostics that it will immediately assign Senior
engineering staff to work continuously until such software program is
returned to the same level of functionality as warranted herein at no
charge to Quest Diagnostics, time being of the essence.
In the event MPOWER breaches the foregoing warranty, MPOWER shall defend,
indemnify and hold harmless (including reasonable attorney's fees) Quest
Diagnostics, its employees, officers, and directors against all costs,
expenses, and liability arising from or in connection with such breach,
however such indemnification is limited to the sum equal to two (2) times
the sum of all payments made to MPOWER under this agreement.
MPOWER shall also provide Quest Diagnostics, free of charge, with any new
versions, upgrades, etc. of all software which prevents or corrects a
breach of warranty.
The obligations of this section shall survive the termination of the
Agreement.
MPOWER hereby grants to Quest Diagnostics a limited use source code
license for MPOWER Products to be used by Quest Diagnostics or a third
party vendor for the sole purpose of testing for Year 2000 compliance.
The foregoing is Customer's sole and exclusive remedy for breach of
warranty. The warranty set forth above is made to and for Customer's
benefit only. The warranty will apply only if no modification, alteration
or addition has been made to MPOWER(R) by persons other than MPOWER or
MPOWER's authorized representative.
THE WARRANTY SET FORTH IN THIS SECTION IV CONSTITUTES THE ONLY WARRANTY
PROVIDED BY MPOWER REGARDING MPOWER AND SUCH WARRANTY IS IN LIEU OF ALL
OTHER WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS, OR IMPLIED. MPOWER
HEREBY SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTY OF MERCHANTABILITY AND
THE WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
V. SOFTWARE MAINTENANCE SERVICES
In consideration of payment of the annual Maintenance Fee(s) set forth in
Section
Page 23 of 43
<PAGE> 24
VIII B of this Attachment, Customers agrees to purchase for a minimum of
(3) three years, but only if Customer is using the MPOWER Product, and
MPOWER agrees to provide customer on an annually renewable basis with
software maintenance services for MPOWER(R) as follows (provided Customer
allows MPOWER, at MPOWER's request, dial-up access to MPOWER(R)):
A. any and all Releases regarding MPOWER(R) issued by MPOWER;
B. any and all updates to the Documentation issued by MPOWER; and
C. remote diagnostic support (including dial-up capabilities) regarding
MPOWER(R)to include error analysis and, where possible, correction
services, twenty-four (24) hours per day, seven (7) days per week.
Any on-site assistance which Customer may request and which is
provided by MPOWER, which, in MPOWER's and Customer's reasonable
opinions, is not necessary to determine the nature and resolution of
any problems Customer may have with MPOWER(R)shall be provided by
MPOWER at its then-current rates. If Customer notifies MPOWER that
it suspects a material error in the program logic of MPOWER(R)or in
the Documentation, MPOWER shall make all reasonable efforts to
confirm the existence of the error and correct it. If the parties
mutually determine that no such error exists, Customer agrees to pay
MPOWER for its services at MPOWER's hourly rates then in effect and
to reimburse MPOWER for any and all reasonable travel and living
expenses incurred by MPOWER in rendering such services. MPOWER will
use its Severity Designations in effect from time to time to provide
remote diagnostic support. The current Severity Designations and
attendant response times are given in Exhibit G to this Attachment.
D. Extended Support Services:
MPOWER will provide Extended Support Services for Customer's
technical environment through a dedicated dial-up line. As defined
below, Extended Support Services will include:
- Database maintenance (table and file space);
- IBM Transaction Server maintenance;
- System utilities; and
- Application maintenance and patches.
To help facilitate MPOWER's provision of Extended Support Services,
Customer will provide onsite system administration resources with
access to the system console to handle such activities as
coordination of hardware troubleshooting, network/security
administration and backups/loading of tapes.
Page 24 of 43
<PAGE> 25
Notwithstanding the foregoing, should Customer be utilizing any Release of
MPOWER(R) other than the then-most-recent Release, or the Release prior to
the then-most-current Release, provided such Release has been available
for Customer's use for a period of six (6) months or longer, MPOWER
reserves the right, at its sole option, to terminate its obligations to
provide maintenance services under this Section V at any time upon giving
thirty (30) days' prior written notice to Customer. If such a condition
exists, MPOWER and Customer agree to negotiate in good faith to define
reasonable terms, conditions and fees for MPOWER to provide Customer with
maintenance services for such then non-current Release.
MPOWER's providing Customer with maintenance services as described in this
Section V shall automatically continue, on an annual basis, unless either
party shall give written notice to the other that it desires not to renew
such maintenance services. The parties agree that such written notice
shall be remitted for receipt by the other no less than ninety (90) days
prior to the end of the then-current annual maintenance period.
VI. IMPLEMENTATION AND CONVERSION SERVICES
MPOWER agrees to provide implementation services ("Implementation
Services") to assist Customer in implementing MPOWER(R) at the Site(s).
These implementation services shall comprise: 1) analysis of the
Site's(s') business requirements; 2) assistance in the user set up
definitions and build; 3) testing of MPOWER(R); 4) pre/post activation
support for end users; 5) up to forty (40) hours of initial training
services and 6) project management.
MPOWER shall charge Customer as set out in Section VIII C below for all
such Implementation Services requested by Customer. Additionally, to help
accommodate Customer's stated functional requirements that may not be
currently operational or in sufficient compliance with Customer needs
within the existing system, MPOWER shall provide up to forty (40) hours of
programming modifications, as defined in Work Order(s) to be submitted,
within the scope of Implementation Services, at no additional charge.
Beyond the scope of the aforementioned forty (40) hours, programming
modifications requested by Customer will be billed at rates set forth in
Section VIII E below.
Upon request, MPOWER agrees to provide conversion services ("Conversion
Services") to Customer to convert its current data files from its existing
software system to the MPOWER(R) database. MPOWER shall charge Customer as
set out in Section VIII E below for all such Conversion Services requested
by Customer.
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<PAGE> 26
MPOWER reserves the right to subcontract any Implementation Services
responsibilities it may accept under this Agreement. Customer shall have
the right to approve MPOWER's subcontractors, which approval shall not be
unreasonably withheld. If Customer objects to certain subcontractors for a
stated good cause, MPOWER and Customer agree to seek a mutually agreeable
resolution to Customer's objection. MPOWER's agreements with
Subcontractors shall require subcontractors to agree to confidentiality
terms set forth in this Agreement.
VII. TRAINING SERVICES
MPOWER will provide up to forty (40) hours of initial End User training
within the scope of payment of initial Implementation Fees, as indicated
in Section VIII.C of this Attachment. Initial training will focus on
Customer's education of functionality contained within key subsystems of
MPOWER(R) and will be inclusive of the following:
- Mapping of business rules to benefit plan templates;
- Establishment of workflow procedures and user-defined variables;
- Use of standard and ad-hoc reporting systems; and
- Methods for maintenance of key information being stored in the
system.
MPOWER will provide Customer under an appropriate Work Order, at MPOWER's
then-current fees, with additional training sessions regarding MPOWER(R)
to a reasonable number of Customer's personnel. All such training,
including initial End User training, shall be conducted at location(s)
elected by Customer at time(s) which are mutually acceptable to both
parties. Current fees for additional training sessions are provided in
Section VIII F.
VIII. FEES
A. MPOWER(R) License Fees.
1. Fee for the Initial License.
Customer agrees to pay MPOWER a license fee ("Initial License Fee")
equal to two hundred fifty thousand Dollars [$250,000] for the
master license granted in Section II of this Attachment for claims
processing of encounter files up to an aggregate of [*] per month
("Initial License"), with additional volume of up to [*]% due to
reprocessing of denials, associated with Customer's laboratory
network business initiative. Customer agrees the Initial License Fee
is due to MPOWER and payable according to the schedule shown in
Exhibit C hereto.
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<PAGE> 27
2. Fees for License Extensions.
Customer may, during the term of this Agreement, provided Customer
is current with all Maintenance Fees, exercise an incremental
license or incremental licenses for claims processing of additional
[*] encounter files per month ["License Extension(s)"] by paying to
MPOWER an additional license fee ("License Extension Fee") as shown
on Exhibit C hereto for each such License Extension.
The Initial License Fee and the License Extension Fee(s) may be
referred to as the License Fee(s).
The License Extension Fees will be billed and paid in accordance
with the terms and conditions outlined in this Agreement.
B. Annual Maintenance Fees.
Customer agrees to pay to MPOWER for the software maintenance
services described above a software maintenance fee ("Maintenance
Fee") equal to eighteen percent (18%) of the aggregate of the
Initial License Fee and all License Fee Extensions paid or payable
by Customer to MPOWER.
Extended Support Services described in Section V.D above will be
provided by MPOWER to Customer at no additional charge to the
aforementioned Maintenance Fee during the first year of maintenance.
Subsequent to the first year of maintenance, the fee for Extended
Support Services will be seven thousand five hundred ($7,500.00)
Dollars per month. Any such annual increases in Extended Support
Service fees shall not exceed the CPI. Customer may elect not to
renew Extended Support Services pursuant to the notification
procedure outlined in Section V above.
The annual Maintenance Fee is due and payable as follows: the first
annual Maintenance Fee shall be due and payable upon the occurrence
of Final Acceptance as indicated in Exhibit A hereto.
Each subsequent annual Maintenance Fee shall be billed and due
annually, based on the anniversary date of the first annual
Maintenance Fee due date. MPOWER will invoice Customer on an annual
basis for the maintenance fee. Customer agrees to pay such invoices
within thirty (30) days after Customer's receipt of the invoice.
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<PAGE> 28
Maintenance Fees Payment Schedule is outlined in Exhibit D to this
Attachment.
C. Implementation Fees.
As outlined in Section VI above, MPOWER will provide set-up,
implementation, interface development, programming modifications,
training and installation services based upon the functional
requirements forwarded by Customer on [*], as seen in Exhibit I, and
furthermore defined on [*], as seen in Exhibit J, in anticipation of
meeting a target operational live date of [*]. A sample New Account
Implementation Workplan Schedule is provided in Exhibit K. The
activities and sequence of events depicted in this template may be
modified as necessary according to the requirements of the project.
The Implementation Fee of One Hundred Thousand Dollars ($100,000)
will be payable as outlined in the schedule provided in Exhibit E.
D. Travel and out of pocket expenses.
The fees set out above do not include travel and other out-of-pocket
expenses which may be incurred by MPOWER in the course of delivering
the products and services described in this Attachment. MPOWER shall
use all its reasonable efforts to keep these travel and other
out-of-pocket expenses to a minimum. MPOWER will invoice Customer
for MPOWER's actual travel and out of pocket expenses on a monthly
basis, as they are incurred, and Customer agrees to pay such
invoices within thirty (30) days after receipt of the invoice, which
shall provide reasonably sufficient detail, as required by Customer.
E. Other Services
Customer may request and MPOWER may perform other services ("Other
Services") for Customer, which services shall be described in a Work
Order, which shall be considered an addendum to this Agreement and
covered under the terms of this Agreement, unless stated otherwise
in the applicable Work Order. The Service Fee rate in effect through
calendar year 1999 is [*] ($[*]) dollars per hour. Any such
increases in Service Fee rates beyond 1999 shall not exceed the CPI.
F. Additional Training Sessions
Customer may request and MPOWER may perform additional training
sessions beyond the scope of the aforementioned initial End User
training,
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<PAGE> 29
as described in Section VII of this Attachment. Additional training
services shall be described in a Work Order, which shall be
considered an addendum to this Agreement and covered under the terms
of this Agreement, unless stated otherwise in the applicable Work
Order. The rate in effect for additional training services through
calendar year 1999 is [*] ($[*]) dollars per day. Customer may
include as many of its personnel in such sessions as may reasonably
be accommodated within a classroom environment. Any such increases
in additional training session rates beyond 1999 shall not exceed
the CPI.
IX. THIRD PARTY PRODUCTS
Customer has the option to utilize Third Party Products with MPOWER(R) as
outlined in Exhibit B.
X. ACCEPTANCE
As soon as practicable after completion of preliminary testing, Customer
shall begin using MPOWER(R) in a simulated processing environment using
Customer's data. MPOWER(R) shall be deemed fully accepted ("Final
Acceptance") upon the conclusion of any consecutive five (5) day period in
which the MPOWER(R) functions in simulated processing mode without any
Severity 1 program errors, as described in Exhibit G hereto. Customer
shall execute a Certificate of Acceptance (Exhibit A), which shall be
attached hereto and made a part of this Agreement. The date shown on the
Certificate of Acceptance will be the beginning date of any warranty or
maintenance periods provided for in this Agreement or any Exhibit hereto.
Notwithstanding the above, MPOWER(R) shall be deemed fully accepted upon
the earlier to occur of the date of the Certificate of Acceptance or the
placement of MPOWER(R) in a Live Production Environment.
XI. ADDITIONAL TERMS AND CONDITIONS
In addition to the terms and conditions of this Attachment, the parties
agree that all the terms and conditions of the Master Agreement shall also
apply to Customer's use of MPOWER(R). Should any terms or conditions of
this Attachment and the Master Agreement conflict, the terms and
conditions of this Attachment shall take precedence. Should any terms or
conditions of an applicable Work Order and this Attachment or the Master
Agreement conflict, the terms and conditions of the applicable Work Order
shall take precedence.
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<PAGE> 30
The parties have each read this Attachment and agree to be bound by all of
its provisions. The parties further agree that this Attachment (including
its Exhibits) and the Master Agreement constitute the complete and
exclusive statement of the agreement between the parties regarding
MPOWER(R) and supersedes any and all prior agreements and understandings
between them pertaining to MPOWER(R) and takes precedence over the
provisions of any purchase orders submitted to MPOWER by Customer. This
Attachment may be amended only in writing signed by both parties.
QUEST DIAGNOSTICS INCORPORATED MPOWER SOLUTIONS INC.
("CUSTOMER") ("MPOWER")
BY: /s/ GERALD C. MARRONE BY: /s/ MARK S. RANGELL
----------------------------- -------------------------------
SIGNATURE OF AUTHORIZED SIGNATURE OF AUTHORIZED
SIGNATORY SIGNATORY
Gerald C. Marrone Mark S. Rangell
- -------------------------------- -----------------------------------
NAME PRINTED NAME PRINTED
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
- -------------------------------- -----------------------------------
TITLE TITLE
8/24/98 8/12/98
- -------------------------------- -----------------------------------
DATE DATE
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<PAGE> 31
EXHIBIT A
FINAL ACCEPTANCE CERTIFICATE
Customer hereby acknowledges and MPOWER Solutions Inc. hereby accepts that
MPOWER(R) has been accepted by Customer per the date noted below. This will be
the basis for the beginning of any warranty or maintenance periods provided for
in this Agreement or any Exhibit hereto.
Date of Final Acceptance
------------
Accepted by Customer: Accepted by MPOWER:
QUEST DIAGNOSTICS INCORPORATED MPOWER SOLUTIONS INC.
By: By:
----------------------------- ---------------------------------
Name (Printed): Name (Printed):
----------------- ----------------------
Title: Title:
-------------------------- ------------------------------
Date: Date:
-------------------------- ------------------------------
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<PAGE> 32
EXHIBIT B
NOT CURRENTLY APPLICABLE.
Page 32 of 43
<PAGE> 33
EXHIBIT C
MPOWER(R) LICENSE FEE PAYMENT SCHEDULE FOR THE LICENSE FEES
Refer to Section VII A for MPOWER(R) License terms and conditions.
License Fees will become due and payable as set forth below.
License Fees will become due and payable as set forth below. Notwithstanding
anything to the contrary in the Agreement, the obligation of Customer to License
the Software, and pay full License Fees, may be cancelled by Customer's
providing notice to MPOWER no later than [*] of Customer's intent to cancel this
Agreement. In the event that such notice is provided, Customer shall have no
further liability to MPOWER under this Agreement, unless Customer exercises the
option to renew its rights under this Agreement by providing notice of its
intent to do so no later than [*]. In the event that Customer provides notice of
cancellation, Customer will forfeit any and all fees paid to MPOWER prior to
notice of cancellation, as well as pay any outstanding fees identified in
Section VIII of the Attachment I of the Agreement for services already performed
prior to MPOWER's receipt of notice of cancellation, in addition to $22,500
which is half of the First Year Annual Maintenance Fee (per Exh D). The $22,500
will be applied to the First Year Annual Maintenance Fee in the event that
Customer renews its rights under the Agreement by December 31, 1998.
<TABLE>
<CAPTION>
EXPECTED PERCENTAGE AMOUNT
PAYMENT TRIGGERING EVENT TIMEFRAME DUE DUE
- ------------------------------ -------------- ---------- -------------
<S> <C> <C> <C>
Contract Execution [*] [*] [*]
Customer Installation [*] [*] [*]
Completion of Acceptance Test [*] [*] [*]
Optional License Extension Indeterminate [*]% Per
Future (if and (Optional) Schedule
when business (Optional)
need dictates)
License Extension Fee(s):
- - Increments of clams processing
for up to [*] encounter
files/month $ 80,000
</TABLE>
In the event that Customer provides notice of its intent to cancel this
Agreement,
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<PAGE> 34
Customer shall have the option to renew its rights hereunder by providing notice
of same to MPOWER by December 31, 1998. If Customer renews its rights hereunder
the fees previously paid and forfeited shall be applied to the Agreement as if
there had been no temporary cancellation of this Agreement.
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<PAGE> 35
EXHIBIT D
MPOWER ANNUAL MAINTENANCE FEE PAYMENT SCHEDULE
MPOWER billing and Customer paying of Annual Maintenance Fees is outlined in
Section VIII B. Refer to Section VIII B for on-going and MPOWER Annual
Maintenance Fee terms and conditions.
<TABLE>
<CAPTION>
PAYMENT ESTIMATED ESTIMATED
TRIGGERING TIMEFRAME PERCENTAGE DUE AMOUNT DUE
- ---------- --------- -------------- ----------
<S> <C> <C> <C>
Final Acceptance [*] 100% of First Year Annual $45,000
Maintenance Fee
First and Annually 100% of Annual Maintenance 18% of Total
Subsequent Thereafter Fee License Fee
Anniversaries of
Acceptance
Extended Support Annually n/a $7,500 per month
Services Thereafter (Optional)
</TABLE>
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<PAGE> 36
EXHIBIT E
MPOWER INITIAL IMPLEMENTATION FEE PAYMENT SCHEDULE
MPOWER billing and Customer payment of Implementation Fees are outlined in
Section VIII C. Refer to Section VIII C. for Terms and Conditions.
<TABLE>
<CAPTION>
PAYMENT ESTIMATED PERCENTAGE ESTIMATED
TRIGGERING EVENT TIMEFRAME DUE AMOUNT DUE
- ------------------- -------------- ---------- ----------
<S> <C> <C> <C>
Contract Execution [*] 60% $60,000
Customer
Installation [*] 20% $20,000
Completion of
Acceptance Test [*] 20% $20,000
</TABLE>
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<PAGE> 37
EXHIBIT F
MODULES INCLUDED IN MPOWER(R)
All modules are included by MPOWER and comprise MPOWER(R) as of the date of this
Attachment:
- - Set-ups
- - Group Enrollment & Contracting
- - Premium Billing & Accounts Receivable
- - Member / Subscriber Enrollment
- - Provider Contracting
- - Capitation
- - Claims Adjudication for UB92 / HCFA 1500 Claims
- - Certifications / Authorizations
- - Customer Service
- - Letter Generation
- - Medicare Risk
- - Medicaid Processing
- - Ad Hoc Reporting
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<PAGE> 38
EXHIBIT G
SEVERITY DEFINITIONS AND RESOLUTION PROCESS
- - SEVERITY 1.
The problem causes complete loss of service in the production and
staging environment and work cannot reasonably continue. The problem or
defect has one or more of the following characteristics:
> Data corruption. Physical or logical data is unavailable or
incorrect.
Examples: Block format corruption, invalid indices, corruption of
meta-data, incorrect results.
> Critical functionality is not available.
> System hangs. The process hangs indefinitely or there is severe
performance degradation, causing unreasonable waits for resources or
response, as if the system is hanging,
> The entire MPOWER application crashes repeatedly.
> Database process or background processes fail and continue to fail
after restart attempts.
> Potential for above occurrences is defined imminent.
RESOLUTION OF SEVERITY 1: Until the issue is resolved MPOWER Solutions
will work on Severity 1 around the clock (7x24). As a result of the
severity, the customer must provide MPOWER with a point of contact during
the 7x24 period. The customer's point of contact will assist the MPOWER
customer support and development staff in gathering data, testing fixes in
the customer's testing legion, and applying fixes to the customer
production environment.
- - SEVERITY 2:
Problem or product defect causes a severe impact on the customer's
business regardless of customer environment. No workaround is available,
however operations can continue in a restricted fashion. The problem or
defect has one or more of the following characteristics:
> Business Impact Examples: The customer can handle current volume,
but will not be able to handle quarter close; At close, customer
finds totals wrong, but close is not for a few weeks.
> Internal software error, causing the application to fail to run to
completion, or return wrong results, or software error severely
degrades performance.
> Some important functionality is unavailable, yet the system can
continue to operate in a restricted fashion.
> Potential for above occurrences is defined imminent.
RESOLUTION OF SEVERITY 2: MPOWER Solutions will work on Severity 2 bug
based on customer assigned priority. Severity 2 fixes will be added in the
next scheduled maintenance or patch release.
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<PAGE> 39
- - SEVERITY 3.
Problem or product defect causes minimal impact on the Customer's
business. The impact of the problem or defect is minor or an
inconvenience, such as a manual bypass to restore product functionality.
The problem or defect has one or more of the following characteristics:
> A software error for which there is an acceptable workaround.
> Software error minimally degrades performance.
> Software error or incorrect behavior has minor impact the operation
of the system.
RESOLUTION OF SEVERITY 3: Fixes for severity 3 bugs will be added to the
priority list for the next major scheduled release of the product. The
order of priority for resolving severity 3 issues will be assigned jointly
by the Customer and MPOWER.
- - SEVERITY 4.
The problem or product defect causes NO impact on the Customer's business.
The problem or defect is a minor error, incorrect behavior, or a
documentation error that in no way impedes the operation of a system.
RESOLUTION OF SEVERITY 4: Fixes for severity 4 bugs will be added to the
priority list for the next major scheduled release of the product. The
order of priority for resolving severity 4 issues will be assigned jointly
by the Customer and MPOWER.
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<PAGE> 40
EXHIBIT H
PRE-REQUISITE HARDWARE AND SOFTWARE
FOR THE RELEASE OF MPOWER(R) ON AN NT SERVER
Products required:
For the NT Server are
1.) IBM'S TRANSACTION SERVER FOR WINDOWS NT VERSION 4.02
2.) MICROFOCUS'S COBOL VERSION 4.0.32.
3.) IBM'S UDB UNIVERSAL DEVELOPERS EDITION FOR NT VERSION 5.0
For an NT Client (PC running either Win95 or NT - 32bit OS):
1.) MULTISOFT'S WCL TOOLKIT VERSION 5.0 32BIT - WCL is the communication
interface product that passes data from a 3270 emulator to VB.
2.) WALL DATA'S RUMBA FOR THE MAINFRAME WIN95/NT CLIENT VERSION 5.2 -
Rumba provides 3270-comparable connectivity to a host computer.
3.) IBM'S UDB CLIENT SETUP VERSION 5.0 - Allows for ODBC connectivity to
back end databases.
For the client to communicate with the server:
Communication protocol is via TCP/IP, so the clients need to networked, 32
bit OS, PCs. The server machine should have at least the hardware
recommended by Microsoft for running the NT 4.0 Server operating system
attached to the network.
Page 40 of 43
<PAGE> 41
EXHIBIT I
CUSTOMER FUNCTIONAL REQUIREMENTS
(AS COMMUNICATED ON MAY 5, 1998)
[Two page "Requirements" document to follow]
Page 41 of 43
<PAGE> 42
EXHIBIT J
CUSTOMER FUNCTIONAL REQUIREMENTS
(AS COMMUNICATED ON JULY 24, 1998)
[Three Page "Functional Analysis Grid" to follow]
Page 42 of 43
<PAGE> 43
EXHIBIT K
NEW ACCOUNT IMPLEMENTATION WORKPLAN SCHEDULE (SAMPLE)
[Twenty Page "Client Implementation Schedule.xls" to follow]
Page 43 of 43
<PAGE> 1
EXHIBIT 10.33
ORACLE
SOFTWARE LICENSE AND SERVICES AGREEMENT
This Software License and Services Agreement ("Agreement") is between Oracle
Corporation ("Oracle") and the Customer identified below. The terms of this
Agreement shall apply to each Program license granted and to all services
provided by Oracle under this Agreement, which will be identified on one or more
Order Forms.
I. DEFINITIONS
1.1. "Program" means the software in object code form distributed by
Oracle for which Customer is granted a license pursuant to this
Agreement, and the media, Documentation and Updates therefor.
1.2. "Documentation" means the user guides and manuals for installation
and use of the Program software. Documentation is provided in
whatever form is generally available.
1.3. "Update" means a subsequent release of the Program which Oracle
generally makes available for Program licenses at no additional
license fee other than media and handling charges, provided Customer
has ordered Technical Support for such licenses for the relevant time
period. Update shall not include any release, option or future
product which Oracle licenses separately.
1.4. "Order Form" means the document in hard copy or electronic form by
which Customer orders Program licenses and services, and which is
agreed to by the parties. The Order Form shall reference the
Effective Date of this Agreement.
1.5. "Designated System" means the computer hardware and operating system
designated on the relevant Order Form.
1.6. "Technical Support" means Program support provided under Oracle's
policies in effect on the date Technical Support is ordered.
1.7. "Commencement Date" means the date on which the Programs are
delivered by Oracle to Customer, or if no delivery is necessary, the
Effective Date set forth on the relevant Order Form.
1.6. "Services" means Technical Support, training, or
consulting services provided by Oracle to Customer
under this Agreement.
II. PROGRAM LICENSE
2.1. Rights Granted
A. Oracle grants to Customer a nonexclusive license to use the
Programs specified on an Order Form under this Agreement as of
the Commencement Date, as follows:
i to use the Programs solely for Customer's operations on the
Designated System or on a backup system if the Designated
System is inoperative, consistent with the use limitation,
specified or referenced in this Agreement, an Order Form, or
the Documentation. Customer may not relicense, rent or lease
the Programs or use the Programs for third-party training,
commercial time-sharing or service bureau use;
ii. to use the Documentation provided with the Programs in
support of Customer's authorized use of the Programs;
iii. to copy the Programs for archival or backup purposes, and to
make a sufficient number of copies for the use specified in
the Order Form. All titles, trademarks, and copyright and
restricted rights notices shall be reproduced in such
copies:
iv. to modify the Programs and combine them with other software
products; and
v. to allow third parties to use the Programs for Customer's
operations so long as Customer ensures that use of the
Programs is in accordance with the terms of this Agreement.
Customer shall not copy or use the Programs (including the
Documentation) except as specified in this Agreement or an Order
Form. Customer shall have no right to use any other software
program that may be delivered with ordered Programs.
B. Customer agrees not to cause or permit the reverse engineering,
disassembly or decompilation of the Programs, except to the
extent required to obtain interoperability with other
independently created software or as specified by law.
C. Oracle shall retain all title, copyright and other proprietary
rights in the Programs. Customer does not acquire any rights,
express or implied in the Programs, other than those specified in
this Agreement.
2.2. Transfer and Assignment
A. Customer may transfer a Program license within its organization
upon notice to Oracle; transfers are subject to the terms and
fees
<PAGE> 2
specified in Oracle's transfer in effect at the time of the
transfer
B. Customer may not assign this Agreement or transfer a Program
License to a legal entity separate from Customer without the
prior written consent of Oracle. Oracle shall not unreasonably
withhold or delay such consent.
2.2. Verification
At Oracle's written request, not more frequently than annually,
Customer shall furnish Oracle with a signed certification verifying
that the Programs are being used pursuant to the provisions of this
Agreement and applicable Order Forms
Oracle may audit Customer's use of the Programs. Any such audit shall
be conducted during regular business hours at Customer's facilities
and shall not unreasonably interfere with Customer's business
activities. If an audit reveals that Customer has Underpaid fees to
Oracle, Customer shall be invoiced for such underpaid fees. Audits
shall be conducted no more than once annually.
III. TECHNICAL SERVICES
3.1. Technical Support Services
Technical Support services ordered by Customer will be provided under
Oracle's Technical Support policies in effect on the date Technical
Support is ordered.
3.2. Consulting and Training Services
Oracle will provide consulting and training services agreed to by the
parties under the terms of this Agreement. All consulting services
shall be billed on a time and materials basis unless the parties
expressly agree otherwise in writing.
3.3. Incidental Expenses
For any on-site services requested by Customer, Customer shall
reimburse Oracle for actual, reasonable travel and out-of-pocket
expenses incurred.
IV. TERM AND TERMINATION
4.1. Term
If not otherwise specified on the Order Form, this Agreement and each
Program license granted under this Agreement shall continue
perpetually unless terminated under this Article IV.
4.2. Termination by Customer
Customer may terminate any Program license at any time; however,
termination shall not relieve Customer's obligations specified in
Section 4.4.
4.3. Termination by Oracle
Oracle may terminate this Agreement or any license upon written
notice if Customer materially breaches this Agreement and fails to
correct the breach within 30 days following notice specifying the
breach.
4.4. Effect of Termination
Termination of the Agreement or any license shall not limit either
party from pursuing other remedies available to it, including
injunctive relief, nor shall such termination relieve Customer's
obligation to pay all fees that have accrued or are otherwise owed by
Customer under any Order Form. The parties' rights and obligations
under Sections 2.1.B, 2.1.C, and 2.2.B, and Articles IV, V, VI and
VII shall survive termination of this Agreement. Upon termination,
Customer shall cease using, and shall return or destroy, all copies
of the applicable Programs.
V. INDEMNITY, WARRANTIES, REMEDIES
5.1. Infringement Indemnity
Oracle will defend and indemnify Customer against a claim that the
Programs infringe a copyright or patent or other intellectual
property right, provided that: (a) Customer notifies Oracle in
writing within 30 days of the claim; (b) Oracle has sole control of
the defense and all related settlement negotiations; and (c) Customer
provides Oracle with the assistance, information and authority
necessary to perform Oracle's obligations under this Section. Oracle
will reimburse Customer's reasonable out-of-pocket expenses incurred
in providing such assistance. Oracle shall have no liability for any
claim of infringement based on use of a superseded or altered release
of Programs if the infringement would have been avoided by the use of
a current unaltered release of the Programs which Oracle provided to
Customer.
If the Programs are held or are believed by Oracle to infringe,
Oracle shall have the option, at its expense to (a) modify the
Programs to be noninfringing; or (b) obtain for Customer a license to
continue using the Programs. If it is not commercially reasonable to
perform either of the above options, then Oracle may terminate the
license for the infringing Programs and refund license fees paid for
those Programs. This Section 5.1 shares Oracle's entire liability and
Customer's exclusive remedy for infringement.
5.2. Warranties and Disclaimers
A. Program Warranty
Oracle warrants for a period of one year from the Commencement Date
that each unmodified Program will perform the functions described in
the Documentation.
B. Media Warranty
Oracle warrants the tapes, diskettes or other media to be free of
defects in materials and workmanship under normal use for 90 days
from the Commencement Date.
<PAGE> 3
C. Services Warranty
Oracle warrants that its Technical Support, training and
consulting services will be performed consistent with generally
accepted industry standards. This warranty shall be valid for 90
days from performance of service.
D. Disclaimers
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES. WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OP MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
Oracle does not warrant that the Programs will operate in
combinations other than as specified in the Documentation or that
the operation of the Programs will be uninterrupted or
error-free. Pro-production release of Programs and computer-based
training products are distributed "AS IS."
6.3. Exclusive Remedies
For any breach of the warranties contained in Section 5.2, Customer's
exclusive remedy, and Oracle's entire liability, shall be:
A. For programs
The correction of Program errors that cause breach of the
warranty, or if Oracle is unable to make the Program operate as
warranted. Customer shall be entitled to terminate the Program
license and recover the fees paid to Oracle for the Program
license.
B. For Media
The replacement of defective media returned within 90 days of the
Commencement Date.
C. For Services
The reperformance of the services, or if Oracle is unable to
perform the services as warranted, Customer shall be entitled to
recover the fees paid to Oracle for the unsatisfactory services.
VI. PAYMENT PROVISIONS
6.1. Invoicing and Payment
All fees shall be due and payable 30 days from the invoice date.
Customer agrees to pay applicable media and shipping charges.
Customer shall issue a purchase order, or alternative document
acceptable to Oracle, on or before the Effective Date of the
applicable Order Form.
6.2. Taxes
The fees listed in this Agreement do not include taxes; if Oracle is
required to pay sales, use, property, value-added or other taxes
based on the licenses or services granted in this Agreement or on
Customer's use of Programs or services, then such taxes shall be
billed to and paid by Customer. This Section shall not apply to taxes
based on Oracle's income.
VII. GENERAL TERMS
7.1. Nondisclosure
By virtue of this Agreement, the parties may have access to
information that is confidential to one another ("Confidential
information"). Confidential information shall be limited to the
Programs, the terms and pricing under this Agreement, and all
information clearly identified as confidential.
A party's Confidential Information shall not include information
that: (a) is or becomes a part of the public domain through no act or
omission of the other party; (b) was in the other party's lawful
possession prior to the disclosure and had not been obtained by the
other party either directly or indirectly from the disclosing party;
(c) is lawfully disclosed to the other party by a third party without
restriction on disclosure; or (d) is independently developed by the
other party. Customer shall not disclose the results of any benchmark
tests of the Programs to any third party without Oracle's prior
written approval.
The parties agree to hold each other's Confidential information in
confidence during the term of this Agreement and for a period of two
years after termination of this Agreement. The parties agree, unless
required by law, not to make each other's Confidential Information
available in any form to any third party for any purpose other than
the implementation of this Agreement. Each party agrees to take all
reasonable steps to ensure that Confidential Information is not
disclosed or distributed by its employees or agents in violation of
the terms of this Agreement.
7.2. Governing Law
This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the laws of the State of California.
7.3. Jurisdiction
Any legal action or proceeding relating to this Agreement shall be
instituted in a state or federal court in San Francisco or San Mateo
County, California. Oracle and Customer agree to submit to the
jurisdiction of, and agree that venue is proper in, these courts in
any such legal action or proceeding.
7.4. Notice
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given
when mailed by first class mail to the first address listed in the
relevant Order Form (if to Customer) or to the Oracle address on the
Order Form (if to Oracle).
To expedite order processing, Customer agrees that Oracle may treat
documents faxed by Customer to Oracle as original documents;
<PAGE> 4
nevertheless, either party may require the other to exchange original
signed documents.
7.5. Limitation of Liability
In no event shall either party be liable for any indirect,
incidental, special or consequential damages, or damages for less of
profits, revenue, data or use, incurred by either party or any third
party, whether in an action in contract or tort, even if the other
party has been advised of due possibility of such damages. Oracle's
liability for damages hereunder shall in no event exceed the amount
of fees paid by Customer Under this Agreement and if such damages
result from Customer's use of the program or services, such liability
shall be limited to fees paid for the relevant Program or services
giving rise to the liability.
The provisions of this Agreement allocate the risks between Oracle
and Customer. Oracle's pricing reflects this allocation of risk and
the limitation of liability specified herein.
7.6. Severability
If any provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain
in full force.
7.7. Waiver
The waiver by either party of any default or breach of this Agreement
shall not constitute a waiver of any other or subsequent default or
broach. Except for actions for nonpayment or breach of Oracle's
proprietary rights in the Programs, no action, regardless of form,
arising out of this Agreement may be brought by either party more
than two years after the cause of action has accrued.
7.8. Export Administration
Customer agrees to comply fully with all relevant export laws and
regulations of the United States ("Export Laws") to assure that
neither the Programs nor any direct product thereof are (1) exported.
directly or indirectly, in violation of Export Laws; or (2) are
intended to be used for any purposes prohibited by the Export Laws,
including, without limitation, nuclear, chemical, or biological
weapons proliferation.
7.9. Entire Agreement
This Agreement constitutes the complete agreement between the parties
and supercedes all prior or contemporaneous agreements or
representations, written or oral, concerning the subject matter of
this Agreement. This Agreement may not be modified or amended except
in a writing signed by a duly authorized representative of each
party; no other act, document, usage or custom shall be deemed to
amend or modify this Agreement.
It is expressly agreed that the terms of this Agreement and any Order
Form shall supersede the terms in any Customer purchase order or
other ordering document. This Agreement shall also supersede all
terms of any unsigned or "shrinkwrap" license included in any
package, media, or electronic version of Oracle-furnished software
and any such software shall be licensed under the terms of this
Agreement, provided that the use limitations contained in an unsigned
ordering document shall be effective for the specified licenses.
The Effective Date of this Agreement shall be October 25, 1999
EXECUTED BY CUSTOMER:
Authorized Signature: /s/ PETER H. CHEESBROUGH
-------------------------------------
Name: PETER H. CHEESBROUGH
------------------------------------------------------
Title: SR. V.P. FINANCE & CFO
-----------------------------------------------------
Address: 6400 South Fiddler's Green Circle,
Suite 560, Englewood, CO 80111
--------------------------------------------------
EXECUTED BY ORACLE CORPORATION:
Authorized Signature:
-------------------------------------
Name:
------------------------------------------------------
Title:
-----------------------------------------------------
Address: 500 Oracle Parkway, Redwood City, CA
--------------------------------------------------
ORACLE IS A REGISTERED TRADEMARK OF ORACLE CORPORATION
<PAGE> 5
Payment Schedule
(Oracle Product) No. 1
<TABLE>
<S> <C>
Customer: xCare.net Technologies, Inc. EXECUTED BY CUSTOMER (AUTHORIZED SIGNATURE):
------------------------------------------
By: /s/ PETER H. CHEESBROUGH
------------------------------------------ ------------------------------------------
Address: 6400 S. Fiddlers Green Circle, Ste 540 Name: PETER H. CHEESBROUGH
------------------------------------------ ------------------------------------------
Englewood, CO 80111 Title: SR. V.P. FINANCE & CFO
------------------------------------------ ------------------------------------------
Contact:
------------------------------------------ EXECUTED BY ORACLE CREDIT CORPORATION:
Phone: 303-488-2019
------------------------------------------ By:
Order: dated ------------------------------------------
------------------------------------------ Name:
Agreement: dated ------------------------------------------
------------------------------------------ Title:
PPA No.: dated ------------------------------------------
------------------------------------------
------------------------------------------ Payment Schedule Effective Date:
-----------------
SYSTEM Payment Schedule
Payment Amount Due Date:
Software: $139,735.75 1 @ $ 59,142 Due at signing
---------------------------------- 4 Q @ 548,297 01-Jan-00 thru 01-OCT-00
Support: 96,832.00 One Year
----------------------------------
Education:
---------------------------------- One payment followed by four (4) quarterly payments
Consulting: due at set forth above
----------------------------------
Other:
----------------------------------
System Price: $236,567.75
----------------------------------
</TABLE>
Optional (If this box is checked):
Customer has ordered the System from an alliance member/agent of
Oracle Corporation, whose name and address are specified below. Customer shall
provide ("OCC") with a copy of such Order. The System shall be directly licensed
or provided by the Supplier specified in the applicable Order and Agreement,
each of which shall be considered a separate contract. Customer has entered into
the Order and Agreement based upon its own judgment, and expressly disclaims any
reliance upon statements made by OCC about the System, if any. Customer's rights
with respect to the System are as set forth in the applicable Order and
Agreement and Customer shall have no right to make any claims under such Order
and Agreement against OCC or its Assignee. Neither Supplier nor any alliance
member/agent is authorized to waive or alter any term or condition of this
Contract. If within ten days of the Payment Schedule Effective Date, OCC is
provided with Customer invoices for the System specifying applicable Taxes, then
OCC may add the applicable Taxes in accordance with this Contract.
Alliance Member/Agent:
----------------------------------------------------
Address:
----------------------------------------------------
Contact: Phone:
---------------------- ------------------------
This Payment Schedule is entered into by Customer and Oracle Credit Corporation
("OCC") for the acquisition of the System from Oracle Corporation. an alliance
member/agent of Oracle Corporation or any other party providing any portion of
the System ("Supplier"). This Payment Schedule Incorporates by reference the
terms and conditions of the above-referenced Payment Plan Agreement ("PPA") to
create a separate Contract ("Contract").
A. PAYMENTS: This Contract shall replace Customer's payment obligation under the
Order and Agreement to Supplier, to the extent of the System Price listed above,
upon Customer's delivery of a fully executed Order, Agreement. PPA, Payment
Schedule, and any other documentation required by OCC, and execution of the
Contract by OCC. Customer agrees that OCC may add the applicable Taxes due on
the System Price to each Payment Amount based on the applicable tax rate
invoiced by Supplier at shipment. OCC may adjust subsequent Payment Amounts to
reflect any change or correction in Taxes due. If the System Price includes
support fees for a support period that begins after the first support period,
such future support fees and the then relevant Taxes will be paid to Supplier as
invoiced in the applicable support period from the Payment Amounts received in
that parted. The balance of each Payment Amount, unless otherwise stated,
includes a proportional amount of the remaining components of the System Price
excluding such future support fees, if any.
B. SYSTEM: Software shall be accepted and the services shall be deemed ordered
pursuant to the terms of the Agreement. Customer agrees that any software
acquired from Supplier to replace any part of the System shall be subject to the
terms of the Contract. Any claims related to the performance of any component of
the System shall be made pursuant to the Order and Agreement. Neither OCC nor
Assignee shall be responsible to Customer for any claim or liability pertaining
to any performance, actions, warranties or statements of Supplier.
C. ADMINISTRATIVE: Customer agrees that OCC or its Assignee may treat executed
faxes or photocopies delivered to OCC as original documents; however, Customer
agrees to deliver original signed documents if requested. Customer agrees that
OCC may insert the appropriate administrative information to complete this form.
OCC will provide a copy of the final Contract upon request.
* Confidential Treatment Requested
<PAGE> 6
ORACLE CREDIT CORPORATION PAYMENT PLAN AGREEMENT
<TABLE>
<S> <C>
Customer: xCare.net Technologies, Inc. EXECUTED BY CUSTOMER (AUTHORIZED SIGNATURE):
--------------------------------------
By: /s/ Peter H. Cheesbrough
-------------------------------------- -------------------------------------------
Address: 6400 S. Fiddlers Green Circle, Ste 540 Name:
-------------------------------------- ------------------------------------------
Englewood, CO 80111 Title:
------------------------------------- ------------------------------------------
Phone: 303-488-2019
------------------------------------- EXECUTED BY ORACLE CREDIT CORPORATION:
PPA No.:
------------------------------------- By:
Effective Date: ------------------------------------------
------------------------------------- Name:
------------------------------------------
Title:
------------------------------------------
</TABLE>
The payment Plan Agreement ("PPA") is entered into by Customer and Oracle Credit
Corporation ("OCC") to provide for the payment of the System Price specified in
a Payment Schedule on an installment basis. The System (as defined below) is
being acquired from Oracle Corporation, an alliance member/agent of Oracle
Corporation or any other party providing any portion of the System ("Supplier").
Each Payment Schedule shall specify the Software and other products and
services, which items together with any upgrade, transfer, substitution, or
replacement thereof, shall comprise the "System." Each Payment Schedule shall
incorporate the terms and conditions of the PPA to form a "Contract," and the
System specified therein shall be subject to the terms and conditions of such
Contract. The System shall be licensed or provided to Customer directly by
supplier pursuant to the terms of the Order and Agreement specified in the
Contract. Except as provided under the Contract, Customer's rights and remedies
under the Order and Agreement, including Supplier's warranty and refund
provisions, shall not be affected.
1. PAYMENT SCHEDULE: Customer agrees to pay OCC the Payment Amounts in
accordance with the Contract, with each payment due and payable on the
applicable Due Date. If full payment of each Payment Amount and other amounts
payable is not received by OCC within 10 days of each Due Date, Customer agrees
to pay to OCC interest on the overdue amount at the rate equal to the lesser of
one and one-half percent (1.5%) per month, or the maximum amount allowed by law.
Unless stated otherwise, Payment Amounts exclude any applicable sales, use,
property or any other tax allocable to the System, Agreement or Contract
("Taxes"). Any amounts or any Taxes payable under the Agreement which are not
added to the Payment Amounts due under the Contract are due and payable by
Customer, and Customer shall remain liable for any filing obligations.
Customer's obligation to remit Payment Amounts to OCC or its assignee in
accordance with the Contract is absolute, unconditional, noncancellable,
independent, and shall not be subject to any abatement, set-off, claim,
counterclaim, adjustment, reduction, or defense for any reason, including but
not limited to, any termination of any Agreement, or performance of the System.
2. ASSIGNMENT: Customer hereby consents to OCC's assignment of all or a portion
of its rights and interests in and to the Contract to third-parties
("Assignee"). OCC shall provide Customer notice thereof. Customer and OCC agree
that Assignee shall not, because of such assignment, assume any of OCC's or
Supplier's obligations to Customer. Customer shall not assert against Assignee
any claim, defense, counterclaim or setoff that Customer may have against OCC or
Supplier. Customer waives all rights to make any claim against Assignee for any
loss or damage of the System or breach of any warranty, express or implied, as
to any matter whatsoever, including but not limited to the System and service
performance, functionality, features, merchantability or fitness for a
particular purpose, or any indirect, incidental or consequential damages or loss
of business. Customer shall pay Assignee all amounts due and payable under the
Contract, but shall pursue any claims under any Agreement solely against
Supplier. Except when a Default occurs, neither OCC nor Assignee will interfere
with Customer's quiet enjoyment or use of the System in accordance with the
Agreement's terms and conditions.
3. DEFAULT; REMEDIES: Any of the following shall constitute a Default under the
Contract: (I) Customer fails to pay when due any sums due under any Contract:
(ii) Customer breaches any representation or fails to perform any obligation in
any Contract; (iii) Customer materially breaches or terminates the license
relating to the Software; (iv) Customer defaults under a material agreement with
Assignee; or (v) Customer becomes insolvent or makes an assignment for the
benefit of creditors, or a trustee or receiver is appointed for Customer or for
a substantial part of its assets, or bankruptcy, reorganization or insolvency
proceedings shall be instituted by or against Customer.
In the event of a Default that is not cured within thirty (30) days of its
occurrence, OCC may: (i) require all outstanding Payment Amounts and other sums
due and scheduled to become due (discounted at the lesser of the rate in the
Contract of five percent (5%) per annum simple interest) to become immediately
due and payable by Customer; (ii) pursue any rights provided under the
Agreement, as well as terminate all of Customer's rights to use the System and
related services, and Customer agrees to cease all use of the System; and (iii)
pursue any other rights or remedies available at law or in equity. In the event
OCC institutes any action for the enforcement of the collection of Payment
Amounts, there shall be due from Customer. In addition to the amounts due above,
all costs and expenses of such action, including reasonable attorneys' fees. No
failure or delay on the part of OCC to exercise any right or remedy hereunder
shall operate as a waiver thereof, or as a waiver of any subsequent breach. All
remedies are cumulative and not exclusive, Customer acknowledges that upon a.
default under the Contract, no party shall license, lease, transfer or use any
Software in mitigation of any damages resulting from Customer's default.
4. CUSTOMER'S REPRESENTATIONS AND COVENANTS: Customer represents that,
throughout the term of the Contract, the Contract has been duly authorized and
Constitutes a legal, valid, binding and enforceable agreement of Customer. Any
transfer or assignment of Customer's rights or obligations in the System, or
under the Agreement or the Contract shall require OCC's and Assignee's prior
written consent. A transfer shall include a change in majority ownership of
Customer. Customer agrees to promptly execute any ancillary documents and take
further actions as OCC or Assignee may reasonably request, including, but not
limited to, assignment notifications, acceptance certificates, certificates of
authorization, registrations, and filings. Customer agrees to provide copies of
Customer's balance sheet, income statement, and other financial reports as OCC
or Assignee may reasonably request.
5. MISCELLANEOUS: The Contract shall constitute the entire agreement between
Customer and OCC regarding the subject matter herein and shall supersede any
inconsistent terms set forth in the Order, Agreement or any related agreements,
Customer purchase orders and all prior oral and written understandings. If any
provision of the Contract is invalid, such invalidity shall not affect the
enforceability of the remaining terms of the Contract. Customer's obligations
under the Contract shall commence on the Effective Date specified therein.
Except for payment terms specified in the Contract, Customer remains responsible
for all the obligations under each Agreement. Each Payment Schedule, and any
changes to a Contract or any related document, shall take effect when executed
by OCC. The Contract shall be governed by the laws of the State of California
and shall be deemed executed in Redwood Shores, CA as of the Contract effective
Date.
<PAGE> 7
Customer XCARENET
Location: 6400 SOUTH FIDDLERS GREEN CIRCLE
ENGLEWOOD, CO 80111
Contact: JON WISDA
Phone: 303-488-2019 Fax: 303-488-9705
End User: XCARENET
6400 SOUTH FIDDLERS GREEN CIRCLE
ENGLEWOOD, CO 80111
Contact: JON WISDA
================================================================================
ORACLE CONTRACT INFORMATION
[ ] Agreement: SLSA Attached Effective Date:
DESIGNATED SYSTEM
Make/Model: SUN SPARC / 4 CPU Media Type: CD
Operating System: SOLARIS CSI Number:
<TABLE>
<CAPTION>
Qty License Quantity & Lice
Programs List Each Disc. Extended Net
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Full Use Designer/2000 1 Developer [ * ] [ * ] [ * ]
1 Web Change Management Pack 1600 Power [ * ] [ * ] [ * ]
Application Unit 2 Yr
Specific
1 Web Diagnostics Pack 1600 Power [ * ] [ * ] [ * ]
Application Unit 2 Yr
Specific
1 Web Intermedia 1600 Power [ * ] [ * ] [ * ]
Application Unit 2 Yr
Specific
1 Web Oracle Server EE 8i 1600 Power [ * ] [ * ] [ * ]
Application Unit 2 Yr
Specific
1 Web Tuning Pack 1600 Power [ * ] [ * ] [ * ]
Application Unit 2 Yr
Specific
------------
Sub Total: [ * ]
Initial 1 Year Silver Annual Technical Support [ * ] [ * ] [ * ]
Total License Fee Due: 139,735.75
Total Technical Support Fee Due: 96,567.75
Total Additional Fees Due:
============
Total Fees Due: 236,567.75 USD
</TABLE>
MISCELLANEOUS
Customer is licensed to use each Program only on the Designated System(s)
specified in the above Section of this Order Form and for which such Program is
available on the Effective Date. The above Section of this Order Form specifies
the Programs on the particular Designated Systems requested by Customer, which
have been shipped or currently are being shipped to Customer. Oracle shall
deliver to the Customer Location, for use in the U.S, 1 copy of the software
media ("Master Copy") and 1 set of
* Confidential Treatment Requested
<PAGE> 8
ORACLE ORDER FORM Quote #: 312790
Page: 2 of 2
Customer XCARENET
Documentation (in the form generally available) for each Program currently
available in production release as of the Effective Date below for use on the
Designated Systems(s). Customer shall have the right to make up to 1 copy of the
Program(s), including Documentation, for each license of the Program(s) and the
Customer shall be responsible for installation of the software. All fees under
this Order Form shall be due and payable net 30 days from date of invoice, and
shall be non-cancellable and the sums paid nonrefundable. Customer agrees to pay
applicable sales/use tax, media and shipping charges. If Customer loses or
damages the media containing a Program licensed hereunder, upon Customer's
written notice Oracle will provide a replacement copy thereof, under Oracle's
then-current Technical Support policies, for a media and shipping charge. The
following shipping terms shall apply: FOB Destination. Prepaid, and Add. These
terms shall also apply to any options exercised by Customer. Oracle may refer to
Customer as a customer in sales presentations, marketing vehicles and
activities.
TECHNICAL SUPPORT
Annual Technical Support services ordered by Customer will be provided under
Oracle's Technical Supped policies and pricing in effect on the date Technical
Support is ordered and shall be effective upon shipment (or upon Order Form
Effective Date for products not requiring shipment); first year Technical
Support is quoted above, if ordered. Fees for Technical Support are due and
payable annually in advance.
Term License. The Programs ordered under this Order Form and licensed As Power
Units are valid for 2 (#) years from the Effective Date ("Term") unless
otherwise terminated under the Agreement. Upon expiration of the Term Customer
shall cease using the Programs and return or destroy all copies in accordance
with the terms and conditions of the Agreement.
Thank you for your interest in Oracle. If you have any questions please
contact Edward Hut, your Oracle Sales Representative, at at (650) 506-7000.
Customer and Oracle agree that the terms and pricing of this Order Form
shall not be disclosed without prior written consent of the other party.
This Quote is valid through October 26, 1999 and shall become binding upon
execution by Customer and acceptance by Oracle.
This Quote includes the Price List Definitions attachment.
XCARENET ORACLE CORPORATION
Signature: /s/ PETER H. CHEESBROUGH Signature:
------------------------ ------------------------
Name: Peter H. Cheesbrough Name:
------------------------ ------------------------
Title: SR. V.P. FINANCE & CFO Title:
------------------------ ------------------------
Date: October 25, 1999
------------------------
<PAGE> 9
ORACLE PRICE LIST DEFINITIONS
"Concurrent Devices" (or "Concur Dev"): is the maximum number of input devices
accessing the Programs at any given point in time. If multiplexing software or
hardware (e.g. a TP monitor, webserver product) is used, this number must be
measured at the multiplexing front-end.
"Named User" (or "Named") or "Developer": is defined as an individual who is
authorized by Customer to use the Oracle Programs, regardless of whether the
individual is actively using Programs at any given time.
A "Read-Only" User is defined as an individual authorized by the Customer to
only run queries or reports against Oracle Applications Programs. Read-Only
Users are licensed to use any of the Transactional Applications or CRM Sales and
Service Applications for which Customer has acquired Named User licenses.
"Primary Usage" is defined as each licensed user being counted only once as a
designated Named or Casual User of the Oracle Application he will use most.
However, a licensed Named or Casual User may access all Oracle Applications
licensed under the Agreement which have been licensed under the same licensing
methodology, regardless of the designated Oracle Application of primary use.
"Mailbox" is defined as a point from which to send or receive electronic mail.
It is created when a user account or application is created in Oracle Office.
"Computer or Workstation": licensed for use on a single specified computer.
"Processor": shall be defined as the actual number of processors installed in
the licensed Computer and running the Oracle Programs, regardless of the number
of processors which the Computer is capable of running.
"Client": a computer which (1) is used by only one person at a time, and (2)
executes Oracle software in local memory or stores the software on a local
storage device.
"Full Use Programs" are unaltered versions of the Programs with all functions
intact.
"Deployment Programs" may be used only to execute existing applications or
reports. They may not be used to build or modify reports or applications.
Deployment Programs are to be generated by Customer from Full Use Programs.
"Application Specific Programs" (or "App Specific"): shall mean Programs which
are limited to use solely for Customer's application software defined on the
Order Form. Application Specific Programs are to be generated by Customer from
Full Use programs.
A "Web Specific" Program is defined as a Program license which may only be
accessed by third parties via internal networking protocols and which is limited
to use solely for deployment of Customer's public web site. Customer's
application may allow third party web access to a licensed Web Specific Program
solely for viewing, querying or adding data, provided such use is in accordance
with the other terms of the Agreement. No corporate use or internal data
processing by Customer or its clients shall be permitted with a Web Specific
Program. Prohibited corporate and internal uses shall include, but shall not be
limited to, the following types of uses: human resource, finance and
administration, internal messaging and communications, accounting, sales force
management, etc.
A "Web Application Specific" Program is defined as a Program license which may
be accessed and used solely for deployment of Customer's application software as
specified on the Order Form. The Web Application Specific Program may only be
accessed by third parties via internet networking protocols and is limited to
use solely for deployment of Customer's public web site. Customer's application
may allow third party web access to a licensed Web Application Specific Program
solely for viewing, querying or adding data, provided such use is in accordance
with the other terms of the Agreement. No corporate use or internal data
processing by Customer or its clients shall be permitted with a Web Application
Specific Program. Prohibited corporate and internal uses shall include, but
shall not be limited to, the following types of uses: human resource, finance
and administration, internal messaging and communications, accounting, sales
force management, etc.
For Human Resources, Training Administration and Tutor for Human Resources.
"Employee" is defined as an individual who is actively managed by the Programs.
The term "Employee" includes, without limitation, Customer employees,
contractors, retirees, and COBRA, dependents.
For Payroll and Tutor for Payroll, "Employee" is defined as an individual whose
payment or payment calculations, are generated by the Programs. The term
"Employee" includes, without limitation, Customer employees, contractors,
retirees, and employees covered by workers compensation laws or regulations.
For Time Management, "Employee" is defined as an individual who submits
timecards or other time records for payroll processing.
For Self-Service Human Resources, Self-Service Purchasing, Self-Service
Expenses, Financials Intelligence, Operations Intelligence, Purchasing
Intelligence, Process Manufacturing Intelligence, and HR Intelligence,
"Employee" is defined as an active employee of Customer. The value of these
applications is determined by the size of the active employee population not the
number of actual users. Therefore, all active employees of customer must be
included when licensing these applications.
For Call Center Intelligence, "Employee" is defined as the total number of
employees in the Customer's Call Center.
"Foundation Services": This is limited support, and any license for which it is
purchased is not a Supported Program License.
An "Education Unit" entitles Customer to acquire education
<PAGE> 10
PRICE LIST DEFINITIONS
(Continued)
products and services as specified in the Oracle Education catalogue in effect
at the time an Education Unit is utilized. Education Units are only valid for 12
months from the Effective Date of the Order or as specifically stated in the
applicable Order. Education Units may only be used in the country where the
Education Units were acquired or within the Territory defined in the applicable
Order. Customer may be required to execute standard Oracle ordering materials in
conjunction with utilizing Education Units.
"Organizational Change Management Services" are services for assisting Customers
in managing change in their organizations. Customer's discounts for consulting
or training do not apply to such Organizational Change Management Services.
A "Suite" consists of all of the functional software components described in the
Documentation.
"Module": shall mean a functional software component of a Suite or bundle.
"Per Entry": shall mean a unique item (e.g., object, person, entity, or
information) stored within the Programs. Replicated entries stored within the
Program on multiple servers are counted as a single entry.
"Power Unit": One Power Unit is defined as one MHz of power in any Intel
compatible or RISC processor in any computer of the Designated Systems on the
Order Form on which the Programs are installed and operating. The total number
of Power Units is determined by adding together the number of MHz in all the
processors in all such computers. Customer may add processors and computers, or
modify existing processors and computers, provided that if, at any time,
Customer's use exceeds the total number of licensed Power Units, Customer will
acquire licenses for the additional Power Units. At Oracle's request, no more
than once annually, Customer shall certify in writing the Power Unit
computation, including the number of relevant computers and processors, and the
MHz of each such processor. (For example: two computers with two 400 MHz
processors each would equal 1,600 Power Units)
"Bills Presented" is defined as the cumulative number of bills or invoices
delivered, presented and/or posted via the Internet using Program.
"Bill Paid" is defined as each payment or payment authorization of a bill via
the Internet using the Program.
For Service for Communications, TeleBusiness for Telecom/Utilities, CRL
Financial Management, CRL Supply Chain Management, SDP Provisioning, SDP Number
Portability, Revenue Accounting for Communications and Industrial Billing,
"Subscriber" is defined as a working telephone number for all wireline; a
handset or paging device that has been activated by Customer for all wireless
and paging; number of residential drops plus the number of nonresidential
devices serviced by cable providers; a live connected gas meter and a
live/connected electric meter. The total number of Subscribers is equal to the
aggregate of all types of Subscribers.
For Service for Communications, TeleBusiness for Telecom/Utilities, CRL
Financial Management. CRL Supply Chain Management, SDP Provisioning, SDP Number
Portability, Revenue Accounting for Communications and Industrial Billing, if
the Customer's business is not defined in the primary definition of Subscriber
above: "Subscriber" is defined as each U.S. $1,000 increment of Customer's gross
annual revenue as reported to the SEC in Customer's annual report or equivalent
reporting document.
<PAGE> 11
ATTACHMENT
to
QUOTE #312790
between
XCARE.NET
and
ORACLE CORPORATION
Notwithstanding anything to the contrary on the Quote specified above the
following changes are made to this Order Form as of its Effective Date.
1. Customer Definition. For purposes of this Order Form, Customer shall be
defined as the company listed at the head of this Order Form and its majority
owned subsidiaries located in the U.S. as of the Effective Date. Before
accessing the Programs, each subsidiary must agree in writing to be bound by the
terms of the Agreement and this Order Form.
2. Service Bureau. Notwithstanding section 2.1.A.i of the Agreement, Customer
shall have the right to use the Programs licensed under this Order Form for the
purposes of hosting third party health care web sites and limited to the
following functionalities: claims and capitalization processing; authorizations;
referral management; enrollment and eligibility tracking and management;
utilization management; provider contracting; group contracting; benefit design;
Managed Medicaid; Medicare; reporting and documentation, all provided to
Customer by Customer's end users ("End User(s)") as part of Customer's business.
Customer may issue written reports or other written records based on or arising
from its data processing activities for End User. In addition, if such reports
or records are in an electronic data file, Customer may allow End User remote
access to such reports or records for its internal business purposes, and may
permit End User to access the Programs and manipulate the data controlled by
Customer and managed by the Programs, provided that (a) Customer warrants that
it has the authority to bind End User to the terms of the Agreement and this
Order Form, and (b) Customer agrees to be responsible and to indemnify Oracle
for all damages or losses resulting from the breach of this agreement by End
User. End User personnel and devices accessing and manipulating the data
controlled by Customer and managed by the Programs shall be counted for purposes
of Named User and Concurrent Device limitations applying to the Programs.
3. Payment. The Customer's payment obligations to Oracle under this Order Form
as of the Effective Date shall be satisfied by Modis Solutions ("Payor") as
authorized pursuant to a distribution agreement executed between Payor and
Oracle ("Payor Agreement"). Oracle shall receive payments directly from Payor
under the terms of the Payor Agreement. This payment obligation is
non-cancellable and the sum paid is nonrefundable. The financial obligations of
Customer to Payor shall be specified in a separate agreement. Licenses that are
modified or added to this Order Form after the Effective Date shall be at terms
and fees as determined when such licenses are acquired. Applicable sales tax
shall be charged to Payor based on the point of delivery of the Master Copy and
paid under the terms of the Payor Agreement. Payor is responsible for payment of
any use or other tax arising from use of the Programs in any other location.
<PAGE> 1
EXHIBIT 10.34
PROFESSIONAL SERVICES AGREEMENT
This Professional Services Agreement (the "Agreement") is entered into as
of September 9, 1999 (the "Effective Date") by and between XCare.net, a Delaware
corporation with offices at 6400 S. Fiddler's Green Circle, Englewood, CO 80111,
("XCare.net"), and Asthma Management Company, a corporation with offices at 645
Madison Ave, 12th Floor, New York, NY, 10022 ("Client").
This Agreement covers the purchase and license of consulting, development
and other services from XCare.net, pursuant to orders placed by Client and
accepted by XCare.net after the Effective Date. This includes the following
Asthma Management objectives: electronic medical records, workflow engines, data
warehousing, support, maintenance, hosting services, and the Internet product.
This Agreement includes the following attachments, which are incorporated
herein by this reference:
Attachment 1 XCare.net Development Services
Attachment 2 Schedule of Work Deliverables, Project Plan, Fees and Payment
Terms
Attachment 3 Maintenance Agreement
Attachment 4 Architectural Platform
Attachment 5 List of Acceptance Criteria
Attachment 6 Escrow Agreement
Attachment 7 Hosting Agreement
Any notice required or permitted under this Agreement will be in writing
and delivered to the address set forth below, or to such other notice address as
the other party has provided by written notice.
THIS AGREEMENT, INCLUDING THE ATTACHMENTS LISTED ABOVE, CONSTITUTES THE
COMPLETE AND EXCLUSIVE UNDERSTANDING OF THE PARTIES WITH REFERENCE TO THE
SUBJECT MATTER HEREOF, AND SUPERSEDES ALL PRIOR SALES PROPOSALS, NEGOTIATIONS,
AGREEMENTS AND OTHER REPRESENTATIONS OR COMMUNICATIONS, WHETHER ORAL OR WRITTEN.
IF THERE IS ANY CONFLICT BETWEEN THE TERMS AND CONDITIONS OF CLIENT'S PURCHASE
ORDER (OR ANY OTHER PURCHASE OR SALES DOCUMENT) AND THE TERMS AND CONDITIONS OF
THIS AGREEMENT, THIS AGREEMENT SHALL CONTROL. THIS AGREEMENT MAY BE MODIFIED,
REPLACED OR RESCINDED ONLY IN WRITING, AND SIGNED BY A DULY AUTHORIZED
REPRESENTATIVE OF EACH PARTY.
AGREED:
XCare.net Client:
Lorine Sweeney -------------------------------------
President & CEO -------------------------------------
By: By:
---------------------------------- ----------------------------------
(Authorized Signature) (Authorized Signature)
- ------------------------------------- -------------------------------------
(Printed Name and Title (Printed Name and Title)
1
<PAGE> 2
ATTACHMENT 1
XCARE.NET DEVELOPMENT SERVICES
1. DEFINITIONS
1.1. "Content" shall mean marketing collateral, data, text, audio files,
video files, graphics and other materials provided by Client or
developed hereunder for use with the Client Web Site, but excluding
the XCare.net Software.
1.2. "Development Services" shall mean design, development, and set-up
services to (i) modify, if necessary, existing XCare.net technology,
trade secrets and know-how to produce the XCare.net Software and
other elements of the Client Web Site, (ii) produce the client
software, (iii) produce the client web site and (iv) provide any
other consulting services rendered hereunder as identified in the
appropriate schedules ("Schedule(s)") attached hereto.
1.3. "XCare.net Software" shall mean the architectural platform described
in Attachment 3, all computer program code and other results and
proceeds of XCare.net's services hereunder (other than Content and
Client Software) that are delivered by XCare.net to Client pursuant
to this Agreement. Such XCare.net Software shall be provided in
object code form that conforms with Extensible Mark-Up Language
Standards and the parties will enter into an escrow agreement
(Attachment 6) paid for by client.
1.4. "Client Web Site(s)" shall mean the so-called "web page" site or
sites on the World Wide Web, for the public Internet or for
corporate intranets or extranets, to be developed or serviced by
XCare.net hereunder, as identified in the appropriate Schedule(s).
1.5. "Client Software" shall mean all computer program code and other
results and proceeds of XCare.net's services, excluding the
XCare.net platform architecture and associated technical residuals,
developed specifically by XCare.net for Client hereunder and paid
for by Client. Client Software shall be provided in source code that
conforms with Extensible Mark-Up Language Standards.
2. SERVICES
2.1. Development Services. XCare.net shall render Development Services in
accordance with the requirements set forth in Schedules in the form
of mutually agreed upon Project Management Plans that will be
created for each Phase of application development. Each Schedule for
new services shall be successively numbered (e.g., 1, 2, etc.). Each
schedule shall be executed by the parties and shall be subject to
the terms and conditions of this Agreement. XCare.net shall provide
qualified and trained personnel to render such services and shall
use reasonable commercial efforts to meet the delivery schedule set
forth in the applicable Schedules. Any additions, deletions or other
changes to a Schedule shall be mutually agreed to in writing in
advance by both parties and shall be memorialized in a revised
Schedule pursuant to the procedure get forth in Section 2.6 below
for Change Orders. All services shall be performed at XCare.net's
offices unless otherwise agreed by the parties. In the event that
services are performed at Client's location, Client shall provide
XCare.net at no charge with all necessary
2
<PAGE> 3
facilities and equipment, including without limitation, computer
time on Client's computers and office space, sufficient to render
the services contemplated hereunder. Client shall deliver to
XCare.net all Content selected by Client for incorporation into any
Client Web Site in digitized format if available, otherwise hard
copies shall be provided in accordance with the delivery schedule
set forth in the applicable Schedule(s). In the event that Client
fails to deliver the Content in accordance with the delivery
schedule, the development schedule shall be extended by the number
of days that delivery of the Content was delayed, unless XCare.net
notifies Client that this extension will not rectify XCare.net's
scheduling interruption resulting from Client's delay and such delay
may also result in additional charges to Client, in which case the
parties shall mutually agree upon a new delivery schedule and fees
with respect to the rendition of the Development Services.
2.2. Acceptance of Deliverables. Within fifteen (15) calendar days after
the delivery to Client of any deliverable pursuant to any Schedule,
Client shall provide XCare.net with written notice of any failure of
any deliverable to materially conform to the functional
specifications set forth in the in the applicable Schedule.
XCare.net and Client shall review the objections, and XCare.net will
use commercially reasonable efforts to correct any material
nonconformities with the functional specifications and provide
Client with a revised deliverable within fifteen (15) calendar days.
Client shall have deemed to have accepted the deliverable if
XCare.net does not receive written notice of Client's objections
within said fifteen (15) calendar day period. All deliverables
pursuant to any schedule must include a 30 calendar day client beta
testing period.
2.3. Domain Name Registration Services. If domain name registration
services are included in the Schedule, XCare.net shall use
commercially reasonable efforts to assist Client in registering an
Internet domain name selected by Client. Client will be solely
responsible for all out-of-pocket costs and all legal clearances
regarding name selection and registration.
2.4. Maintenance Services. XCare.net shall render maintenance services
pursuant to the terms and conditions of Attachment 3 Maintenance
Agreement. The maintenance and support phase begins after the
acceptance of the delivered product.
2.5. Hosting, Services. If Client desires to purchase hosting services
from XCare.net for the Client Web Site, the parties shall execute a
Hosting Services Agreement (Attachment 7 Hosting Agreement), and
XCare.net shall render hosting services pursuant to the terms and
conditions of such agreement.
2.6. Change Orders. If Client desires to make changes to an existing
Schedule, the parties shall mutually agree upon an additional or
revised Schedule for each new Change Order. Each such Schedule shall
be successively numbered (e.g., LA, 1.B, etc.) and shall be executed
by the parties. Any revised Schedule(s) shall be subject to the
terms and conditions of this Agreement.
2.7. Disaster Recovery Plan. XCare.net will provide a disaster recovery
plan to the Client by July 1, 2000. This plan will include
co-location information, software recovery, data recovery, and a
plan outlining the timeframe for disaster recovery. The disaster
recovery plan will be implemented by December 31, 2000.
2.8. Performance Guarantee. Except as may otherwise be provided in the
Agreement, credit for lost Services will be issued only for periods,
calculated in fifteen (15) minute increments, in excess of two (2)
hours in any calendar month. One (8) hour services loss will be
permitted in each 6
3
<PAGE> 4
month service period to allow for potential catastrophic system
disruption. Lost services or "Downtime" is deemed to have occurred
only if service becomes unusable by Client as a result of failure of
XCare.net facilities, equipment or personnel used to provide the
Services, and only where the interruption is not the result of (a)
negligence or other conduct of Client or its agents, (b) failure or
malfunction of any equipment or services not provided by XCare.net,
including failure of the internet transport network. Credit shall be
calculated by calculating the average hourly rate for XCare.net's
services over the prior month and multiplying it times the number of
hours of downtime.
XCare.net's latency guarantee constitutes average round-trip
transmissions of three seconds or less between the transit backbone
routers (hub routers) in the contiguous U.S. The transatlantic
latency guarantee is six seconds or less. The performance guarantees
specified do not reflect infringements upon speed as a result of the
Internet or connections of the users.
2.8.1 XCare.net Average Server Response Times. Should the response
times stipulated above not be met for a minimum of 30 minutes
per day for FIVE consecutive days, then XCare.net will make
all necessary additions/modification to the equipment
configuration over the next calendar month to bring the
response times within their stipulated levels again.
2.9 XCare.net represents and warrants that all Client Software and
XCare.net Software will process dates correctly prior to, during and
after the calendar year 2000. This shall include, but not be limited
to, century recognition, calculations that accommodate the same
century and multi-century formulas and date values, and interface
values that reflect the century. In the event that Client becomes
aware that the Client Software or XCare.net Software will not or
does not process data containing any dates subsequent to the year
1999 correctly, Client shall immediately notify XCare.net of that
fact and XCare.net agrees to correct or replace the Client Software
or XCare.net Software to eliminate such processing problem in
accordance with XCare.net's standard policies, which are available
upon request.
The foregoing is Client's sole and exclusive remedy for breach of
warranty. The warranty set forth above is made to and for Client's
benefit only. The warranty will apply only if no modification,
alteration or addition has been made to the Client Software or
XCare.net Software by persons other than XCare.net or XCare.net's
authorized representative.
3. OWNERSHIP AND LICENSE RIGHTS
3.1. Property Rights and Ownership. The Client Web Site(s) and all other
results and proceeds of XCare.net's services hereunder, shall
consist of, and shall operate in conjunction with, multiple elements
of intellectual property, including without limitation the XCare.net
Software and the Client Content. The parties' respective rights to
such elements shall be as set forth below. For purposes of this
Agreement, the term "ownership" shall refer to ownership of all
intellectual property rights including, but not limited to, all
patent, copyright, trade secret and trademark rights, as applicable,
with respect to the subject intellectual property.
4
<PAGE> 5
<TABLE>
<CAPTION>
Intellectual Property Elements Ownership/Rights
- ------------------------------ ----------------
<S> <C>
Client Content, including all Client Content that Client has sole ownership.
is modified by XCare.net ("Modified Content") and
HTML files that contain Client Content, and
modifications to Content as a result of Client's
usage of self-authoring tools.
Content created for Client by XCare.net and Client has sole ownership.
accepted and paid for by Client, as well as
commissioned Content authored by third parties
specifically for use in connection with this
Agreement and paid for by Client (e.g., original
illustrations or graphics).
Domain name for Client Web Site. Client has sole ownership.
Client Software Client has sole ownership. Subject to exclusion
specified in Section 1.5
Server usage report data/statistics generated by Client has sole ownership of data/statistics, and
the XCare.net Software in form and substance as XCare.net has a license pursuant to Section 3.3
set forth in the applicable Schedule or as below.
mutually agreed by the parties.
Commercially available third-party software which Third-parties have ownership, and Client shall be
is incorporated into the XCare.net Software. informed of all third-party software that Client
may need to license at Client's own expense.
XCare.net Software provided and/or developed by or XCare.net has sole ownership of such XCare.net
for XCare.net in connection with this Agreement Software. Client shall be granted a license to use
for Client. the XCare.net Software as set forth in Section
3.2.
XCare.net supplied material developed generally to XCare.net has sole ownership of such developed
support XCare.net products and/or service material. Client shall be granted a license to use
offerings (e.g. httpd configuration). the XCare.net Software as set forth in Section 3.2
below.
</TABLE>
3.2. License to Client. XCare.net grants Client a non-exclusive,
non-transferable license to use the XCare.net Software on one or
more computers in code version only to operate and display the
Client Web Site in order for end users to access the Client Web
Site. If the XCare.net Software is not developed for use on a Client
Web Site, then the foregoing license shall constitute a
nonexclusive, non-transferable license to use the XCare.net Software
on one or more computers in object code version only for Client's
internal business needs. Client may grant a sublicense to a third
party that Client engages to host the Client Web Site, provided,
that such third party agrees in writing to be bound by the license
and confidentiality restrictions set forth in this Agreement. Client
is prohibited from duplicating and/or distributing any XCare.net
Software without the prior written consent of XCare.net; provided,
however that Client may copy the XCare.net Software only as needed
for reasonable ordinary backup or disaster recovery
5
<PAGE> 6
procedures. All registered users shall be granted permission to
access the software from as many locations as are necessary.
Client is granted rights to modifications and updates to the
XCare.net internal software product updates as they apply
specifically to the application created for Client. This excludes
enhancements to products that do not directly correlate to the
application created for Client. New products created after the
delivery of the Client application are also excluded. Adaptations to
the XCare.net product(s) so that they are customized for Client
shall incur additional costs.
3.3. License to XCare.net. Client grants XCare.net a non-exclusive
license (i) to use, copy, and modify the Content in connection with
XCare.net's performance of the Development Services, and (ii) to
use, copy, modify, distribute and display server usage data and
statistics generated by the XCare.net Software.
3.4. Supporting Documents. Each party agrees to execute any additional
documents deemed reasonably necessary to effect and evidence the
other party's rights with respect to the intellectual property
elements set forth above.
3.5. No Reverse Engineering. All rights not expressly granted hereunder
are reserved by XCare.net. Without limiting the foregoing, Client
may not reverse engineer, reverse assemble, decompile or otherwise
attempt to derive the source code from the XCare.net Software.
3.6. Proprietary Notices. All copies of the XCare.net Software and other
XCare.net supplied materials used by Client shall contain copyright
and other proprietary notices in the same manner in which XCare.net
incorporates such notices in the XCare.net Software or in any other
manner requested by XCare.net. Client agrees not to remove, obscure
or obliterate any copyright notice, trademark or other proprietary
rights notices placed by XCare.net on or in the XCare.net Software.
3.7. Support of the Client and XCare.net Software. Should XCare.net, or
an organization acquiring, merging with, or succeeding XCare.net in
any way, decide to cease supporting the Client software or XCare.net
software, then client will have a twelve (12) month option to either
(i) request the source code for the software out of escrow (see
Attachment 5 Escrow Agreement) so Client can arrange for the support
of the software on their own or (ii) replace the software with a
similar or like application from XCare.net or the successor
organization at no additional license fee (a reasonable
implementation fee can be charged).
4. PAYMENT
4.1. Development Services. In consideration for the performance of the
Development Services, Client shall pay to XCare.net the rates as set
forth in Attachment 2 Schedule of Work and Fees. In the event that
XCare.net renders services at Client's location, Client shall pay
the reasonable travel, living and related expenses for XCare.net
personnel rendering services at Client's location. All services
hereunder shall be rendered on a per-project basis; provided,
however, that in the event that the parties agree that any services
hereunder will be rendered on a time and materials basis with a
budget not to be exceeded, all work will be billed at XCare.net's
standard hourly rates, which may be revised from time to time by
XCare.net, in its sole discretion, upon written notice to Client.
For time and materials billing, amounts set forth in the applicable
Schedule represent an estimate of the hours required to complete the
work outlined in such Schedule; in the event that actual hours
incurred to complete the work exceed
6
<PAGE> 7
those included in the budget XCare.net will notify Client, and the
budget will be revised with additional agreed upon hours billed at
XCare.net's standard hourly rates. All time and materials billings
will be made biweekly.
4.2. Maintenance Services. Maintenance services will be provided
according to Attachment 3 Maintenance Services.
4.3. Hosting, Services. If the parties have entered into a XCare.net
Hosting Services Agreement, Client shall pay XCare.net the amounts
set forth in said Hosting Services Agreement. Attachment 7 Hosting
Agreement.
4.4. Taxes. In addition to the fees due as specified above, Client shall
pay any and all federal, state and local sales, use, value added,
excise, duty and any other taxes of any nature assessed upon or with
respect to the license granted hereunder, arising from this
Agreement, except that taxes on XCare.net's income shall be the sole
responsibility of XCare.net.
4.5. Payments. All payments made pursuant to this Agreement shall be made
in U.S. Dollars are due thirty (30) calendar days from the date of
invoice. Late payments shall bear interest at one and one-half
percent (1.5%) per month or the maximum rate permitted by law,
whichever is less.
5. LIMITED WARRANTY
5.1. Software Warranty. Subject to the limitations set forth in this
Agreement, XCare.net war-rants only to Client that the XCare.net
Software and Client Software furnished hereunder when properly
installed, properly used and unmodified by Client, will
substantially conform to the functional specifications set forth in
Attachment 5 List of Acceptance Criteria. XCare.net's warranty shall
extend for a period of one hundred five (105) calendar days from
the date that the final deliverables specified in each Schedule are
accepted by the Client ("Warranty Period"). XCare.net's sole
responsibility under this Section 5.1 shall be to take reasonable
precautions and will apply testing procedures to assure that the
Vendor Systems (EMR and other) and the Developed Systems (XCare.net)
are free from material reproducible programming errors and defects
in workmanship and materials, and that the Developed Systems will
conform in all material respect to the specifications therefore. If
material reproducible programming errors are discovered in the
Developed Systems, XCare.net shall promptly remedy them at no
additional expense to Customer. XCare.net will obtain a
substantially similar warranty from the Vendor Systems and if
material reproducible programming errors are discovered in the
Vendor Systems, XCare.net and System vendor will promptly remedy
them at no additional expense to Customer. All warranty claims not
made in writing or not received by XCare.net within the Warranty
Period shall be deemed waived. XCare.net's warranty obligations are
solely for the benefit of Client, who has no authority to extend or
transfer this warranty to any other person or entity.
5.2. XCARE.NET DOES NOT WARRANT THAT THE USE OF THE CLIENT SOFTWARE AND
THE XCARE.NET SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE OR THAT
THE SPECIFICATIONS WILL MEET ANY OF CLIENT'S REQUIREMENTS OTHER THAN
THE EXPRESS WRITTEN REQUIREMENTS SET FORTH IN ATTACHMENT 5 - LIST OF
ACCEPTANCE CRITERIA. EXCEPT FOR THE EXPRESS WARRANTIES STATED ABOVE,
XCARE.NET DOES NOT MAKE ANY WARRANTY AS TO THE XCARE.NET SOFTWARE OR
THE SERVICES PROVIDED HEREUNDER
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<PAGE> 8
OR THE RESULTS TO BE OBTAINED FROM USE OF THE XCARE.NET SOFTWARE.
EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH ABOVE, THE XCARE.NET
SOFTWARE IS USED AND THE SERVICES ARE PROVIDED ON AN "AS-IS" BASIS
WITHOUT WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INTERNET OR USE OF
INFORMATION IN CONNECTION WITH THE SOFTWARE.
6. INTELLECTUAL PROPERTY INDEMNIFICATION
6.1. XCare.net.
6.1.1. Indemnification. XCare.net, at its own cost and expense,
shall defend Client and its officers and directors, against a
claim that the XCare.net Software or Client Software
infringes a third-party United States copyright or trade
secret, and shall pay any settlements entered into or damages
awarded against Client, or its officers and directors, to the
extent related to such claim, provided that (i) Client
notifies XCare.net promptly in writing of the claim; (ii)
XCare.net has the sole control of the defense and all related
settlement negotiations; and (iii) Client provides XCare.net
with all reasonably necessary assistance, information, and
authority to perform the foregoing at XCare.net's expense.
6.1.2. XCare.net shall have no liability for any claim of
infringement based on (i) use by Client of other than the
current update of the XCare.net Software or Client Software
if the infringement would have been avoided by uses of the
current update; (ii) modifications, adaptations or changes to
the XCare.net Software or Client Software not made by
XCare.net; (iii) the combination or use of the materials
furnished hereunder with materials not furnished by XCare.net
if such infringement would have been avoided by use of the
XCare.net materials alone; or (iv) use or incorporation of
Content or Modified Content. In the event the XCare.net
Software is held to, or XCare.net believes is likely to be
held to, infringe the intellectual property rights of a third
party, XCare.net shall have the right at its sole option and
expense to (i) substitute or modify the XCare.net Software or
Client Software so that it is noninfringing and qualitatively
and functionally equivalent to the XCare.net Software or
Client Software; (ii) obtain for Client a license to continue
using the XCare.net Software or Client Software; or if
neither (i) nor (ii) is commercially reasonable, XCare.net
shall have the fight to terminate this Agreement immediately
upon written notice to Client, and XCare.net shall make
payment to Client of an amount equal to the fees paid for the
XCare.net Software or Client Software, pro-rated over a three
(3) year period commencing on the Effective Date. This
Section 6.1 sets forth Client's sole and exclusive remedy and
XCare.net's sole liability for intellectual property
infringement by XCare.net.
6.2. Client.
6.2.1. Client hereby represents and warrants to XCare.net that (i)
Client has secured all necessary consents, permissions,
clearances, authorizations and waivers for the use of Content
or Modified Content, including without limitation, all text,
pictures, audio, video, logos and copy contained in all
Content or Modified Content; (ii) the use of Content as
contemplated herein shall not infringe the copyright,
trademark or other
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<PAGE> 9
intellectual property rights of any party, or constitute
defamation, invasion of privacy, or the violation of any
right of publicity or any other right of any party; and (iii)
Client has complied and shall comply with all legislation,
rules and regulations regarding Content.
6.2.2. Client shall indemnify and hold harmless XCare.net, its
directors, officers, parent company, and affiliates, from any
and all liability, costs and expenses (including attorney's
fees) arising in connection with any third party claim or
action brought against XCare.net, or any of its directors,
officers, parent company, and affiliates, relating to Content
or Modified Content, provided (i) XCare.net notifies Client
promptly in writing of such claim, (ii) Client has the sole
control of the defense and all related settlement
negotiations, and (iii) XCare.net provides Client with all
reasonably necessary assistance, information and authority to
perform the foregoing at Client's expense.
7. LIMITATIONS ON LIABILITY
THE MAXIMUM LIABILITY OF XCARE.NET OR CLIENT, ITS DIRECTORS, OFFICERS,
PARENT COMPANY, AND, AFFILIATES, TO CLIENT FOR DAMAGES RELATING TO
XCARE.NET'S FAILURE TO PERFORM SERVICES HEREUNDER SHALL BE LIMITED TO AN
AMOUNT EQUAL TO THE TOTAL FEES PAID BY CLIENT TO XCARE.NET WITH RESPECT TO
SUCH SERVICES, EXCEPT THAT NO SUCH LIMITATION SHALL APPLY TO SECTION
6.1.1, SECTION 9 OR SECTION 3.1. EXCEPT IN THE EVENT OF GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT, IN NO EVENT SHALL XCARE.NET, ITS DIRECTORS,
OFFICERS, PARENT COMPANY, AND AFFILIATES, LICENSORS, AND SUPPLIERS, BE
LIABLE FOR ANY LOST DATA OR CONTENT, LOST PROFITS, BUSINESS INTERRUPTION
OR FOR ANY INDIRECT, INCIDENTAL. SPECIAL, CONSEQUENTIAL, EXEMPLARY OR
PUNITIVE DAMAGES ARISING OUT OF OR RELATING TO THE SOFTWARE OR THE
SERVICES PROVIDED HEREUNDER, EVEN IF XCARE.NET HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED REMEDY.
8. TERM AND TERMINATION
8.1. Term. Subject to this Section 8, the term of this Agreement shall
commence on the Effective Date and continue until terminated by
either party pursuant to Section 8.2 or 8.3 below.
8.2. Termination for Cause. This Agreement may be terminated by either
party in the event of (i) any material default in, or material
breach of, any of the terms and conditions of this Agreement by the
other party, which default continues in effect after the defaulting
party has been provided with written notice of default and thirty
(30) calendar days to cure such default; (ii) the commencement of a
voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to either party of its
debts under any bankruptcy, insolvency, or other similar law now or
hereafter in effect, that authorizes the reorganization or
liquidation of such party or its debt or the appointment of a
trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property; (iii) either party's
consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it; or (iv) either party's making a
general assignment for the benefit of creditors; or either party's
becoming insolvent; or either party taking any corporate action to
authorize any of the foregoing.
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<PAGE> 10
8.3. Termination for Convenience. This Agreement may be terminated by
either party upon ninety (90) days advance written notice.
8.4. Effect of Termination. If this Agreement is terminated by XCare.net
under Section 8.2, while XCare.net is performing any Development
Services for Client hereunder, Client shall immediately pay
XCare.net the total fees associated with such incomplete project, as
well as all amounts due and owing for any projects already completed
by XCare.net hereunder or for any third-party products or services
purchased by XCare.net in Client's behalf. If the Agreement is
terminated under Section 8.3 while XCare.net is performing any
Development Services or other services for Client hereunder, Client
shall pay XCare.net all fees due and owing up to the effective date
of such termination. The foregoing shall be without limitation to
XCare.net's rights and remedies under this Agreement.
8.5. Survival. Sections 3, 5, 7, 8, 9 and 10 shall survive any
termination or expiration of this Agreement; provided, however, that
if this Agreement is terminated by either party pursuant to Section
8.2 above, then Section 3.2 and 3.3 shall not survive.
9. CONFIDENTIALITY
9.1. Confidential Information. Each party acknowledges that, in
connection with the performance of this Agreement, it may receive
certain confidential or proprietary technical and business
information and materials of the other party ("Confidential
Information").
XCare.net agrees to obtain prior written consent from Asthma
Management before releasing any client-specific data/statistics,
including but not limited to the server usage reports. Asthma
Management owns all of the data that flows through the XCare.net
applications and servers.
9.2. Confidentiality. Each party hereby agrees: (i) to hold and maintain
in strict confidence all Confidential Information of the other party
and not to disclose it to any third party; and (ii) not to use any
Confidential Information of the other party except as permitted by
this Agreement or as may be necessary to perform its obligations
under this Agreement. Each party will use at least the same degree
of care to protect the other party's Confidential Information as it
uses to protect its own Confidential Information of like importance,
and in no event shall such degree of care be less than reasonable
care.
9.3. Exceptions. Notwithstanding the foregoing, the parties agree that
Confidential Information will not include any information that: (i)
is or becomes generally known or is or becomes part of the public
domain through no fault of the other party, (ii) the first party
authorizes to be disclosed; (iii) is rightfully received by the
other party from a third party without restriction on disclosure and
without breach of this Agreement; or (iv) is known to the other
party on the Effective Date from a source other than the first
party, and not subject to a confidentiality obligation.
9.4. Injunctive Relief Each party acknowledges that any breach of the
provisions of this Section 9 may cause irreparable harm and
significant injury to an extent that may be extremely difficult to
ascertain. Accordingly, each party agrees that the other party will
have, in addition to any other rights or remedies available to it at
law or in equity, the right to seek injunctive relief to enjoin any
breach or violation of this Section 9.
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<PAGE> 11
10. GENERAL PROVISIONS
10.1. Force Majeure. In the event that either party is unable to perform
any of its obligations under this Agreement or to enjoy any of its
benefits because of any event beyond the control of the affected
party including, but not limited to, natural disaster, acts of God,
actions or decrees of governmental bodies or failure of
communication lines (a "Force Majeure Event"), the party who has
been so affected shall promptly give written notice to the other
party and shall use its best efforts to resume performance. Upon
receipt of such notice, all obligations under this Agreement shall
be immediately suspended for the duration of such Force Majeure
Event.
10.2. Notice. All notices, demands, requests or other communications
required or permitted under this Agreement will be deemed given when
(i) delivered personally; (ii) five (5) calendar days after having
been sent by registered or certified mail, return receipt requested,
postage prepaid; or (iii) one (1) day after deposit with a
commercial overnight carrier, with written verification of receipt.
10.3. Waiver. Waiver of any breach or failure to enforce any term of this
Agreement shall not be deemed a waiver of any breach or right to
enforce which may thereafter occur. No waiver shall be valid against
any party hereto unless made in writing and signed by the party
against whom enforcement of such waiver is sought and then only to
the extent expressly specified therein.
10.4. Severability. In the event any one or more of the provisions of this
Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the remaining provisions of this Agreement shall be
unimpaired and the parties will substitute a new enforceable
provision of like economic intent and effect.
10.5. Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes thereto, shall be
governed by and construed in accordance with the laws of the State
of New York without reference to conflict of law principles.
10.6. Assignment. Neither party shall have the right to assign this
Agreement without the prior written consent of the other party;
provided, that either party shall have the right to assign this
Agreement to any person or entity that acquires or succeeds to all
or substantially all of such party's business or assets upon written
notice to the other party.
10.7. Publicity. Within a time frame mutually agreed upon by the parties,
the parties shall mutually agree on a joint press release announcing
the existence of this Agreement. Neither party will use the other
party's name, domain name, logo, trademark or service mark in
advertising or publicity without obtaining the other party's prior
written consent; provided, however, that XCare.net shall have the
nonexclusive right and license to use Client's name and Client Web
Site name, including the URL (Uniform Resource Locator) thereto, as
a Client reference, and as part of XCare.net's client portfolio.
XCare.net shall also have the right to display its name and logo, as
well as a link to the XCare.net site, on the Client Web Site(s), and
to receive credit as the developer of the Client Web Site(s),
(collectively, the "Credit"). Such Credit shall appear on the "home
page" of the Client Web Site(s) in a position that provides
reasonable and appropriate visibility to XCare.net in light of
industry standards and Client's requirements.
10.8. Additional Actions and Documents. Each of the parties hereto hereby
agrees to take or cause to be taken such further actions, to
execute, deliver and file or cause to be executed, delivered
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<PAGE> 12
and filed such further documents, and will obtain such consents, as may
be necessary or as may be reasonably requested in order to fully
effectuate the purposes, terms and conditions of this Agreement.
10.9. Headings. Section headings contained in this Agreement are inserted for
convenience or reference only, shall not be deemed to be a part of this
Agreement for any other purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions
hereof.
10.10. Execution in Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all
of which, when taken together, shall constitute one and the same
instrument.
10.11. Independent Contractors. The relationship of the parties hereunder shall
be that of independent contractors. Nothing herein shall be construed to
constitute a partnership between or joint venture of the parties, nor
shall either party be deemed the agent of the other or have the right to
bind the other in any way without the prior written consent of the
other.
10.12. Mediation. Any Dispute that the Parties are unable to resolve through
informal discussions or negotiations will be submitted to non-binding
mediation, which will be held in New York, New York. The Parties will
mutually determine who the mediator will be from a list of mediators
obtained from the AAA office located in New York, New York. If the
Parties are unable to agree on the mediator, the mediator will be
selected by the AAA.
10.13. Arbitration. Any Dispute that the Parties are unable to resolve
through mediation pursuant to Section 10.12 will be submitted to
arbitration in accordance with the following procedures:
10.13.1. Demand for Arbitration; Location. Either Party may demand
arbitration by giving the other Party written notice to such
effect which notice will describe, in reasonable detail, the
facts and legal grounds forming the basis for the filing
Party's request for relief and will include a statement of the
total amount of damages claimed, if any, and any other remedy
sought by that Party. The arbitration will be held before one
neutral arbitrator in New York, New York.
10.13.2. Identification of Arbitrator. Within thirty (30) calendar days
after the other Party's receipt of such demand, the Parties
will mutually agree upon an arbitrator. If the parties are
unable to agree on the arbitrator within that time period, the
arbitrator will be selected by the AAA. The arbitrator
will have a background in, and knowledge of, the information
technology services. If a person with such industry experience
is not available, the arbitrator will be chosen from the large
and complex case panel or, if an appropriate person is not
available from such panel, the retired federal judges pool.
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10.13.3. Conduct of Arbitration. The arbitration will be governed by the
Commercial Arbitration Rules of the AAA, except as expressly
provided in this Section 10.13. However, the arbitration will
be administered by an organization mutually agreed to in
writing by the Parties. If the Parties are unable to agree upon
the organization to administer the arbitration, it will be
administered by the AAA under its procedures for large and
complex cases. Pending the arbitrator's determination of the
merits of the Dispute, either Party may apply to any court of
competent jurisdiction to seek injunctive or other
extraordinary relief.
10.13.4. Scope of Discovery. Discovery will be limited to the request
for and production of documents, depositions and
interrogatories. Interrogatories will be allowed only as
follows: a Party may request the other Party to identify by
name, last known address and telephone number (i) all persons
having knowledge of facts relevant to the Dispute and a brief
description of that person's knowledge, (ii) any experts who
may be called as an expert witness, the subject matter about
which the expert is expected to testify, the mental impressions
and opinions held by the expert and the facts known by the
expert (regardless of when the factual information was
acquired) which relate to or form the basis for the mental
impressions and opinions held by the expert and (iii) any
experts who have been used for consultation, but who are not
expected to be called as an expert witness, if such consulting
expert's opinions or impressions have been reviewed by an
expert witness. All discovery will be guided by the Federal
Rules of Civil Procedure. All issues concerning discovery upon
which the Parties cannot agree will be submitted to the
arbitrator for determination.
10.13.5. Authority of Arbitrator. In rendering an award, the arbitrator
will determine the rights and obligations of the Parties
according to the substantive and procedural laws of the State
of New York. The arbitrator will not have authority to award
damages in excess of the amount or other than the types allowed
by Section 5.2, except in the case of gross negligence or
willful misconduct, and may not, in any event, make any
ruling, finding or award that does not conform to the terms and
conditions of this Agreement, except in the case of gross
negligence or willful misconduct.
10.13.6. Joinder of Parties. Each of Vendor and Customer agree that it
will use commercially reasonable efforts to join (and will
allow the other Party to join) any Third Party that the Parties
have agreed is indispensable to the arbitration. If any such
Third Party does not agree to be joined, the arbitration will
proceed nonetheless.
10.13.7. Award. The decision of, and award rendered by, the arbitrator
will be final and binding on the Parties. Upon the request of a
Party, the arbitrator's award will include written finding of
fact and conclusions of law. Judgement on the award may
be entered in and enforced by any court of competent
jurisdiction. Each Party will bear its own costs and expenses
(including filing fees) with respect to the arbitration,
including one-half of the fees and expenses of the arbitrator.
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10.14. Exclusive Remedy. Other than those matters involving injunctive or other
extraordinary relief or any action necessary to enforce the award of the
arbitrator, the Parties agree that the provisions of this Article 10 are
a complete defense to any suit, action or other proceeding instituted in
any court or before any administrative tribunal with respect to any
Dispute or the provision of the Services by Vendor. Nothing in this
Article 10 prevents the Parties from exercising their rights to
terminate this Agreement in accordance with Article 8.
10.15. Jurisdiction. All disputes arising out of or relating to this Agreement
shall be submitted to the non-exclusive jurisdiction of the state and
federal courts encompassing New York, New York, and each party
irrevocably consents to such personal jurisdiction and waives all
objections thereto.
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ATTACHMENT 2
SCHEDULE OF WORK AND FEES
This Schedule describes Services to be provided by XCare.net to Client under
this Professional Services Agreement dated September 9, 1999.
1. DESCRIPTION OF WORK
1.1. Phase I - Development of Beta Website Version 1.0
In order to enable Client to test the content of the Standard of
Care document, XCare is developing a Beta website. In
conjunction with this deliverable, XCare with Client is
analyzing the functional requirements laid out in the Standard
of Care document. The project team will evaluate the feasibility
of either selecting/licensing/customizing a web-based EMR
package that meets Client's functional requirements or custom
building an application that technologically enables the
remaining functionality within the Standard of Care document.
The major activities to complete these tasks are as follows (see
attached project plan for more detail):
A. Analyze Functional Requirements
B. Database Design
C. Define the network architecture for Client and the
physician offices
D. Define hardware architecture for Client and the
physician offices
E. Questionnaire Content Development - the functionality in
release 1.0 of the Beta site includes the following
cross references from the List of Acceptance Criteria:
o Criteria Numbers: 2, 22, 32, 33, 34, 35, 36, 37, 39,
40, 44, 45, 46, 48, 49, 50, 63, 67
F. Selection of Bulletin Board (threaded discussion)
Software
G. Hosting of Interim Marketing Website
H. Implementation Plan for version 2.0 Beta Site
TOTAL ESTIMATED HOURS = [*] HOURS
TOTAL ESTIMATED COST = $240K - $270K
PAYMENT SCHEDULE
The contract is based on a not to exceed time and materials
budget based on the functionality specified above. The payment
schedule will be based on the following timeline for Phase I:
o 20% upon signing the contract
o 40% Dec. 31, 1999
o 30% Jan. 31, 2000
o 10% Feb. 15, 2000
* Confidential treatment requested
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<PAGE> 16
1.2. Phase Ia - Development of Beta Website Version 2.0
In order to enable Client to test the content of the Standard of
Care document, XCare is developing a beta website. In
conjunction with this deliverable, XCare is also selecting a
web-based EMR package that meets Client's functional
requirements. The major activities to complete these tasks will
be further defined and outlined in an addendum to this document.
1.3. Phase II - Final Site Integration/Implementation
Applications/partnerships that have not been defined
specifically will be incorporated into the architecture based on
the type of service. Mutually agreed upon requirements for these
applications will be developed and implemented by March 31,
2000. The major activities to complete these tasks will be
further defined and outlined in an addendum to this document.
2. FEE SCHEDULE:
Our approach is highly structured which provides our clients with
detailed costing estimates throughout the project. For time and
materials projects, XCare.net billing rates are $150/hr and payable upon
completion of the agreed upon milestone activities. Travel expenses
associated with the project will be billed separately.
There will be no hosting charges made for XCare.net to host the interim
marketing site, the branded interim marketing site, and the beta web
site through Dec. 31, 1999.
3. XCARE.NET AND CLIENT CONTACTS ASTHMA MANAGEMENT CORPORATION
Bob Smoler CEO 203/341-0798
Anna Wong Chief Operating Officer 718/229-0821
XCARE.NET
Jon Wisda V.P. Product Development 303/488-2019 x238
Debbie Daufeldt Director, Solution Architecture 303/488-2019 x259
XCARE.NET "CLIENT"
By: By:
---------------------------------- ----------------------------------
- ------------------------------------- -------------------------------------
Printed Name Printed Name
- ------------------------------------- -------------------------------------
Title Title
- ------------------------------------- -------------------------------------
Date Date
2
<PAGE> 17
ATTACHMENT 3
MAINTENANCE SERVICES
In consideration of payment of the annual Maintenance Fee(s) set forth in this
Attachment, Customer agrees to purchase, and XCare.net agrees to provide
Customer on an annually renewable basis with software maintenance services for
XCare.net and Client software as follows:
A. Any and all content updates to the Client website;
B. Any and all updates to the Documentation issued by XCare.net; and
C. Remote diagnostic support (including dial-up capabilities) regarding
XCare.net and Client software to include error analysis and, where
possible, correction services, twenty-four (24) hours per day, seven (7)
days per week. Any on-site assistance which Customer may request and which
is provided by XCare.net, which, in XCare.net's reasonable opinion, is not
necessary to determine the nature and resolution of any problems Customer
may have with XCare.net shall be provided by XCare.net at its then-current
rates. If Customer notifies XCare.net that it suspects a material error in
the program logic of XCare.net or in the Documentation, XCare.net shall
make all reasonable efforts to confirm the existence of the error and
correct it. If the parties mutually determine that no such error exists,
Customer agrees to pay XCare.net for its services at XCare.net's hourly
rates then in effect and to reimburse XCare.net for any and all reasonable
travel and living expenses incurred by XCare.net in rendering such
services. XCare.net will use its Severity Designations in effect from time
to time to provide remote diagnostic support. A current copy of Severity
Designations are attached.
D. XCare.net's providing Customer with maintenance services as described in
this Attachment shall automatically continue, on an annual basis, unless
either party shall give written notice to the other that it desires not to
renew such maintenance services. The parties agree that such written notice
shall be remitted for receipt by the other no less than ninety (90) days
prior to the end of the then-current annual maintenance period.
<TABLE>
<CAPTION>
PAYMENT ESTIMATED ESTIMATED
TRIGGERING EVENT TIME FRAME PERCENTAGE DUE AMOUNT DUE
- ---------------- ---------- -------------- ----------
<S> <C> <C> <C>
Final Acceptance or February, 2000 1/12 of total payment to be made 25% of final
commencement of on a monthly basis during the application
Live Production Year of maintenance services. development fee.
Environment
("Acceptance")
First and Subsequent Annually 1/12 of Annual Maintenance 25% of Total
Anniversaries of Thereafter Fee application
Acceptance development fee
</TABLE>
<PAGE> 18
ATTACHMENT 4
ARCHITECTURAL PLATFORM
XCARE.NET OUTSOURCING SERVICES
XCare.net relies on a redundant frame network to support Extranet capabilities
with its customers. XCare.net's systems architecture is built on a multitiered
fully redundant architecture using UNIX as the base operating
XCare.net Frame Network
Asthma Management Co.
[FLOW CHART]
system. Xcare.net will commence full web outsourcing operation operations in
1999 from its main hosting facility located in Albuquerque, New Mexico. Plans to
co-locate the web services to another area in 2000 are currently underway.
Xcare.net uses virtual servers to present a single address for a group of real
servers and load-balance service requests between real servers in a site. Real
servers are actual host machines with unique IP addresses that provide TCP/IP
and WWW services to the network. This physical network design facilitates the
expansion of the network for future growth. Systems may be added to help manage
resources where required.
XCARE.NET NETWORK ARCHITECTURE DESIGN
[DIAGRAM]
<PAGE> 19
Attachment 5 -- List of Acceptance Criteria
<TABLE>
<CAPTION>
Original
Standard of In Beta IT
Care (versions 1 System (release
AMC Desired IT Functions and 2), page # 1.0, 12/9/99) Beta release 2.0
- ------------------------ -------------- ------------- ----------------
<S> <C> <C> <C>
2. Search the IT system for possible patient records 6 X
4. Enter "mini-registration" data (pt. registration
via website -- need security functions) 6
5. Lookup insurance information 7
6. Input the appointment into the scheduling system 7
7. Determine Encounter Package Code 8 X
9. Patients "pre-register" via the Internet 8
11. Assign temporary medical record number or password
or other alternative allowing patient to enter
pre-registration, intake and survey data via the internet 8
12. Pre-populate "introductory" letters 8 X
14. Create and print the "Scheduling Pull List Report" 8
15. Search for the "mini-registration" from last name
and first name 10
17. Encounter screen (need to spec) 10 X
18. Use scanning to store images 11
20. Assign tickler flag in the IT system to track
missing referrals 11
21. Trigger a notification to the patient if a valid
referral is not received within five business days 11
22. Intake screens:
22a. Demographics 13 X
22b. Communication 13 X
22c. Parental Consent 14 X
22d. Emergency Contact 14 X
22e. Appointment Preference 14
22f. Insurance Coverage 15 X
22g. Coordination of Benefit 16 X
22h. PCP 16 X
22i. Referring Physician 17 X
22j. Consult Letter 17 X
22k. Pharmacy 18 X
22l. Outreach 18 X
25. Research flag screen 20 X
26. Check the patient's record to see if flagged for
a research study or clinical trial 20 X
27.1. Research screen 20 X
27. Search the research screen using "name of study"
and "number of study" 20 X
28. Create a new "encounter package code" for modified workflow 20
29. Create a new "protocol template" for modified protocol 20
30. Scan the signed consent form into the selected IT system 20
32. Symptoms screen (includes cough, shortness of breath,
allergy, sleep apnea) 22 - 25 X
33. Trigger Factors screen (includes smoking history,
occupational history) 26 - 28 X
34. Environmental Assessment screen 28 X
</TABLE>
page 1 of 4
<PAGE> 20
ATTACHMENT 5 -- LIST OF ACCEPTANCE CRITERIA
<TABLE>
<CAPTION>
Original
Standard of In Beta IT
Care (versions 1 System (release
AMC Desired IT Functions and 2), page # 1.0, 12/9/99) Beta release 2.0
- ------------------------ -------------- ------------- ----------------
<S> <C> <C> <C>
116. Graph peak flow rate over time and to send alerts to Nurse
Educator if patient reaches critical value 72
117. Display the exact pharmacotherapy regimen based on the
patient's zone" (the "action box") 72
118. Enter information on encounter type details and interactions
with the patients 72
119. Track response time and escalation procedures 72
120. Send patient-specific asthma literature via e-mail 72
121. Link with other asthma websites 72
122. Send a Patient Satisfaction Survey either via mail or e-mail 72
126.1. Patient Assessment screen 77 - 79 X
126. Asthma education first follow up visit screen (Anna to merge
with #127 and 145) 79 - 81 X
127. Asthma education second follow up visit screen 81 - 83 included in
#126
129. Track return visits with a tickler system 84
130. Track patient's adherence against established protocols 84
131. Display longitudinally over time key clinical indicators
(Anna to design) 84 X
132. Track any deviance from the protocol 84
133. Highlight and flag missing data 84
134. List all the services rendered chronologically on a summary
screen 84
135. Triage incoming calls using an interactive voice response (IVR)
system 87
136. Transfer urgent calls to the on-call nurse 87
137. Allow patients to request / schedule their appointment via the AMC
website 87
138. Scheduling on-line-> checks appointment preference, checks
physician availability, gives appointment using time-adjusted
staggering schedule, and alerts the receptionist if the patient
needs a referral 87
139. Send reminder letters 88
145. Asthma Education All Subsequent Visit screen 89 - 91 included in
#126
146. Ability for users to customize the display of the screen
147. Datawarehouse X
148. IVR for peak flow input
149. Biometric security X
</TABLE>
page 4 of 4
<PAGE> 21
ATTACHMENT 5 - LIST OF ACCEPTANCE CRITERIA
<TABLE>
<CAPTION>
Original
Standard of In Beta IT
Care (versions 1 System (release
AMC Desired IT Function and 2), Page # 1.0, 12/9/99) Beta release 2.0
- ----------------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
79. Check billing information to collect fees, co-payment, 68
deductibles, coinsurance and/or any outstanding balances
80. Scan patient's check(s) that are collected 68
81. Electronically transfer funds 68
82. Read Explanation of Benefits from insurance plan electronically 68
84. Schedule follow-up appointments 68
86. Red-line or addenda with date/time stamp for analysis (see 68 X
Cerner functionality)
88. Accept voice recording 68
89. Display educational videos 68
90. Display diagrams of major body parts 68
91. Convert progress notes to appropriate CPT codes and ICD-9 codes 68
92. Auto-populate HCFA-1500 form or superbill 68
93. Reconcile bills with completed visits on the scheduling system 69
94. Print patient statements if the patient makes such a request at 69
time of discharge
95. Generate secondary insurance claims 69
96. Select appropriate form during a print run 69
97. Automatic cycle billing 69
98. EDI 69
99. Interface with General ledger 69
100. User-defined adjustment codes 69
100.1. Multiple tax IDs, insurance plan IDs with effective dates, 69
servicing provider IDs, multiple locations
101. Add or remove patients on collections based on user-defined 69
aging parameters
102. Track all communication events (same as #17) 69
104. Patient can e-mail Nurse Educator 70
104.1. Patient's phone messages to Nurse Educator are transcribed 70
into e-mail
105. Post laboratory results in the e-mail box of their respective 70
provider for electronic sign-off - the results go to the patient's chart
106. Display e-mail messages when the user is first logged onto the 70
system - the results go to the patient's chart
107. Prioritize and color-code the incoming e-mails 70
108. Generate paging messages 70
109. Track response time 70
110. Follow escalation protocols 70
112. Distribute messages based on a pre-determined workflow 70
113. Electronic peak flow
114. Asthma diary screen 71
115. Eletronic peak flow meter hooked to computer
115.1. Different color to highlight peak flow rate, consistent with 71
patient's asthma action plan
</TABLE>
page 3 of 4
<PAGE> 22
ATTACHMENT 5 - LIST OF ACCEPTANCE CRITERIA
<TABLE>
<CAPTION>
Original
Standard of In Beta IT
Care (versions 1 System (release
AMC Desired IT Functions and 2), page # 1.0, 12/9/99 Beta release 2.0
- ------------------------ ---------------- --------------- ----------------
<C> <C> <C> <C>
35. Past Medical History screen 29 X
36. Asthma screen 35 X
37. Medication History screen (automatically display selection
choices for pharmocotherapy) 36 X
39. Quality of Life 37 X
40. Compute total patient asthma scores - data will have to be
extracted 38 X
41. Display patient asthma score history - data will have to be
extracted (pg. 32 of Beta spec document - Anna to design
report) 38 X
42. Connect a spirometer to the application 40
44. Spirometry screen 40 X
45. Prints reports summarizing patient's answers to his/her survey's/
questionnaires and spirometry measurements and graphs 41-44 X
46. Physical examination screen 45 X
48. Skin test screen 46 X
48a. Skin test reminder (prick test for first visit...) - Anna to
forward Std of Care document version 2 46
49. Program Diagnostic algorithm 51-52
49a. Diagnosis screen 50 X
50. Create a patient-specific asthma treatment plan (has pop-up
pharmacotherapy screen) 54-58 X
51. Check whether this particular patient matches the selection
criteria for any ongoing clinical trials/research studies 53 X
52. Assign the research flag to patients who match the selection
criteria for any ongoing clinical trials/research studies 53 X
53. PDR reference 58
54. Drug interactions (drug-drug, drug-food) 58
55. Multiple formularies 58
56. Therapeutic substitutes 58
63. Asthma action plan screen 59-63 X
64. Assign a Nurse Educator to each patient (field containing drop-
down with nurses' names for user to select from and populate field) 63 X
65. Provide educational materials (Anna to build template) 63
67. Asthma education initial visit screen 64-65 X
71. Print out instructions and directions to facilities to obtain
various treatments 67
72. Fax orders to the appropriate provider 67
73. Receive laboratory results electronically from laboratories 67
74. Route results to the respective physician 67
75. Prioritize/rank laboratory results 67
76. Print copies of the prescriptions 68
77. Fax prescriptions to pharmacies 68
78. Print consult letters (Anna to construct/design - letter plus
current patient report attachment) 68 X
</TABLE>
Page 2 of 4
<PAGE> 23
HOSTING SERVICES AGREEMENT
This Hosting Services Agreement (the "Agreement") is entered into as of
September 9, 1999 (the "Effective Date") by and between XCare.net, a Delaware
corporation with offices at 6400 S. Fiddler's Green Circle, Englewood, CO 80111,
("XCare.net"), and Asthma Management Company, LLC, a Delaware limited liability
corporation with offices at 17 Pequot Trail, Westport, CT 06880 ("Client").
This Agreement includes the following schedules, which are incorporated
herein by this reference:
Schedule 1 Hosting Services Description and Pricing
Schedule 2 Managed Services Option
Any notice required or permitted under this Agreement will be in writing
and delivered to the address set forth below, or to such other notice address as
the other party has provided by written notice.
THIS AGREEMENT, INCLUDING THE SCHEDULES LISTED ABOVE, CONSTITUTES THE
COMPLETE AND EXCLUSIVE UNDERSTANDING OF THE PARTIES WITH REFERENCE TO THE
SUBJECT MATTER HEREOF, AND SUPERSEDES ALL PRIOR SALES PROPOSALS, NEGOTIATIONS,
AGREEMENTS AND OTHER REPRESENTATIONS OR COMMUNICATIONS, WHETHER ORAL OR WRITTEN.
IF THERE IS ANY CONFLICT BETWEEN THE TERMS AND CONDITIONS OF CLIENT'S PURCHASE
ORDER (OR ANY OTHER PURCHASE OR SALES DOCUMENT) AND THE TERMS AND CONDITIONS OF
THIS AGREEMENT, THIS AGREEMENT SHALL CONTROL. THIS AGREEMENT MAY BE MODIFIED,
REPLACED OR RESCINDED ONLY IN WRITING, AND SIGNED BY A DULY AUTHORIZED
REPRESENTATIVE OF EACH PARTY.
AGREED:
XCare.net Client:
------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
By: By:
---------------------------------- ----------------------------------
(Authorized Signature) (Authorized Signature)
- ------------------------------------- -------------------------------------
(Printed Name and Title) (Printed Name and Title)
1
<PAGE> 24
XCARE.NET HOSTING SERVICES AGREEMENT
1 XCare.net Obligations
1.1 XCare.net agrees to provide to Client the Services as described in
Schedules attached hereto pursuant to orders placed by Client and accepted by
XCare.net.
1.2 The initial service period for all orders for Services ("Initial Service
Period") shall commence upon activation of the Services and remain in effect for
a period of two years. If Client and XCare.net fail to agree on the terms to
extend the Services past the Initial Service Period, the applicable Schedule for
Services shall continue in effect on a month-to-month basis, until terminated by
either Client or XCare.net as provided in Section 4 below.
1.3 The fees for Services are specified in Schedule 1 of this agreement.
XCare.net will issue invoices ("Invoices") to Client for installation fees for
Client's Services and other applicable nonrecurring and recurring fees covering
the initial one month period. On a monthly basis, XCare.net will determine
Client's actual usage which determination shall be subject to audit by Client.
After the initial one month period, XCare.net will issue Invoices on a monthly
basis to Client as specified in attached schedules.
2 Client's Obligations
2.1 Client shall pay XCare.net the amount specified in the Invoices, in U.S.
Dollars, per the payment terms set forth in such invoices. Late payments shall
bear interest at one and one-half percent (1.5%) per month or the maximum rate
permitted by law, whichever is less.
2.2 Client is solely responsible for all updates to Content (as defined below)
on Server ("Server") as defined in the applicable Schedule). Client shall update
Content on the Server by means of the Internet and an XCare.net provided secure
account.
2.3 XCare.net shall not obtain any right, title to and/or interest in content,
including but not limited to text, multimedia images (graphics, audio and
video), software and other data (collectively "Content") provided by Client and
installed by XCare.net or Client on the Server or developed for Client at
Client's expense; however, XCare.net shall retain title to and all rights in all
other intellectual property including, but not limited to, any know-how related
to XCare.net-provided products or services such as the hardware, software or any
other server technology.
2.3 Client acknowledges and agrees that use of the Services is subject to
Client's compliance with the terms defined in XCare.net's Prohibited Uses of
Products and Services Policy, attached hereto as Exhibit A, as amended from time
to time. Violations of any of the terms of such policy shall constitute a breach
hereunder and may result in termination of this Agreement by XCare.net.
2.4 Client is solely responsible for Content, including any subsequent changes
or updates made or authorized by Client. Client warrants and represents that
Content: (i) does not infringe or violate the rights of any third party
including, but not limited to, intellectual property rights (including but not
limited to patents, copyrights, trademarks, trade secrets and rights of
publicity); (ii) is not defamatory or obscene; and (iii) does not violate any
other applicable law. XCare.net reserves the right (but shall have no
obligation) to delete any material installed on a Server in an XCare.net
facility or to disconnect Internet access of a Server which contains Content
which XCare.net believes in good faith breaches any of these warranties. Any
breach of these warranties by Client may result in termination of the Services.
2.5 Client acknowledges and agrees that Client assumes all risk related to the
processing of transactions related to electronic commerce. XCare.net reserves
the right to discontinue the Services to Client if either XCare.net believes in
good faith that Client has violated the foregoing, or that Client's use of the
Services poses a threat to the internal
2
<PAGE> 25
security of the XCare.net network, the Web hosting facility, other customers, or
the Server.
2.6 Upon termination of either this Agreement or any applicable Schedule for
Services, User must relinquish use of the Internet Protocol Addresses ("IP
Addresses") or address blocks assigned to it in connection with the Services.
2.7 All equipment provided by XCare.net in connection with this Agreement shall
remain the property of XCare.net.
3 Warranties and Indemnity
3.1 XCare.net makes no warranties of any kind with respect to Services and
Products provided under this Agreement. XCARE.NET DISCLAIMS ALL WARRANTIES,
EXPRESS AND IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE OTHER THAN THOSE EXPRESS WRITTEN
PERFORMANCE AGREEMENTS MUTUALLY AGREED UPON. In any instance involving
performance or nonperformance of Services and Products provided hereunder,
Client's sole remedy shall be (a) in the case of Services, refund of a
prorata portion of the price paid for Services which were not provided.
3.1.1 Except as otherwise may be provided in this Agreement, credit for
lost Services will be issued only for periods, calculated in fifteen (15)
minutes increments, in excess of two (2) hours in a calendar month. One (8)
hour services loss will be permitted in each 6 month service period to
allow for potential catastrophic system disruption. Lost Services or
"Downtime" is deemed to have occurred only if service becomes unusable by
Client as a result of failure of XCare.net facilities, equipment, or
personnel used to provide the Services, and only where the interruption is
not the result of (a) negligence or other conduct of Client or its agents,
including a failure or malfunction resulting from applications or services
provided by Client or its agents, (b) failure or malfunction of any
equipment or services not provided by XCare.net, (c) circumstances beyond
the control of XCare.net, or (d) interruption due to scheduled maintenance,
alteration, or implementation. All claims must be made within 60 days of
the date of such lost Services.
3.2 EXCEPT IN THE EVENT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT IN NO EVENT
WILL XCARE.NET, IT'S SUBSIDIARIES OR ITS OR THEIR AGENTS, BE LIABLE TO CLIENT
FOR ANY DAMAGES, INCLUDING LOST PROFITS, LOSS OF DATA, OR OTHER SPECIAL,
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR ANY OTHER DAMAGES, ARISING OUT
OF OR IN CONNECTION WITH THE PURCHASE, USE OR PERFORMANCE OF THE SERVICES EXCEPT
THAT XCARE.NET AND CLIENT WILL ESTABLISH A PLAN FOR SAFEGUARDING CLIENT'S DATA
AND XCARE.NET WILL BE LIABLE FOR DAMAGES FOR LOST DATA SHOULD THEY NOT FOLLOW
THIS AGREED UPON PLAN. XCare.net will not be liable for any damages Client may
suffer arising out of Client's use, or inability to use, the Services or related
products. In no event shall XCare.net be liable for unauthorized access to
Client's transmission facilities or Client premise equipment or for unauthorized
access to or alteration, theft or destruction of Client's data files, programs,
procedure or information through accident, fraudulent means or devices, or any
other method except that XCare.net and Client will establish a plan for
safeguarding Client's equipment, data files, and programs and XCare.net will be
liable for damages associated with harm to Client's equipment, data files and
programs should they not follow this agreed upon plan.
3.3 XCare.net's liability for damages to Client for any cause whatsoever,
regardless of form of action, including negligence, shall not exceed an amount
equal to the price of products and Services purchased by Client during the
twelve month period preceding the event which caused the damages or injury;
provided, however, that this limitation shall not apply to damages to Client for
personal injuries or destruction of tangible personal property proximately
caused by the negligence of XCare.net or damages caused by gross negligence or
willful misconduct.
3.4 XCare.net will indemnify and hold Client harmless against any claim or
demand by any third party that any hardware or software provided to Client
hereunder, infringes any United States copyright or trade secret. Except for
damages incurred by XCare.net caused by (a) proprietary rights infringement
claims as provided for above, or (b) damages for personal injuries or
destruction of tangible property proximately caused by XCare.net's negligence or
3
<PAGE> 26
damages caused by XCare.net's gross negligence or willful misconduct, Client
agrees to indemnify and hold XCare.net harmless against any claim or demand by
any third party due to or arising out of the use by Client of Services and
related products provided hereunder.
3.5 Client will indemnify and hold XCare.net harmless against any claim or
demand by any third party brought as a result of Client's violation of the
XCare.net Prohibited Uses Policy or and third party claims Content provided by
Client or by XCare.net at Client's request .
4. Termination
4.1 Either party may terminate this Agreement by providing the other party with
at least sixty (60) days notice prior to the end of the then current term.
4.2 Client may cancel or terminate this Agreement in the event of three (3) or
more "service interruptions" in excess of four (4) hours duration during any
thirty (30) day period, during the term of this Agreement. A "service
interruption" is deemed to have occurred only if service becomes unusable by
Client as a result of failure of XCare.net facilities, equipment, or personnel
used to provide the Services, and only where the interruption is not the result
of (a) negligence or other conduct of Client or its agents, including a failure
or malfunction resulting from applications or services provided by Client or its
agents, (b) failure or malfunction of any equipment or services not provided by
XCare.net, (c) circumstances beyond the control of XCare.net, or (d)
interruption due to scheduled maintenance, alteration, or implementation.
4.3 This Agreement may be terminated by either party in the event of (i) any
material breach of, any of the terms and conditions of this Agreement by the
other party, which default continues in effect after the defaulting party has
been provided with written notice of default and thirty (30) days to cure such
default; (ii) the commencement of a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to either party of its
debts under any bankruptcy, insolvency, or other similar law now or hereafter in
effect, that authorizes the reorganization or liquidation of such party or its
debt or the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property; (iii) either
party's consent to any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other proceeding commenced
against it; or (iv) either party's making a general assignment for the benefit
of creditors; or either party's becoming insolvent; or either party taking any
corporate action to authorize any of the foregoing.
4.4 In the event of termination by Client for any reason other than expiration
of a service order or a service interruption as defined in subsection 4.2,
Client agrees to immediately pay XCare.net as a cancellation fee all monthly
recurring fees specified in the quote provided by XCare.net for such service
order through the date of termination. Upon termination of this Agreement,
Client must relinquish use of the Internet Protocol Addresses ("IP Addresses")
or address blocks assigned to it in connection with the Services.
5. General
5.1 Force Majeure. In the event that either party is unable to perform any of
its obligations under this Agreement or to enjoy any of its benefits because of
any event beyond the control of the affected party including, but not limited
to, natural disaster, acts of God, actions or decrees of governmental bodies or
failure of communication lines (a "Force Majeure Event"), the party who has been
so affected shall promptly give written notice to the other party and shall use
its best efforts to resume performance. Upon receipt of such notice, all
obligations under this Agreement shall be immediately suspended for the duration
of such Force Majeure Event.
5.2 Assignment. Neither party shall have the right to assign this Agreement
without the prior written consent of the other party; provided, that either
party shall have the right to assign this Agreement to any person or entity that
acquires or succeeds to all or substantially all of such party's business or
assets upon written notice to the other party.
4
<PAGE> 27
5.3 Severability. In the event any one or more of the provisions of this
Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the remaining provisions of this Agreement shall be
unimpaired and the parties will substitute a new enforceable provision
of like economic intent and effect.
5.4 Waiver. Waiver of any breach or failure to enforce any term of this
Agreement shall not be deemed a waiver of any breach or right to enforce
which may thereafter occur. No waiver shall be valid against any party
hereto unless made in writing and signed by the party against whom
enforcement of such waiver is sought and then only to the extent
expressly specified therein.
5.5 Notices. All notices, demands, requests or other communications required
or permitted under this Agreement will be deemed given when (i)
delivered personally; (ii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid;
or (iii) one (1) day after deposit with a commercial overnight carrier,
with written verification of receipt.
5.6 Governing Law. This Agreement, the rights and obligations of the parties
hereto, and any claims or disputes thereto, shall be governed by and
construed in accordance with the laws of the State of New York without
reference to conflict of law principles.
5.7 Mediation. Any Dispute that the Parties are unable to resolve through
informal discussions or negotiations will be submitted to non-binding
mediation, which will be held in New York, New York. The Parties will
mutually determine who the mediator will be from a list of mediators
obtained from the AAA office located in New York, New York. If the
Parties are unable to agree on the mediator, the mediator will be
selected by the AAA.
5.8 Arbitration. Any Dispute that the Parties are unable to resolve through
mediation pursuant to Section 10.12 will be submitted to arbitration in
accordance with the following procedures:
5.8.1. Demand for Arbitration; Location. Either Party may
demand arbitration by giving the other Party written
notice to such effect, which notice will describe, in
reasonable detail, the facts and legal grounds forming
the basis for the filing Party's request for relief and
will include a statement of the total amount of damages
claimed, if any, and any other remedy sought by that
Party. The arbitration will be held before one neutral
arbitrator in New York, New York.
5.8.2. Identification of Arbitrator. Within thirty (30)
calendar days after the other Party's receipt of such
demand, the Parties will mutually agree upon an
arbitrator. If the parties are unable to agree on the
arbitrator within that time period, the arbitrator will
be selected by the AAA. The arbitrator will have a
background in, and knowledge of, the information
technology services. If a person with such industry
experience is not available, the arbitrator will be
chosen from the large and complex case panel or, if an
appropriate person is not available from such panel, the
retired federal judges pool.
5.8.3. Conduct of Arbitration. The arbitration will be governed
by the Commercial Arbitration Rules of the AAA, except
as expressly provided in this Section 10.13. However,
the arbitration will be administered by an organization
mutually agreed to in writing by the Parties. If the
Parties are unable to agree upon the organization to
administer the arbitration, it will be administered by
the AAA under its procedures for large and complex
cases. Pending the arbitrator's determination of the
merits of the Dispute, either Party may apply to any
court of competent jurisdiction to seek injunctive or
other extraordinary relief.
5.8.4. Scope of Discovery._Discovery will be limited to the
request for and production of documents, depositions and
interrogatories. Interrogatories will be allowed only as
5
<PAGE> 28
follows: a Party may request the other Party to identify
by name, last known address and telephone number (i) all
persons having knowledge of facts relevant to the
Dispute and a brief description of that person's
knowledge, (ii) any experts who may be called as an
expert witness, the subject matter about which the
expert is expected to testify, the mental impressions
and opinions held by the expert and the facts known by
the expert (regardless of when the factual information
was acquired) which relate to or form the basis for the
mental impressions and opinions held by the expert and
(iii) any experts who have been used for consultation,
but who are not expected to be called as an expert
witness, if such consulting expert's opinions or
impressions have been reviewed by an expert witness. All
discovery will be guided by the Federal Rules of Civil
Procedure. All issues concerning discovery upon which
the Parties cannot agree will be submitted to the
arbitrator for determination.
5.8.5. Authority of Arbitrator. In rendering an award, the
arbitrator will determine the rights and obligations of
the Parties according to the substantive and procedural
laws of the State of New York. The arbitrator will not
have authority to award damages in excess of the amount
or other than the types allowed by Section 5.2, except
in the case of gross negligence or willful misconduct,
and may not, in any event, make any ruling, finding or
award that does not conform to the terms and conditions
of this Agreement, except in the case of gross
negligence or willful misconduct.
5.8.6. Joinder of Parties. Each of Vendor and Customer agree
that it will use commercially reasonable efforts to join
(and will allow the other Party to join) any Third Party
that the Parties have agreed is indispensable to the
arbitration. If any such Third Party does not agree to
be joined, the arbitration will proceed nonetheless.
5.8.7. Award. The decision of, and award rendered by, the
arbitrator will be final and binding on the Parties.
Upon the request of a Party, the arbitrator's award will
include written finding of fact and conclusions of law.
Judgement on the award may be entered in and enforced by
any court of competent jurisdiction. Each Party will
bear its own costs and expenses (including filing fees)
with respect to the arbitration, including one-half of
the fees and expenses of the arbitrator.
5.8.8. Exclusive Remedy. Other than those matters involving
injunctive or other extraordinary relief or any action
necessary to enforce the award of the arbitrator, the
Parties agree that the provisions of this Article 10 are
a complete defense to any suit, action or other
proceeding instituted in any court or before any
administrative tribunal with respect to any Dispute or
the provision of the Services by Vendor. Nothing in this
Article 10 prevents the Parties from exercising their
rights to terminate this Agreement in accordance with
Article 8.
5.9 Jurisdiction. All disputes arising out of or relating to this Agreement
shall be submitted to the non-exclusive jurisdiction of the state and
federal courts encompassing Denver, Colorado, and each party irrevocably
consents to such personal jurisdiction and waives all objections
thereto.
5.10 Headings. Section headings contained in this Agreement are inserted for
convenience or reference only, shall not be deemed to be a part of this
Agreement for any other purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions
hereof
5.11 Independent Contractors. The relationship of the parties hereunder shall
be that of independent contractors. Nothing herein shall be construed to
constitute a partnership between or joint venture of the parties, nor
shall either party be deemed the agent of the other or have the right to
bind the other in any way without the prior written consent of the
other.
6
<PAGE> 29
5.12 Execution in Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all
of which, when taken together, shall constitute one and the same
instrument.
5.13 Publicity. Client understands that Internet use, and related products
and Services provided under this Agreement, may require registrations
and related administrative reports which are public in nature. In
addition Client agrees XCare.net may include its name and a description
of the provided services as a reference or in client portfolios.
7
<PAGE> 30
EXHIBIT A
XCARE.NET PROHIBITED USES POLICY FOR
XCARE.NET HOSTING SERVICES
The following actions are defined by XCare.net as "system abuse" and are
strictly prohibited under the XCare.net Hosting Services Agreement. The examples
named in this list are not exhaustive and are provided solely for guidance to
Clients using the XCare.net Hosting Services. If any Client is unsure of whether
a contemplated use or action is permitted, it is Client's responsibility to
determine the permitted use by contacting XCare.net via electronic mail at
[email protected]. The following activities are expressly prohibited and could
result in termination of a Client's XCare.net Hosting Services Agreement.
GENERAL
o Resale of XCare.net's products and services, unless specifically
permitted and documented in a separate written agreement or the
initial Client contract.
o Using the facilities and capabilities of XCare.net or its services to
conduct any illegal activity or other activity that infringes the
rights of others.
o Deceptive on-line marketing practices. The United States Federal
Trade Commission has issued informative guidelines for proper on-line
marketing schemes. For more information about the FTC guidelines
review the Deception Policy Statement from the FTC.
o Violations of intellectual property -- as legally protected by
copyrights and licenses. This includes, but is not limited to, the
installation or distribution of illegal, "pirated", or other software
products that are not appropriately licensed by Client.
o Violations of privacy.
SYSTEM AND NETWORK
o Introduction of malicious programs into the network or Server (e.g.
viruses, worms, Trojan horses, etc.).
o Attempted or successful security breaches or disruption of Internet
communication. Security breaches include, but are not limited to,
accessing data of which Client is not an intended recipient or
logging into a Server or account that Client is not expressly
authorized to access.
o Client may not execute any form of network monitoring (e.g. packet
sniffer) which will intercept data not intended for Client Server.
o Attempts to circumvent Client authentication or security of any host,
network, or account ("cracking").
o Attempts to interfere with or deny service to any user or any host
(e.g. Denial of Service Attacks).
o Use of any program/script/command, or sending messages of any kind,
designed to interfere with a third party Clients terminal session,
via any means, locally or via the Internet.
BILLING
o Furnishing false or incorrect data on the signup form, hosting
agreement, or online hosting order application.
o Attempts to circumvent or alter the processes or procedures to
measure time, bandwidth utilization, or other methods to document
"use" of XCare.net's products and services.
MAIL
o Sending unsolicited mail messages, including the sending of "junk
mail" or other advertising material to individuals who did not
specifically request such material (e.g. "spamming").
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o Harassment, whether through language, frequency, or size of messages.
o Forging of mail header information to a third party.
o Using the XCare.net or Client account to collect replies to messages
sent from another provider, which violate these rules or those of the
other provider.
o Creating or forwarding "chain letters" or other "pyramid schemes" of
any type.
USENET NEWSGROUPS
o Posting the same or similar message to large numbers of Usenet
newsgroups.
o Posting chain letters of any type.
o Posting encoded binary files to newsgroups not specifically named for
that purpose.
o Cancellation or superseding of posted messages other than your own.
o Forging of header information.
o Solicitations of mail for any other e-mail address other than that of
the poster's account or service, with intent to harass or to collect
replies.
IRC (INTERNET RELAY CHAT)
o Use of IRC scripts or programs that will interfere with or deny
service to other clients on any Server or host.
o Running or attempting to run any IRC robot or Server on equipment
other than the equipment provided by XCare.net to the Client.
ADMINISTRATOR ACCOUNTS
The following section details XCare.net's policy regarding administrator
privileges with the products and services offered by XCare.net's Hosting
Services Group. Clients utilizing XCare.net Hosting Services products and
services, whether the Server is provided by XCare.net or is provided by
the Client are subject to the following list of restrictions. The items in
this list are not exhaustive and are provided solely for guidance to
Clients using the XCare.net Hosting Services. If any Client is unsure of
whether a contemplated use or action is permitted it is Client's
responsibility to determine the permitted use by contacting XCare.net via
electronic mail at [email protected].
o Client may not change the IP address or name of the Server.
o Client may not provide or share administrator privileges with
individuals who have not reviewed and agreed to the terms of the
XCare.net Hosting Services Agreement and the XCare.net Prohibited
uses Policy for XCare.net Hosting Services.
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SCHEDULE 1
HOSTING SERVICES DESCRIPTION AND PRICE SCHEDULE
In accordance with this agreement, XCare.net will provide the following
services, resources and service features:
- --------------------------------------------------------------------------------
Server Configuration
- --------------------------------------------------------------------------------
Hardware
XCare.net Hosting Provided Software
- --------------------------------------------------------------------------------
Data Center
- --------------------------------------------------------------------------------
XCare.net Data Center Operations
- --------------------------------------------------------------------------------
Bandwidth & Networking
- --------------------------------------------------------------------------------
An Intranet Connecting All Physician and Asthma Management Co. Offices
To The Main Server and the Disaster Recovery Site.
- --------------------------------------------------------------------------------
Backup
- --------------------------------------------------------------------------------
Standard Data Services Back-up
- --------------------------------------------------------------------------------
Services
- --------------------------------------------------------------------------------
System Maintenance and Second Tier Support On a 24 by 7 Basis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pricing Setup Fee Monthly Fee
------- --------- -----------
<S> <C> <C>
TOTAL PRICING AS CONFIGURED ABOVE: *MINIMUM $N/A $[*]
Transaction Fee - $[*]/transaction**
Each additional 1Mbps of average bandwidth utilization N/A $N/A
Each additional 10GB of data backup N/A $N/A
</TABLE>
*Minimum monthly hosting fee will apply regardless of transaction
volume.
**Transaction fee of $[*]/transaction: Fees will be re-evaluated after
six months of usage.
* Confidential treatment requested
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SCHEDULE 2
MANAGED SERVICES OPTION
As the Managed Services portion of this Hosting agreement, XCare.net will
provide server administration and management services that include but are not
necessarily limited to:
o Performance/resource monitoring and proactive problem resolution
o Daily systems administration tasks
o Applying operating system enhancements and security patches
o Adding user accounts
o Configuring DSN's and database connections
o Managing DNS services
o Adding/configuring FTP services
o Installing security certification keys
o Minor software revision changes & application patches
o Conducting automatic log rotation
o Checking disk space
o Facilitating restore requests
In addition, XCare.net Hosting will provide 24x7 1st level response for
recovering application related problems that have caused a complete outage to
the Web Services. However, these issues may need to be escalated to the
appropriate Application Development contact provided by the client for
resolution.
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<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated October 22, 1999 relating to the financial statements of XCare.net,
which appears in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Broomfield, Colorado
February 7, 2000
