Outsourcing and Operating Agreement

Exhibit 10.1


================================================================================


THIRD AMENDED AND RESTATED OUTSOURCING AND OPERATING AGREEMENT *


dated as of September 30, 2002


among


NOVATION, LLC,


VHA INC.,


UNIVERSITY HEALTH SYSTEM CONSORTIUM,


HEALTHCARE PURCHASING PARTNERS INTERNATIONAL, LLC,


and


NEOFORMA, INC.


================================================================================


_________________


* Confidential treatment requested: Certain portions of this agreement have
been omitted pursuant to a request for confidential treatment and, where
applicable, have been marked with an asterisk to denote where omissions
have been made. The confidential material has been filed separately with
the Securities and Exchange Commission.


TABLE OF CONTENTS


Page
---- 1. DEFINITIONS ...................................................... 2


2. NOVATION OBLIGATIONS ............................................. 9


2.1 Agency Relationship ..................................... 9
2.2 Novation Duties ......................................... 9
2.3 Certain Contracts ....................................... 10


3. NEOFORMA OBLIGATIONS ............................................. 11


3.1 Service ................................................. 11
3.2 Service Levels .......................................... 11
3.3 Cooperation with Novation ............................... 11
3.4 Employee Incentives ..................................... 11
3.5 Quality Assurance Program ............................... 12
3.6 Notice of Materially Adverse Facts ...................... 12
3.7 Case Studies ............................................ 12
3.8 Supplier Sign-Up and Integration ........................ 12


4. THE MARKETPLACE .................................................. 13


4.1 Maintenance of Marketplace .............................. 13
4.2 Consultation ............................................ 13
4.3 Provision of Non-Contract Product Information ........... 13
4.4 Provision of Contract Product Information ............... 13
4.5 Independent Users ....................................... 13
4.6 Multiple Memberships .................................... 14
4.7 User Registration ....................................... 14
4.8 Delivery and Order Fulfillment .......................... 14
4.9 Removal of Products from the Marketplace ................ 14
4.10 Customized Marketplaces ................................. 14
4.11 Links ................................................... 15
4.12 Reasonable Assistance ................................... 15


5. NOVATION MARKETPLACE AND HPPI MARKETPLACE ........................ 15


5.1 Development ............................................. 15
5.2 Hosting ................................................. 15
5.3 Delivery and Order Fulfillment .......................... 15
5.4 Display of Material ..................................... 15
5.5 Reports and Meetings .................................... 15
5.6 Retained Contracts ...................................... 16
5.7 Marketing. .............................................. 16
5.8 Neoforma Auction ........................................ 16


6. EXCLUSIVITY AND RIGHT OF FIRST OFFER ............................. 17


6.1 Novation, VHA, UHC and HPPI Exclusivity ................. 17


6.2 Neoforma Exclusivity .................................... 17
6.3 Right of First Offer for Novation and Neoforma .......... 18
6.4 First Offer for Non-Exclusive Services .................. 18


7. LICENSES AND OWNERSHIP ........................................... 19


7.1 Ownership of Marks ...................................... 19
7.2 Novation Marks .......................................... 19
7.3 Neoforma Marks .......................................... 19
7.4 VHA, UHC and HPPI Marks ................................. 20
7.5 Ownership of Neoforma Materials and Novation Materials .. 20
7.6 Neoforma Materials ...................................... 20
7.7 Novation Materials ...................................... 20
7.8 Development of Tools .................................... 20
7.9 Access License .......................................... 21


8. FEES AND TAXES ................................................... 21


8.1 Contract Product Transaction Fees ....................... 21
8.2 Revenue Sharing ......................................... 22
8.3. Establishment of * ...................................... 23
8.4 Reporting and Payment of Novation Marketplace Transaction
Fees and Revenue Sharing ................................ 23
8.5 * ....................................................... 24
8.6 Taxes ................................................... 25
8.7 New Markets ............................................. 25
8.8 Product Returns ......................................... 25
8.9 Neoforma Auction and other non-GPO marketplaces ......... 25
8.10 Distribution or Licensing of Software and other
Technology Solutions .................................... 25
8.11 Other Expenses .......................................... 26


9. TERM AND TERMINATION ............................................. 26


9.1 Initial Term ............................................ 26
9.2 Renewal and Extension of Term ........................... 27
9.3 Termination for Cause ................................... 27
9.4 Termination for Insolvency Events ....................... 27
9.5 Termination for Rejection in Bankruptcy ................. 27
9.6 Termination Upon Neoforma Change of Control ............. 28
9.7 Return of Materials ..................................... 28
9.8 Survival ................................................ 28
9.9 Termination Assistance Services ......................... 28
9.10 Third Party Products .................................... 30


10. USER DATA ........................................................ 31


10.1 Registration ............................................ 31


_______________


* Confidential treatment requested.


ii


10.2 Transaction Database .................................... 31
10.3 Member Data ............................................. 31
10.4 Aggregated Member Data .................................. 32
10.5 Transaction Database .................................... 32
10.6 License Grant of Information to Novation ................ 32
10.7 No Other Licenses or Use ................................ 32
10.8 Other Data .............................................. 33
10.9 Neoforma Information .................................... 33


11. SAFEGUARDING OF DATA; CONFIDENTIALITY ............................ 33


11.1 Novation Data ........................................... 33
11.2 Confidentiality ......................................... 34


12. REPRESENTATIONS AND WARRANTIES ................................... 35


12.1 Representations by Neoforma ............................. 35
12.2 Representations by Novation, VHA, UHC and HPPI .......... 36
12.3 Warranty Disclaimer ..................................... 38


13. USE OF SUBCONTRACTORS ............................................ 38


13.1 Generally ............................................... 38
13.2 Novation's Right to Revoke Approval ..................... 38
13.3 Continuing Responsibility ............................... 38
13.4 Confidential Information ................................ 38


14. INSURANCE ........................................................ 38


14.1 Insurance ............................................... 38
14.2 Proof of Insurance ...................................... 39


15. INDEMNITY ........................................................ 39


15.1 Neoforma Indemnity ...................................... 39
15.2 Novation Indemnity ...................................... 40
15.3 Infringement Claims ..................................... 40
15.4 Indemnity Procedures .................................... 41


16. LIMITATION OF LIABILITY .......................................... 41


16.1 Limitations ............................................. 41
16.2 Exceptions .............................................. 42
16.3 Liquidated Damages ...................................... 42


17. AUDIT RIGHTS ..................................................... 43


17.1 General ................................................. 43
17.2 Frequency of Audits ..................................... 44
17.3 Auditors ................................................ 44
17.4 Record Retention ........................................ 44
17.5 Cooperation ............................................. 44
17.6 Overcharges ............................................. 44


18. DISPUTE RESOLUTION ............................................... 44


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18.1 Resolution of Disputes .................................. 44
18.2 Negotiations and Escalation ............................. 45
18.3 Appointment of Arbitral Body ............................ 45
18.4 Qualifications of Arbitrator ............................ 45
18.5 Initiation of Arbitration and Procedures ................ 45
18.6 Procedures .............................................. 46
18.7 Governing Law; Jurisdiction ............................. 46
18.8 Arbitration Award ....................................... 46
18.9 Cooperation of the Parties .............................. 47
18.10 Costs ................................................... 47
18.11 Judgment on the Award; Enforcement ...................... 47
18.12 Preservation of Equitable Relief; Third-Party
Litigation .............................................. 47
18.13 Continued Performance ................................... 48


19. GUARANTY OF PERFORMANCE .......................................... 48


19.1 VHA and UHC Guarantees .................................. 48
19.2 VHA and UHC Waivers ..................................... 48
19.3 Scope of Liability ...................................... 49
19.4 Continued Performance by Neoforma ....................... 50


20. GENERAL PROVISIONS ............................................... 50


20.1 No Waiver ............................................... 50
20.2 Entire Agreement ........................................ 51
20.3 Publicity ............................................... 51
20.4 Covenant of Good Faith .................................. 51
20.5 Compliance with Laws and Regulations .................... 51
20.6 Assignment; Successors and Assigns ...................... 51
20.7 Governing Law ........................................... 51
20.8 Notices ................................................. 52
20.9 No Agency ............................................... 52
20.10 Force Majeure ........................................... 53
20.11 Interest ................................................ 53
20.12 Program Management ...................................... 54
20.13 Severability ............................................ 54
20.14 Counterparts ............................................ 54
20.15 Headings................................................. 54
20.16 Section 365(n) Matters .................................. 54


iv


EXHIBITS:


Exhibit A Marks + Exhibit B Current Marks Usage Guidelines for Novation + Exhibit C Current Marks Usage Guidelines for Neoforma + Exhibit D Current Marks Usage Guidelines for VHA, UHC and HPPI + Exhibit E Reports and Other Information Requirements + Exhibit F Program Management + Exhibit G Minimum Fees Exhibit H * Exhibit I Target Fee Levels Exhibit J 2002 Monthly * Schedule Exhibit K Current Functionality Roadmap Exhibit L Collaborative Marketing Agreement Exhibit M Collaborative Development Process Exhibit N Service Level Specifications


_______________


+ Exhibit filed previously and not included here
* Confidential treatment requested.


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THIRD AMENDED AND RESTATED
OUTSOURCING AND OPERATING AGREEMENT


This Third Amended and Restated Outsourcing and Operating Agreement ("Agreement") effective as of September 30, 2002 (the "Effective Date"), by and among Neoforma, Inc., (formerly named Neoforma.com, Inc.) a Delaware corporation with offices at 3061 Zanker Road, San Jose, California 95134 ("Neoforma"), Novation, LLC, a Delaware limited liability company with offices at 125 East John Carpenter Freeway, Irving, Texas 75062 ("Novation"), Healthcare Purchasing Partners International, LLC, a Delaware limited liability company with offices at 125 East John Carpenter Freeway, Irving, Texas 75062 ("HPPI"), VHA Inc., a Delaware corporation with offices at 220 East Las Colinas Boulevard, Irving, Texas 75039-5500 ("VHA"), and University Health System Consortium, an Illinois corporation with offices at 2001 Spring Road, Suite 700, Oak Brook, Illinois 60523 ("UHC").


RECITALS


WHEREAS, Neoforma is a provider of Internet (as defined in Section 1) e-commerce services to the healthcare industry facilitating the sale, rental or lease of new and used equipment, products, supplies, services information and other content, and provides information regarding various healthcare facilities and equipment through its online offerings and programs;


WHEREAS, VHA and UHC are organizations whose patrons are hospitals and healthcare providers, who view e-commerce as an essential part of their cooperative purchasing programs on behalf of their patrons for the future and who desire to more fully develop the services they render to their patrons through this Agreement;


WHEREAS, VHA and UHC together own all the ownership interests in Novation and HPPI;


WHEREAS, Novation is a contracting agent that develops and delivers supply chain management agreements, programs and services on behalf of VHA and UHC and their patrons;


WHEREAS, HPPI is a GPO that serves healthcare organizations that are not members of VHA and UHC and other GPOs and which develops and delivers supply-chain management programs and services to such healthcare organizations;


WHEREAS, the parties wish to establish a long-term, global relationship to enable the parties to achieve increased efficiency and cost savings through Internet-based technology and pursuant to which (i) Neoforma will develop and manage the Novation Marketplace and HPPI Marketplace (as defined in Section 1), e-commerce web sites for the benefit of the members of VHA and UHC, the associated healthcare organizations of HPPI and for the benefit of other users unaffiliated with VHA, UHC or HPPI, (ii) Novation will serve as the contracting agent for Neoforma by recruiting, contracting with and managing relationships with healthcare equipment manufacturers and service suppliers on Neoforma's behalf and (iii) VHA and UHC will provide marketing support for the Novation Marketplace and HPPI Marketplace, guarantee Novation's


1


obligations to the extent provided under this Agreement and enter into the exclusivity provisions hereunder;


WHEREAS, the Parties have previously entered into an Outsourcing and Operating Agreement (the "Original Outsourcing and Operating Agreement"), dated as of March 30, 2000 (the "Original Effective Date"), and have also previously entered into an amended and restated Outsourcing and Operating Agreement, dated as of May 24, 2000 (the "First Amended and Restated Outsourcing and Operating Agreement"), a second amended and restated Outsourcing and Operating Agreement, dated as of January 1, 2001 (the "Second Amended and Restated Outsourcing Agreement"), and a first amendment to the Second Amended and Restated Outsourcing Agreement, dated as of July 1, 2001 (the "First Amendment"), and each Party desires to amend and restate the Second Amended and Restated Outsourcing and Operating Agreement and the First Amendment as set forth herein; and


WHEREAS, in consideration for the services initially agreed to be provided by VHA and UHC pursuant to the Original Outsourcing and Operating Agreement and the First Amended and Restated Outsourcing and Operating Agreement, Neoforma issued to VHA and UHC shares of, and warrants to purchase, common stock of Neoforma.


NOW, THEREFORE, for good and valuable consideration, the parties agree as follows:


1. DEFINITIONS


As used in this Agreement, the following terms shall have the respective meanings set forth below. Other capitalized terms shall have the meanings set forth elsewhere in this Agreement.


"Adjusted Gross Transaction Value(s)" means, with regard to a confirmed purchase, rental or lease on the Novation Marketplace or HPPI Marketplace, the * which are related to the Product purchased, rented or leased.


"Affiliate(s)" means, with respect to a specified person, any other person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified person. Neoforma, on the one hand, and Novation, VHA and/or UHC, on the other hand, shall not be Affiliates.


"Aggregated Member Data" means all or any of an aggregate of the Information relating to any two or more Members.


"API(s)" means language and messaging formats, in human and computer readable form, that define how programs interact with an operating system, a database, with functions in other programs, with communication systems, or with hardware drivers.


__________________________


* Confidential treatment requested.


2


"Blinded Aggregated Data" means aggregated data which does not contain information sufficient to identify any individual Supplier, Member or User or any Member Data, that is derived from transactions of Users of a Customized Marketplace, at least * of which shall come from non-Member Users.


"Contract Product(s)" means any Product that is part of the Novation Contract Portfolio and available on the Novation Marketplace or the HPPI Marketplace.


"Customized Marketplace(s)" means a Marketplace specifically for and accessible only to members of a particular GPO or its members, and includes, but is not limited to, the Novation Marketplace and the HPPI Marketplace.


"EDI Standards" means, the standard format for Electronic Data Interchange (EDI) generally accepted and used in North America, as may change from time to time.


"Expected Transaction Fees" means all amounts of Novation Marketplace Transaction Fees expected to be paid by a Supplier during the period commencing on the applicable * or *, as the case may be, up to and including * of such Supplier. Such Expected Transaction Fees shall be calculated with respect to each Supplier by multiplying (i) the * sales, rentals and leases of * (as evidenced by the most recent *) and * (as evidenced by reasonable supporting documentation provided to Neoforma by Novation) by * that were * prior to the applicable * or *, as the case may be, and that processed transactions with the applicable * through the Novation Marketplace during the preceding *, by (ii) the applicable * for sales, rentals and leases of * and * as defined in the agreement between Neoforma and such Supplier. In order to calculate the * Expected Transaction Fees, the resulting number is then multiplied by a fraction, the numerator of which is * for the first * days subsequent to the *, * for the second * days, * for the third * days, and * thereafter, and the denominator of which is *. By way of example, if (A) as of a certain *, healthcare organizations (as described above) representing * in annual purchases of * and * from the applicable Supplier in the preceding * were processing transactions through the Novation Marketplace, and (B) such Supplier was obligated to pay a Novation Marketplace Transaction Fee of * with respect to such transactions through the Novation Marketplace, then in the first * days following such *, * would be multiplied by *, and the resultant number of * would be multiplied by the quotient of * and *, or *, to calculate a * Expected Transaction Fee of *.


"Functionality Roadmap" means each proposed plan for development and implementation of new and updated functionality specifications for the Novation Marketplace or HPPI Marketplace, as may be agreed and amended from time to time by and between Novation and Neoforma in signed writings in accordance with Section 5.1.


"GAAP" means United States generally accepted accounting principles as in effect at the time of the application thereof.


__________________________


* Confidential treatment requested.


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"GPO(s)" means any entity in the United States that meets the definition of a "Group Purchasing Organization" as set forth in 42 CFR Section 1001.952(j), and any entity outside the United States performing a similar function.


"Gross Revenue" means, with respect to Novation's responsibility to pay Neoforma any * pursuant to Section 8.1, the aggregate of (i) the marketing fees and other revenue recognized by VHA and the administrative fees and other revenue recognized by UHC pursuant to Novation-related agreements with suppliers and distributors and (ii) revenue recognized by Novation pursuant to Sections 8.2, 8.9 and 8.10, less any revenues recognized from HPPI and amounts related to purchases made through VHA's Care Continuum Program and any substantially similar program operated by UHC.


"High-Volume Supplier" means a Supplier whose sales of Products from the Novation Contract Portfolio (whether purchased through the Novation Marketplace or otherwise) are at least * annually as evidenced by the * during the preceding 12-month period.


"HPPI Marketplace" means a Customized Marketplace accessible only to HPPI Members.


"HPPI Member(s)" means, at any date, those organizations acting as purchasers, renters or lessees in their respective markets that are associates of HPPI and to which HPPI provides procurement related services, cost management programs and other services.


"Information" means the information and data maintained by Neoforma in the Transaction Database, which shall include, at minimum, (i) any and all information and data collected, developed and/or stored by Neoforma relating to Members and (ii) any and all information and data relating to use of or transactions on the Novation Marketplace by Members.


"Intellectual Property Rights" means all copyrights, patents, trade names and trademarks (in each of the preceding cases, whether registered or not) and trade secrets and other intellectual property rights of a person.


"Integration" means the integration of the current system of a Supplier or Member, as applicable, with the Novation Marketplace or HPPI Marketplace such that such Supplier or Member, as the case may be, may (i) conduct transactions through the Marketplace or send or receive Supply Chain Data regarding such transactions, (ii) solely in the case of a Supplier that conducts transactions through a distributor integrated with the Marketplace whose data Neoforma is contractually permitted to share with other Users, access information regarding transactions, or (iii) solely in the case of a Supplier that conducts transactions through a distributor which is not integrated with the Novation or HPPI Marketplace, publish Supplier's product catalog data on the Novation or HPPI Marketplace.


__________________________


* Confidential treatment requested.


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"Internet" means the public, global network of computer networks and individual computers constantly connected using standardized communications protocols, specifically TCP/IP or any successor protocol thereof.


"Marketplace" means the Novation Marketplace, HPPI Marketplace, all Customized Marketplaces and all other Neoforma web sites.


"Material(s)" means information on equipment, products, supplies or services, including, without limitation, product availability and pricing information, provided to Neoforma for display to Users of the Novation Marketplace or HPPI Marketplace.


"Member(s)" means, at any date, those organizations that are (i) patrons or members of VHA or UHC, or are associated therewith, or (ii) HPPI Members, and in each case, that are listed in an electronic file supplied to Neoforma and updated periodically by Novation.


"Member Data" means any and all Transaction Database information relating to a specific Member.


"Neoforma Auction" means Neoforma's auction services offered on the Marketplace.


"Neoforma Change of Control" means the occurrence of any of the following:


(a) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties ...