EXHIBIT 10.12
CONFIDENTIAL TREATMENT REQUESTED: Certain portions of this document have been
omitted pursuant to a request for confidential treatment and, where applicable,
has been marked with a double asterisk within brackets to denote where omissions
have been made. The confidential material has been filed separately with the
Commission.
FINAL EXECUTION COPY
MASTER SERVICES AGREEMENT
BETWEEN
EMPIRE HEALTHCHOICE, INC.
AND
INTERNATIONAL BUSINESS MACHINES CORPORATION
DATED
JUNE 1, 2002
Empire/IBM CONFIDENTIAL
TABLE OF CONTENTS
1. BACKGROUND AND OBJECTIVES................................................1
1.1 Background...........................................................1
1.2 Objectives...........................................................1
1.3 Construction.........................................................2
2. DEFINITIONS..............................................................2
2.1 Certain Definitions..................................................2
2.2 Other Terms.........................................................10
3. SERVICES................................................................10
3.1 Provision of Services...............................................10
3.2 Overview of Services................................................12
4. TERM....................................................................12
4.1 Term................................................................12
4.2 Extension...........................................................13
5. IBM PERSONNEL...........................................................13
5.1 Key IBM Positions...................................................13
5.2 Transitioned Personnel..............................................14
5.3 Qualifications, Retention and Replacement of IBM Personnel..........15
5.4 Compliance With Empire Policies.....................................16
6. EQUIPMENT AND THIRD PARTY SERVICE CONTRACTS.............................16
6.1 Generally...........................................................16
6.2 Existing Equipment..................................................17
6.3 Equipment Acquisitions During the Term..............................18
6.4 Removal and Disposal of Equipment...................................18
6.5 Third Party Service Contracts.......................................18
6.6 Special Terms.......................................................20
7. SOFTWARE AND PROPRIETARY RIGHTS.........................................21
7.1 Empire Software.....................................................21
7.2 IBM Software........................................................21
7.3 Third Party Software................................................25
7.4 Rights in Newly Developed Software and Other Materials..............30
7.5 Patent Applications and Patent Infringement Claims..................32
7.6 Residual Knowledge..................................................33
7.7 Export..............................................................34
8. FACILITIES..............................................................34
8.1 General.............................................................34
8.2 Staten Island Data Center...........................................36
8.3 IBM Facility in India...............................................37
8.4 Disaster Recovery Sites.............................................37
8.5 Empire Obligations..................................................38
8.6 IBM Obligations.....................................................39
8.7 Migration...........................................................39
Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
9. PERFORMANCE STANDARDS...................................................41
9.1 General.............................................................41
9.2 Failure to Perform..................................................41
9.3 Periodic Reviews....................................................43
9.4 Measurement and Monitoring Tools....................................43
9.5 Customer Survey.....................................................43
10. PROJECT AND CONTRACT MANAGEMENT.........................................43
10.1 Governance Board....................................................43
10.2 Reports and Meetings................................................44
10.3 Procedures Manual...................................................45
10.4 Change Control......................................................46
10.5 Use of Subcontractors and Other Support.............................47
10.6 Technology Plan.....................................................48
10.7 Quality Assurance and Improvement Programs..........................49
10.8 Premier Customer Status.............................................49
11. AUDITS..................................................................49
11.1 Audit Rights........................................................49
11.2 Audit Follow-up.....................................................51
11.3 Audit Costs.........................................................51
11.4 Records Retention...................................................51
12. CUSTOMER RESPONSIBILITIES...............................................52
12.1 Responsibilities....................................................52
12.2 Savings Clause......................................................52
13. CHARGES.................................................................53
13.1 General.............................................................53
13.2 Pass-Through Expenses...............................................53
13.3 Incidental Expenses.................................................54
13.4 Taxes...............................................................54
13.5 Extraordinary Events................................................56
13.6 New Services........................................................57
13.7 Benchmarks..........................................................58
[**] ....................................................................60
14. INVOICING AND PAYMENT...................................................60
14.1 Invoicing...........................................................60
14.2 Payment Due.........................................................61
14.3 Accountability......................................................62
14.4 Proration...........................................................62
14.5 Refundable Items....................................................62
14.6 Set Off.............................................................62
14.7 Disputed Charges....................................................62
15. SAFEGUARDING OF DATA; CONFIDENTIALITY...................................63
15.1 Empire Information..................................................63
15.2 Safeguarding Empire Data............................................64
15.3 Confidentiality.....................................................64
15.4 HIPAA Privacy and Security Requirements.............................67
15.5 HIPAA Transactions Rule.............................................70
-ii- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
15.6 HIPAA Security Rule.................................................70
15.7 Other HIPAA Administrative Simplification Regulations...............70
16. REPRESENTATIONS AND WARRANTIES..........................................70
16.1 Work Standards, Efficiency and Cost Effectiveness...................70
16.2 Maintenance.........................................................70
16.3 Technology..........................................................71
16.4 Non-Infringement....................................................71
16.5 Authorization and Other Contracts...................................71
16.6 Inducements.........................................................72
16.7 Viruses.............................................................72
16.8 Disabling Code......................................................73
16.9 Deliverables........................................................73
16.10 SEI/CMM Level 5.....................................................73
16.11 Disclaimer..........................................................75
17. INSURANCE...............................................................75
17.1 Insurance Coverage..................................................75
17.2 Insurance Terms.....................................................76
18. INDEMNITIES.............................................................77
18.1 Indemnity by IBM....................................................77
18.2 Indemnity by Empire.................................................80
18.3 Additional Indemnities..............................................81
18.4 Procedures With Respect to Indemnities..............................82
18.5 Infringement........................................................82
18.6 Indemnification Procedures..........................................82
18.7 Subrogation.........................................................83
19. LIABILITY...............................................................84
19.1 General Intent......................................................84
19.2 Liability Restrictions..............................................84
19.3 Force Majeure.......................................................86
20. DISPUTE RESOLUTION......................................................87
20.1 Informal Dispute Resolution.........................................87
20.2 Litigation..........................................................88
20.3 Continued Performance...............................................88
20.4 Governing Law.......................................................88
20.5 Customer Claims.....................................................88
20.6 Waiver of Right to Jury Trial.......................................89
21. TERMINATION.............................................................89
21.1 Termination for Cause...............................................89
21.2 Termination for Material Infringement or Breach of Confidentiality..89
21.3 Termination for Convenience.........................................90
21.4 Termination Upon Change of Control..................................90
21.5 Termination Due To Force Majeure Event..............................91
21.6 Termination Due To IBM's Financial Inability To Perform.............91
21.7 Additional Termination Rights.......................................91
21.8 Charges Upon Partial Termination....................................91
21.9 Extension of Termination/Expiration Effective Date..................91
-iii- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
21.10 Termination/Expiration Assistance...................................92
22. COMPLIANCE WITH LAWS....................................................97
22.1 Compliance with Laws and Regulations Generally......................97
22.2 Xxxxx-Xxxxx-Xxxxxx Act and Similar Laws.............................97
22.3 Hazardous Products or Components....................................97
22.4 Equal Employment Commitments........................................98
23. GENERAL.................................................................98
23.1 Binding Nature and Assignment.......................................98
23.2 Entire Agreement; Amendment.........................................99
23.3 Mutually Negotiated.................................................99
23.4 Notices.............................................................99
23.5 Counterparts.......................................................100
23.6 Headings...........................................................100
23.7 Relationship of Parties............................................100
23.8 Severability.......................................................100
23.9 Consents and Approval..............................................100
23.10 Waiver of Default; Cumulative Remedies.............................101
23.11 Survival...........................................................101
23.12 Public Disclosures.................................................101
23.13 Service Marks......................................................101
23.14 Third Party Beneficiaries..........................................101
23.15 Nonsolicitation of Employees.......................................101
23.16 Intentionally Left Blank...........................................102
23.17 Intentionally Left Blank...........................................102
23.18 Covenant of Good Faith.............................................102
-iv- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
SCHEDULES
Schedule A-1: Core Applications Services
Schedule A-2: Data Center Services
Schedule A-3: Help Desk Services
Schedule A-4: Telecommunications Connectivity Services
Schedule A-5: Modernization Services
Schedule B: Service Levels
Schedule B-1: Definitions
Schedule B-2: Critical Service Levels
Schedule B-3: Core Applications Service Levels
Schedule B-4: Data Center Service Levels
Schedule B-5: Help Desk Service Levels
Schedule B-6: Telecommunications Service Levels
Schedule B-7 Systems Integration Service Levels
Schedule B-8 Transition Service Levels
Schedule C: Charges
Schedule D: Employment
Schedule D-1: Affected Employees
Schedule D-2: Key Transitioned Employees
Schedule D-3: Key IBM Positions
Schedule E: Third Party Service Contracts
Schedule E-1: Core Applications Third Party Service Contracts
Schedule E-2: Data Center Third Party Service Contracts
Schedule E-3: Help Desk Third Party Service Contracts
Schedule F: Existing Equipment
Schedule F-1: Core Applications Existing Equipment
Schedule F-2: Data Center Existing Equipment
Schedule F-3: Help Desk Existing Equipment
Schedule F-4: Former NexxtHealth Existing Equipment
Schedule F-5: Telecommunications Connectivity Existing Equipment
Schedule G: Existing Software
Schedule G-l A: Core Applications Applications Software
Schedule G-2 A: Data Center Applications Software
Schedule G-3 A: Help Desk Applications Software
Schedule G-1 S: Core Applications Systems Software
Schedule G-2 S: Data Center Systems Software
Schedule G-3 S: Help Desk Systems Software
-v- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Schedule H: Overall Migration Plan
Schedule I: Termination/Expiration Assistance
Schedule J: Equipment and Software Responsibility Allocation Matrices
Schedule K: Reports
Schedule K-1: Core Applications Reports
Schedule K-2: Data Center Reports
Schedule K-3: Help Desk Reports
Schedule L: Approved Subcontractors
Schedule M: Empire Competitors
Schedule N-1: Empire Code of Business Conduct
Schedule N-2: Empire Corporate Compliance Program
Schedule O-1: Equal Employment Commitment -- Medicare
Schedule O-2: Equal Employment Commitment -- Non-Medicare
Schedule P: Intentionally Left Blank
Schedule Q: Intentionally Left Blank
Schedule R: Form of Xxxx of Sale
Schedule S: India Facility Specifications
-vi- Empire/IBM CONFIDENTIAL
MASTER SERVICES AGREEMENT
This Master Services Agreement, effective as of June 1, 2002 (the "Effective
Date"), is entered into by and between Empire HealthChoice, Inc. d/b/a Empire
Blue Cross and Blue Shield, a New York corporation with its corporate
headquarters located at 00 X. 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 ("Empire"),
an independent licensee of the Blue Cross and Blue Shield Association, and
International Business Machines Corporation, a New York corporation with its
headquarters located at Xxx Xxxxxxx Xxxx, Xxxxxx, Xxx Xxxx 00000 ("IBM"). As
used in this Agreement, "Party" means either Empire or IBM, as appropriate, and
"Parties" means Empire and IBM. The Parties agree that the following terms and
conditions shall apply to the services to be provided by IBM under this
Agreement in consideration of certain payments to be made by Empire.
1. BACKGROUND AND OBJECTIVES
1.1 Background.
This Agreement is being made and entered into with reference to the
following:
(a) Empire desires to outsource to IBM certain services currently
performed by Empire, in order to generate savings (a key element of
generating these savings to Empire is the utilization of IBM Personnel
in India), which savings will be used in part in connection with the
Claims Engine, as defined below, and modernization of Empire's other
core applications.
(b) IBM desires to license the new Claims Engine to Empire, and Empire
desires to utilize such Claims Engine as its primary insurance claims
processing product.
(c) Empire desires to license the Portal Toolkits and Framework Software
to IBM, in return for credits earned from IBM's sale of such software
and related products based on such software.
(d) The Parties desire to mutually enter into a structure allowing future
joint development of health care products.
(e) Having reached agreement on contract terms, the Parties are entering
into the following agreements to memorialize the terms and conditions
under which the foregoing shall be consummated and provided: (i) the
Claims Engine License Agreement, (ii) the Licensing and Joint
Development Agreement, and (iii) this Master Services Agreement.
1.2 Objectives.
Empire and IBM have agreed upon the following specific goals and objectives
for this Agreement and intend to meet these goals by performing in
accordance with the terms of this Agreement:
(a) Create a valued relationship between Empire and IBM whereby IBM
remains knowledgeable and an active participant in Empire's business
and remains committed to the business success of Empire;
Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(b) Pursue new technical functionality and capabilities, in order to
modernize Empire's core business systems;
(c) Initially provide services at least at the same level as Empire was
providing such services (where data exists to reasonably substantiate
such prior performance) and for IBM to annually improve certain
Service Levels and identify ways to reduce costs;
(d) Provide to Empire on a long-term basis quality, flexible information
technology services in the areas identified in this Agreement in a
cost-effective manner;
(e) Create a flexible relationship between Empire and IBM (i) under which
IBM will be highly responsive to Empire's requirements and to changes
in technology and methods for providing technology services, and (ii)
which accommodates changes in volumes of operation, new generations of
technology, and improved methods of monitoring, measuring and
achieving increased levels of service;
(f) Suggest opportunities that will allow Empire to obtain the benefits
that IBM can bring in leveraging other strategic partners and vendors;
and
(g) Provide a program for winding down this Agreement at its termination
or expiration, including cooperation to support the transition of the
services provided by IBM under this Agreement back to Empire or to a
third party designated by Empire.
1.3 Construction.
The provisions of this Article 1 are intended to be a general introduction
to this Agreement and are not intended to expand the scope of the Parties'
obligations under this Agreement or to alter the plain meaning of the terms
and conditions of this Agreement. However, to the extent the terms and
conditions of this Agreement do not address a particular circumstance or
are otherwise unclear or ambiguous, such terms and conditions are to be
interpreted and construed so as to give full effect to the provisions in
this Article 1.
2. DEFINITIONS
2.1 Certain Definitions.
As used in this Agreement:
(a) "Affected Employees" shall have the meaning given in Section 5.2(a).
(b) "Affected Party" shall have the meaning given in Section 21.2.
(c) "Affiliate" shall mean, with respect to any entity, any other entity
Controlling, Controlled by or under common Control with such entity.
(d) "Agreement" shall mean this Master Services Agreement, including its
schedules, exhibits, and appendices, as the same may be amended by the
Parties from time to time in accordance with Section 23.2.
-2- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(e) "Applications Software" or "Applications" shall mean those programs
and programming (including the supporting documentation, media,
on-line help facilities and tutorials) that perform specific data
processing and telecommunications tasks in connection with the
Services. Applications Software in use as of the Effective Date
includes the Software identified as such in Schedules G-1 A, G-2 A,
and G-3 A.
(f) "Assets" shall have the meaning given in Article 6.
(g) "Benchmarker" shall have the meaning given in Section 13.7(a).
(h) "Business Associate" shall have the meaning given in Section
15.4(a)(iv).
(i) "Business Day" shall mean every day Monday through Friday, other than
those holidays when Empire's corporate headquarters is not open for
business.
(j) "Capability Maturity Model" shall have the meaning given in Section
16.10.
(k) "Change Control Procedure" shall have the meaning given in Section
10.4(d).
(l) "Claims Engine" shall mean the "Licensed Software" (as defined in the
Claims Engine License Agreement), licensed from IBM by Empire pursuant
to the Claims Engine License Agreement.
(m) "Claims Engine License Agreement" shall mean that certain Software
License and Support Agreement by and between the Parties executed
concurrently with this Agreement.
(n) "CMM" shall have the meaning given in Section 16.10.
(o) "Commercially-Provided Disabling Code" shall have the meaning given in
Section 16.8.
(p) "Commercially Reasonable Efforts" shall mean taking such steps and
performing in such a manner as a well managed IT outsourcing company,
in the case of IBM, or a well managed health insurance company, in the
case of Empire, would undertake under similar circumstances where such
company was acting in a determined, prudent and reasonable manner to
achieve a particular desired result.
(q) "Confidential Information" shall have the meaning given in Section
15.3(a).
(r) "Control" and its derivatives shall mean possessing, directly or
indirectly, the power to direct or cause the direction of the
management policies or operations of an entity, whether through
ownership of voting securities, by contract or otherwise.
(s) "Core Applications Services" shall mean the Services provided by IBM
pursuant to Schedule A-1, including applications development,
applications integration, and applications maintenance Services.
(t) "Covered Entity" shall have the meaning given in Section 15.4(a)(iii).
-3- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(u) "Data Center Services" shall mean the Services provided by IBM
pursuant to Schedule A-2, including mainframe, midrange and server
Services.
(v) "Developed Empire Software" shall have the meaning given in Section
7.4(b).
(w) "Disabling Code" shall have the meaning given in Section 16.8.
(x) "Dispute Date" shall have the meaning given in Section 20.1(a)(i).
(y) "Effective Date" shall have the meaning given in the preamble to the
Agreement.
(z) "e-Health Utility Facility" shall have the meaning given in Section
8.3(b).
(aa) "Empire" shall have the meaning given in the preamble to the
Agreement.
(bb) "Empire Auditors" shall have the meaning given in Section 11.1(a).
(cc) "Empire Competitors" shall mean those entities listed in Schedule M,
as such Schedule M may be reasonably updated by Empire from time to
time.
(dd) "Empire Contract Executive" shall have the meaning given in Section
12.1(a).
(ee) "Empire Data" shall mean all information, whether or not Confidential
Information, entered in Software or Equipment by or on behalf of
Empire and information derived from such information, including as
stored in or processed through the Equipment or Software.
(ff) "Empire Facilities" shall mean the facilities, including the space,
equipment, furnishings and fixtures located therein, owned or leased
by Empire and provided to IBM in order for IBM to provide the
Services. The term "Empire Facilities" shall not include the Staten
Island Data Center.
(gg) "Empire Information" shall mean all information, in any form,
furnished or made available directly or indirectly to IBM by Empire or
otherwise obtained by IBM from Empire. Such information first provided
by IBM or its suppliers to Empire hereunder shall not be deemed to be
Empire Information.
(hh) "Empire Non-Software Materials" shall have the meaning given in
Section 7.4(c).
(ii) "Empire Software" shall mean Software owned by Empire. As of the
Effective Date, Empire Software includes the Software identified as
such in Schedule G for Applications Software and Systems Software.
(jj) "Employment Start Date" shall have the meaning given in Schedule D.
(kk) "End Users" shall mean users of the Services.
(11) "Equipment" shall mean the computer and telecommunications equipment
(without regard to the entity owning or leasing such equipment) used
by IBM to provide the Services. Equipment includes the following: (i)
computer equipment, including
-4- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
associated attachments, features, accessories, peripheral devices,
front end devices, and other computer equipment, and including direct
access storage devices ("DASD"); and (ii) on IBM's side of the
demarcation points provided in the Telecommunications Connectivity
Schedule: telecommunications equipment, including multiplexors,
modems, CSUs/DSUs, hubs, bridges, routers, switches and other
telecommunications equipment.
(mm) "Escrow Cap" shall have the meaning given in Section 14.7(d).
(nn) "Escrow Threshold" shall have the meaning given in Section 14.7(c).
(oo) "Existing Equipment" shall mean Equipment owned or leased by Empire as
of the Effective Date and that was being utilized by Empire
immediately prior to the Effective Date in performing functions that
form part of the Services. Existing Equipment includes the Equipment
identified as such in Schedule F.
(pp) "Existing Leased Equipment" shall mean Existing Equipment leased by
Empire immediately prior to the Effective Date.
(qq) "Existing Owned Equipment" shall mean Existing Equipment owned by
Empire immediately prior to the Effective Date.
(rr) "Existing Systems Software" shall mean Systems Software licensed by
Empire as of the Effective Date and that was being utilized by Empire
immediately prior to the Effective Date in performing functions that
form part of the Services.
(ss) "Existing Third Party Systems Software" shall mean Third Party Systems
Software licensed from one or more third parties by Empire as of the
Effective Date and that was being utilized by Empire immediately prior
to the Effective Date in performing functions that form part of the
Services, including the Software identified as such in Schedules G-1
S, G-2 S and G-3 S.
(tt) "Extraordinary Event" shall have the meaning given in Section 13.5(a).
(uu) "Framework Software" shall have the meaning given in the Licensing and
Joint Development Agreement.
(vv) "Generally Available Software" shall mean software (i) that is
available to the general public under standard terms and conditions,
(ii) for which the applicable software vendor provides ongoing
maintenance and updates, and (iii) that is available at standard
prices offered to the public. "Generally Available IBM Software" shall
mean IBM Software that is Generally Available Software. "Generally
Available Third Party Systems Software" shall mean Third Party Systems
Software that is Generally Available Software.
(ww) "Governance Board" shall have the meaning given in Section 10.1.
(xx) "Help Desk Services" shall mean the Services provided by IBM pursuant
to Schedule A-3.
-5- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(yy) "IBM" shall have the meaning given in the preamble to the Agreement.
(zz) "IBM Logoed Equipment" shall mean the Equipment manufactured by or on
behalf of IBM or its Affiliates and marketed under the name of IBM or
its Affiliates.
(aaa) "IBM Migration Manager" shall have the meaning given in Section
8.7(b).
(bbb) "IBM Personnel" shall mean employees of IBM and its approved
subcontractors assigned to perform the Services pursuant to this
Agreement.
(ccc) "IBM Project Executive" shall have the meaning given in Section
5.1(a).
(ddd) "IBM Service Delivery Tools" shall mean non-commercially available
service delivery tools used by IBM to assist in the delivery of the
Services. IBM Service Delivery Tools shall not include software
development tools or other software which is integral to or part of
the Services or the operations. Examples of IBM Service Delivery Tools
are HelpNow and Asset Manager.
(eee) "IBM Software" shall mean the Software that is owned by IBM or its
Affiliates, or marketed in the name of IBM as the vendor.
(fff) "IBM Systems Software" shall mean Systems Software that is IBM
Software.
(ggg) "Including" and its derivatives (such as "include" and "includes")
shall mean including without limitation. This term is as defined,
whether or not capitalized in this Agreement.
(hhh) "Initial Efforts" shall have the meaning given in Section 16.7(a).
(iii) "Invention" shall have the meaning given in Section 7.4(d)(ii).
(jjj) "IT" shall mean information technology.
(kkk) "Key Transitioned Employees" shall have the meaning given in Section
5.2(b).
(111) "Key IBM Positions" shall have the meaning given in Section 5.1(a).
(mmm) "Licensing and Joint Development Agreement" shall mean that certain
Licensing and Joint Development Agreement by and between the Parties
executed concurrently with this Agreement.
(nnn) "Life" ("Lives") shall mean any individual(s) covered by a benefit
plan insured or administered by Empire (including insurance companies,
self-insured employees, buying cooperatives, and unions) or any Empire
Affiliate.
(ooo) "Losses" shall mean all losses, liabilities, damages and claims, and
all related costs and expenses (including reasonable legal fees and
disbursements and costs of investigation, litigation, settlement,
judgment, interest and penalties).
(PPP) "Managed Operations Services" shall have the meaning given in Section
3.2.
-6- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(qqq) "Migration" shall have the meaning given in Section 8.7(a).
(rrr) "Migration Completion Dates" shall have the meaning given in Section
8.7(i).
(sss) "Migration Plan" shall have the meaning given in Section 8.7(c).
(ttt) "Migration Services" shall have the meaning given in Section 8.7(a).
(uuu) "Modernization Services" shall mean the Services provided by IBM
pursuant to Schedule A-5.
(vvv) "Monthly Performance Report" shall have the meaning given in Section
10.2(a)(i).
(www) "New Services" shall have the meaning given in Section 13.6.
(xxx) "Non-Software Materials" shall have the meaning given in Section
7.4(c).
(yyy) "Notice of Election" shall have the meaning given in Section 18.6(a).
(zzz) "Out-of-Pocket Expenses" shall mean reasonable, demonstrable and
actual out-of-pocket expenses incurred by IBM for equipment,
materials, supplies or services provided to or for Empire as
identified in this Agreement, but not including IBM's overhead costs
(or allocations thereof), administrative expenses or other xxxx-ups.
(aaaa) "Party" and "Parties" shall have the meaning given in the preamble
to the Agreement.
(bbbb) "Pass-Through Expenses" shall have the meaning given in Section
13.2(a).
(cccc) "Performance Standards" shall mean, individually and collectively,
the quantitative and qualitative performance standards and commitments
for the Services specified in this Agreement, including Service
Levels.
(dddd) "Pre-Existing Empire Intellectual Property" shall have the meaning
given in Section 7.1(b).
(eeee) "Pre-Existing IBM Intellectual Property" shall have the meaning
given in Section 7.2(b).
(ffff) "Portal Toolkits" shall have the meaning given in the Licensing and
Joint Development Agreement.
(gggg) "Procedures Manual" shall mean the standards and procedures manual
described in Section 10.3.
(hhhh) "Privacy Rule" shall have the meaning given in Section 15.4(a)(i).
(iiii) "Protected Health Information" or "PHI" shall have the meaning given
in Section 15.4(a)(ii).
(jjjj) "Required Consents" shall mean such consents (i) as may be required
for the assignment to IBM, or the grant to IBM of rights of use, of
resources otherwise provided for in this
-7- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Agreement, or (ii) as may be required to grant to Empire or its
designee the rights set forth in this Agreement, to be effective after
the expiration or termination of this Agreement or of any of the
Services.
(kkkk) "Residuals" shall mean those ideas, concepts, know-how, and
techniques related to information in non-tangible form which is
retained in the unaided memories of the employees of a Party and which
such Party individually or jointly, develops, discloses or learns
under this Agreement.
(1111) "Revenue Sharing Credits" shall have the meaning given in the
Licensing and Joint Development Agreement.
(mmmm) "Security Rule" shall have the meaning given in Section 15.6.
(nnnn) "SEI" shall have the meaning given in Section 16.10.
(oooo) "Service Levels" shall have the meaning given in Section 9.1.
(pppp) "Service Commencement Date" shall have the meaning given in Section
3.1(h).
(qqqq) "Service Recipients" shall have the meaning given in Section 3.1(f).
(rrrr) "Services" shall have the meaning given in Section 3.1(a).
(ssss) "SMT" shall have the meaning given in Section 10.2(b)(vi).
(tttt) "Software" shall mean Applications Software and Systems Software
unless a more specific reference is required.
(uuuu) "Staten Island Data Center" shall mean that certain data center
located at 00 Xxxxxxxx Xxxxx, Xxxxxx Xxxxxx, Xxx Xxxx, from which
Empire provided data center services prior to the Effective Date.
(vvvv) "Staten Island Data Center Sublease" shall have the meaning given in
Section 8.2.
(wwww) "Straddle Agreements" shall mean Third Party Service Contracts,
leases of Equipment, and licenses for Third Party Software existing on
the Effective Date and utilized by Empire, including enterprise
agreements, which relate both to the Services and to assets and
activities retained by Empire that do not form a part of the Services.
(xxxx) "Systems Engineering Institute" shall have the meaning given in
Section 16.10.
(yyyy) "Systems Software" shall mean those programs and programming
(including the supporting documentation, media, on-line help
facilities and tutorials) that perform (i) tasks basic to the
functioning of the Equipment and which are required to operate the
Applications Software; or (ii) tasks, other than as performed by
Applications Software, otherwise supporting the provision of the
Services by IBM. If programs and programming supporting the Services
are not IBM Service Delivery Tools or Applications Software, they
shall be deemed to be Systems Software. Systems Software includes
mainframe and mid-range operating systems, server operating systems,
network
-8- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
operating systems, systems utilities (including measuring and
monitoring tools but excluding IBM Service Delivery Tools), data
security software, middleware, telecommunications monitors, database
management systems, and database management software (e.g., Oracle).
Systems Software in use as of the Effective Date includes the Software
identified as such in Schedules G-1 S, G-2 S, and G-3 S.
(zzzz) "Targeted Cost Increases" shall have the meaning given in Section
13.5(b)(i).
(aaaaa) "Targeted Cost Reductions" shall have the meaning given in Section
13.5(b)(i).
(bbbbb) "Targeted Resource Additions" shall have the meaning given in
Section 13.5(b)(i).
(ccccc) "Targeted Resource Reductions" shall have the meaning given in
Section 13.5(b)(i).
(ddddd) "Technology Plan" shall have the meaning given in Section 10.6.
(eeeee) "Telecommunications Connectivity Services" shall mean the Services
provided by IBM pursuant to Schedule A-4.
(fffff) "Term" shall have the meaning given in Section 4.1.
(ggggg) "Termination/Expiration Assistance" shall have the meaning given
in Section 21.10(a).
(hhhhh) "Third Party Service Contracts" shall mean those agreements
pursuant to which a third party was, immediately prior to the
Effective Date, furnishing or providing services to Empire similar to
the Services. Third Party Service Contracts include those contracts
identified in Schedule E. Certain other Third Party Service Contracts
are listed in Schedules F and G, and are addressed in Section 6.5(b).
(iiiii) "Third Party Software" shall mean Software that is not IBM Software
or Empire Software. "Third Party Applications Software" shall mean
Third Party Software that is Applications Software. "Third Party
Systems Software" shall mean Third Party Software that is Systems
Software.
(jjjjj) "Top Ten Percent" shall have the meaning given in Section 13.7(d).
(kkkkk) "Tower" shall have the meaning given in Section 3.2.
(11111) "Tower Migration Manager" shall have the meaning given in Section
8.7(b).
(mmmmm) "Transactions Rule" shall have the meaning given in Section 15.5.
(nnnnn) "Transitioned Employees" shall have the meaning given in Section
5.2(a).
(ooooo) "Unidentified Resources" shall have the meaning given in Section
6.6(b)(ii).
(ppppp) "Use" shall mean, in the context of Software, to use, copy,
maintain, modify, enhance, distribute or create derivative works.
(qqqqq) "Virus" shall have the meaning given in Section 16.7.
-9- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(rrrrr) "Wind Down Costs" shall have the meaning given in Schedule C.
2.2 Other Terms.
Other terms used in this Agreement are defined where they are used and have
the meanings there indicated. Those terms, acronyms and phrases utilized in
the IT services industry or other pertinent business context shall be
interpreted in accordance with their generally understood meaning in such
industry or business context.
3. SERVICES
3.1 Provision of Services.
(a) In General. Commencing on the Effective Date, subject to Section 3.1
(h) below, IBM shall provide each of the following services, functions
and responsibilities, as they may be supplemented, enhanced, modified
or replaced all in accordance with the Agreement ("Services"),
including any evolution to the Services provided under this Agreement:
(i) the services, functions and responsibilities described in this
Agreement and its Schedules, including Schedule A; and
(ii) the services, functions and responsibilities to the extent
performed during the twelve (12) months preceding the Effective
Date by Empire personnel (which includes Empire employees and
contractors employed by Empire) whose functions were displaced as
a result of this Agreement, even if the service, function, or
responsibility so performed is not specifically described in this
Agreement; provided, however, that with respect to Data Center
and Help Desk ad hoc projects which (before the Effective Date)
were performed utilizing Empire personnel, any such ad hoc
project shall be considered "Services" only to the extent such ad
hoc project is of the type that can be performed in such a way as
not to unreasonably interfere with the provision of Services.
(b) Implied Services. If any services, functions or responsibilities not
specifically described in this Agreement are required for the proper
performance and provision of the Services, they shall be deemed to be
implied by and included within the scope of the Services to the same
extent and in the same manner as if specifically described in this
Agreement.
(c) Resources Generally. Except as otherwise expressly provided in this
Agreement, IBM shall be responsible for providing all of the resources
necessary to provide the Services, including facilities, personnel,
software and equipment.
(d) Services Variable In Scope and Volume. The Services may vary in scope
and volume, as set forth in this Agreement. Such variations are
provided for in the pricing mechanisms set forth or referenced in
Article 13 and in Schedule C, and IBM shall not be entitled to receive
an adjustment to the charges except as set forth therein.
(e) Services Performed by Empire or Third Party.
(i) Empire has the right to perform itself, or retain third parties
to perform, any of the Services, subject to the limitations set
forth in Section 7(c) of Schedule C.
-10- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
To the extent Empire performs any of the Services itself, or
retains third parties to do so, IBM shall cooperate with Empire
or such third parties in connection with this performance at no
additional charge to Empire, which cooperation shall include: (A)
providing access to the facilities being used by IBM to provide
the Services (as necessary for Empire or a third party to perform
its work); (B) providing access to the Equipment and Software (to
the extent permitted under any underlying agreements with third
parties); and (C) providing such information regarding the
operating environment, system constraints and other operating
parameters as a person with reasonable commercial skills and
expertise would find reasonably necessary for Empire or a third
party to perform its work. Such cooperation (I) will be provided
using existing resources; (II) will not interfere with the
provision of the Services; and (III) except as otherwise set
forth in this Agreement, will not require IBM to house any such
third party personnel or resources, excluding network
connectivity, at IBM facilities. To the extent that third parties
provide services and/or products to Empire, IBM shall perform
integration activities (at the personnel rates set forth in
Schedule C, unless the Parties agree otherwise) in order to
ensure the compatibility of systems, products, and/or services
and the success of the total solution. In the event Empire
reduces the Services pursuant to this Section 3.1(e), those
affected portions of the Agreement shall be adjusted as
appropriate, and charges shall be adjusted in accordance with
Schedule C.
(ii) Third parties retained by Empire shall comply with IBM's
reasonable security and confidentiality requirements and with
IBM's reasonable work standards, methodologies and procedures, as
these have been provided by IBM. IBM shall promptly notify Empire
once it determines that an act or omission of such a third party
may cause a problem or delay in providing the Services and shall
work with Empire to prevent or circumvent such problem or delay,
while not interfering with IBM's ability to provide the Services.
(f) Other Entities. As of the Effective Date, IBM shall provide the
Services to Empire, to Empire's Affiliates, and on Empire's behalf to
those entities to whom services similar to the Services were being
provided immediately prior to the Effective Date (collectively
"Service Recipients"). At Empire's option, IBM shall perform Services
for the following, which, during such extended period of time as
follows, shall be deemed to be "Service Recipients": (i) an entity
which is an Affiliate of Empire shall continue to receive Services for
up to twenty-four (24) months (and longer if agreed by the Parties)
after the date it ceases to be Controlled by Empire, and (ii) the
purchaser of all or substantially all the assets of any line of
business of Empire or its Affiliates shall continue to receive
Services for up to twenty-four (24) months (and longer if agreed by
the Parties) after the date of purchase, but only with respect to the
business acquired. During the Term, IBM shall also provide the
Services on Empire's behalf to such other entities (e.g., members,
doctors, hospitals, unions) as Empire designates from time to time.
Notwithstanding the previous sentence, Empire may utilize the Services
in support of or as part of Empire's business operations and
offerings, provided that such business operations and offerings do not
constitute an IT Service Bureau, as defined in the Licensing and Joint
Development Agreement, (except that the foregoing proviso shall not
apply with respect to Service Recipients), and further provided that
if Empire requires use of the Services in connection with entities
that are not Service Recipients
-11- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
and not Empire Affiliates and as a result (A) IBM would incur
additional costs to a third party (e.g., additional third party
license fees), or (B) IBM's unit cost of delivery of the Services is
materially impacted, then there will be an equitable adjustment to the
charges to accommodate such costs. For purposes of this Agreement,
Services provided to the entities referenced in this Section 3.1(f)
shall be deemed to be Services provided to Empire.
(g) Affiliates of Empire. References to "Empire" as used in this Agreement
with respect to receipt of the Services shall be deemed to include
Affiliates of Empire.
(h) Service Commencement Dates. IBM's responsibilities with respect to the
Core Applications Services, the Data Center Services, the
Telecommunications Connectivity Services, the Help Desk Services, and
the Modernization Services shall commence on the following dates (each
a "Service Commencement Date"):
(i) with respect to the Data Center Services and the
Telecommunications Connectivity Services, on June 1, 2002 with
respect to Equipment, Software and Assets, and July 15, 2002 with
respect to IBM Personnel; provided that the Data Center Migration
is substantially complete;
(ii) with respect to the Help Desk Services, on October 7, 2002;
provided that the Help Desk Migration is substantially complete;
(iii) with respect to the Core Applications Services (including third
party service contracts for consultants), on July 15, 2002;
provided that the Core Applications Migration is substantially
complete; and
(iv) with respect to the Modernization Services, on such date as
requested by Empire.
The Parties acknowledge that any of the foregoing dates may be changed
by mutual agreement of the Parties.
3.2 Overview of Services.
As more fully described in the Services Schedules, and with respect to
Migration Services as described in Section 8.7, IBM shall perform the
services, functions and responsibilities for the following Services: (a)
Core Applications Services, Data Center Services, Help Desk Services, and
Telecommunications Connectivity Services (the foregoing Services,
collectively, the "Managed Operations Services" and each individually,
along with items (b) and (c) in this Section, a "Tower"), and (b) the
Modernization Services.
4. TERM
4.1 Term.
The term of this Agreement shall begin on the Effective Date and shall
expire on the date that is the ten (10)-year anniversary of the Effective
Date unless terminated earlier or extended in accordance with this
Agreement (the "Term").
-12- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
4.2 Extension.
(a) By giving written notice to IBM no less than 120 days prior to the
then-existing expiration date of this Agreement, Empire shall have the
one-time right to extend the Term of this Agreement (in whole or
in-part, provided that any in-part extension shall be not less than a
complete Tower) for up to thirty-six (36) months on the terms and
conditions then in effect.
(b) In the event that Empire elects not to extend certain cross-functional
Services (e.g., Help Desk) during an extension in-part, and in the
event that IBM determines in good faith that such election will
materially and adversely impair IBM's ability to continue to provide
extended Services, then IBM shall provide Empire a proposal that
identifies any expected impact due to such Empire election.
5. IBM PERSONNEL
5.1 Key IBM Positions.
(a) "Key IBM Positions" shall be, as of the Effective Date, the positions
set forth as such in Schedule D-3. IBM shall cause each of the IBM
Personnel filling the Key IBM Positions to devote substantially full
time and effort for at least the period specified in Schedule D-3 to
the provision of the Services. IBM Personnel approved as of the
Effective Date to fill the Key IBM Positions are listed in Schedule
D-3.
(i) Empire may from time to time change the positions designated as
Key IBM Positions under this Agreement, provided that without
IBM's consent, the number of Key IBM Positions shall not exceed
the number initially specified in Schedule D-3 as of the
Effective Date. In response to such Empire change as set forth in
the previous sentence, IBM shall use Commercially Reasonable
Efforts to implement such change as soon as possible, and in no
event greater than ninety (90) days, provided that in such
instances in which special skills are necessary to affect such
change, IBM will diligently pursue satisfaction of such Empire
change.
(ii) IBM shall, in accordance with Section 5.1(b), designate an
individual to serve as "IBM Project Executive." The IBM Project
Executive shall be one of the Key IBM Positions. The IBM Project
Executive shall (i) serve as the single point of accountability
for IBM for the Services; and (ii) have day-to-day authority for
undertaking to ensure customer satisfaction. A significant factor
in the computation of the IBM Project Executive's incentive
compensation shall be based on Empire's satisfaction with the
Services. During the Term, the IBM Project Executive shall be
located at Empire's offices in New York, New York, or such other
location reasonably designated by Empire from time to time.
(b) Before assigning an individual to a Key IBM Position, whether as an
initial assignment or a subsequent assignment, IBM shall (i) notify
Empire of the proposed assignment, (ii) introduce the individual to
appropriate Empire representatives, (iii) provide such representatives
upon request with the opportunity to interview the individual, and
(iv) provide Empire with a resume and other information about the
individual reasonably
-13- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
requested by Empire. If Empire objects in good faith to the proposed
assignment, the Parties shall attempt to resolve Empire's concerns on
a mutually agreeable basis. If the Parties have not been able to
resolve Empire's concerns within five (5) Business Days, IBM shall not
assign the individual to that position and shall propose to Empire the
assignment of another individual of suitable ability and
qualifications. Except with Empire's consent (which may be withheld in
Empire's sole discretion), individuals filling Key IBM Positions may
not be transferred or re-assigned to other positions with IBM or its
Affiliates until a suitable replacement has been approved by Empire,
and no such transfer shall occur at a time or in a manner that would
have a material adverse impact on delivery of the Services. IBM shall
establish and maintain an up-to-date succession plan for the
replacement of individuals serving in Key IBM Positions that shall be
reviewed with Empire on a regular basis.
(c) For so long as an individual is assigned to a Key IBM Position, and
for twelve (12) months thereafter, IBM shall not assign such
individual to perform services for the benefit of any Empire
Competitor.
5.2 Transitioned Personnel.
(a) IBM shall interview all of the Empire employees listed in Schedule D-
I ("Affected Employees"), shall extend offers of employment to the Key
Transitioned Employees, and shall extend offers of employment to as
many other Affected Employees as possible, all by the date that is
forty-five (45) days after the Effective Date. Such employment as set
forth in the previous sentence shall be effective on or before such
times as specified in Schedule D, including its Attachments. IBM shall
also, on a good faith basis, determine if any Affected Employees have
the skills and services which IBM can utilize for other IBM customers,
and IBM may extend job offers to such employees. IBM shall keep on
file, for a period of at least six (6) months after the Effective
Date, the employment applications of all Affected Employees to which
IBM does not extend offers of employment. "Transitioned Employees"
shall mean Affected Employees who accept IBM's offer and become
employed by IBM effective as of a date as to which the Parties
mutually agree. Terms for offers of employment to Affected Employees
and for employment of Transitioned Employees shall include those set
forth in Schedule D.
(b) IBM acknowledges that certain of the Transitioned Employees, as such
employees are identified in Schedule D-2, are employees who Empire
believes are critical to IBM in providing the Services ("Key
Transitioned Employees"). In the event that an Empire employee listed
as a Key Transitioned Employee does not accept his or her employment
offer from IBM, or is not hired by IBM (i) because such employee does
not pass IBM's background check conducted on such employee, (ii)
because such employee does not pass IBM's drug test conducted on such
employee, (iii) due to I-9 immigration requirements, or (iv) for other
just cause, then Empire shall have the right to designate another
Affected Employee as a substitute Key Transitioned Employee. During
the first twelve (12) months following the Transition Date (as defined
in Schedule D), IBM may not, without Empire's prior written approval:
(A) terminate, except for cause (as defined in Schedule D), the
employment of a Key Transitioned Employee; or (B) transfer or reassign
a Key Transitioned Employee from performing the Services. In the event
of any termination of a Key Transitioned Employee for cause as defined
in Schedule D, Empire
-14- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
shall have the right to designate another Affected Employee as a
substitute Key Transitioned Employee.
5.3 Qualifications, Retention and Replacement of IBM Personnel.
(a) Empire and IBM agree that it is in their best interests to keep the
turnover rate of IBM Personnel to a reasonably low level. Accordingly,
if Empire believes that IBM's turnover rate may be excessive and so
notifies IBM, IBM shall provide data concerning its turnover rate and
meet with Empire to discuss the reasons for, and impact of, the
turnover rate. If requested by Empire, IBM shall submit to Empire its
proposals for reducing the turnover rate, and the Parties shall
mutually agree on a program to bring the turnover rate down to an
acceptable level. In any event, to the extent that the turnover rate
adversely affects (or as reasonably demonstrated by Empire could
adversely affect) the provision of the Services, IBM shall use
Commercially Reasonable Efforts to keep the turnover rate to a
reasonably low level, and notwithstanding transfer or turnover of IBM
Personnel, IBM remains obligated to perform the Services in accordance
with this Agreement.
(b) While at Empire's premises (or the premises of others receiving the
Services hereunder), IBM Personnel shall (i) comply with Empire's
requests, rules, and regulations regarding personal and professional
conduct (including the wearing of an identification badge and adhering
to regulations and general safety, dress, behavior, and security
practices or procedures) generally applicable to such premises and
communicated to the IBM Project Executive or an IBM-designated
location senior IBM manager, and (ii) otherwise conduct themselves in
a businesslike and professional manner. If requested by Empire, IBM
shall have all IBM Personnel engaged in providing Services to Empire
execute acknowledgement of Empire's conduct and other policies and IBM
shall maintain records of compliance therewith which shall be made
available to Empire upon request.
(c) In the event that Empire determines in good faith that the continued
assignment to Empire's account of one of the IBM Personnel is not in
the best interests of Empire, then Empire shall give IBM written
notice to that effect. After receipt of such notice, IBM shall have a
reasonable period of time in which to investigate the matters stated
in such notice, discuss its findings with Empire and resolve the
problems with such person. If, following such period (not to exceed
ten (10) Business Days), Empire requests replacement of such person,
IBM shall replace that person with another person of suitable ability
and qualifications. However, where Empire notifies IBM that Empire has
determined that the nature of the concern is of such a nature that
such IBM Personnel should be removed immediately (albeit temporarily)
from Empire's account, IBM shall immediately remove such individual(s)
from Empire's account, provided that any such Empire request for
immediate removal of IBM Personnel (i) may not be arbitrary, and/or
(ii) may not be unlawful (e.g., removal because of employee's age). In
any event, any request by Empire to remove an individual from Empire's
account shall not be deemed to constitute a termination of such
individual's employment by IBM and in no event shall Empire be deemed
an employer of any such person.
(d) In the event Empire requests IBM to provide New Services, as provided
in Section 13.6, IBM shall use Commercially Reasonable Efforts to
provide such New Services utilizing IBM Personnel who are familiar
with the Empire account and Empire's business.
-15- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(e) The Parties acknowledge that if IBM fails to meet Service Levels
during the Term, and such failures are caused by the fact that IBM's
Personnel are inadequately trained, then Empire shall have the right
to require IBM to implement solutions, as reasonably suggested by
Empire, at IBM's cost, in order to address such personnel issues
leading to the failures.
5.4 Compliance With Empire Policies.
IBM shall ensure that its employees comply during the Term, and require
that its subcontractors and agents comply, with: (a) the Empire Code of
Business Conduct, as attached in Schedule N-I and as amended from time to
time by Empire, except where clearly not applicable (e.g., the general
statement that employees should report concerns to any member of the Empire
in-house Compliance Committee shall not obligate IBM employees to report to
Empire attorneys) or where IBM has substantially equivalent policies (e.g.,
IBM Personnel will follow IBM policies with respect to discrimination and
harassment complaints), (b) the Empire Corporate Compliance Program, as
attached in Schedule N-2 and as amended from time to time by Empire, and
(c) all rules of behavior, work schedules, security procedures and other
standards, policies and procedures as established by or maintained by
Empire from time to time and communicated to the IBM Project Executive. To
the extent the foregoing policies and procedures change during the Term,
Empire shall inform the IBM Project Executive in writing. If such changes
have a significant impact on the cost of delivery, IBM shall be entitled to
an equitable adjustment.
6. EQUIPMENT AND THIRD PARTY SERVICE CONTRACTS
The Parties' respective rights and responsibilities with respect to (i)
existing and future Equipment and Third Party Service Contracts are
described in this Article 6, and (ii) existing and future Software are
described in Article 7. For purposes of Articles 6 and 7, such existing and
future Equipment, Third Party Service Contracts and Software are generally
referenced as "Assets". Articles 6 and 7 herein, the Equipment and Software
Responsibility Allocation Matrices attached as Schedule J, and the listing
of Third Party Service Contracts, Existing Equipment and Existing Software
set forth in Schedules E, F and G, respectively, shall be construed
consistently, but in the event of any conflict, the text of Articles 6 and
7 shall supersede any inconsistent information contained in Schedules E, F,
G and J. Except to the extent specifically provided in this Agreement, IBM
shall be responsible for providing all resources and Assets (including
Equipment and Software) necessary to provide the Services and will only
recover such costs through the charging mechanisms set forth in this
Agreement. Grant by Empire to IBM of rights of use pursuant to this Article
6 shall be deemed to include, subject to the other provisions of this
Agreement, grant of such rights to IBM's subcontractors (subject to Section
10.5). Equipment and Third Party Service Contracts made available by Empire
to IBM pursuant to this Article 6 shall be made available in good working
order, and otherwise "as is, where is", with no warranties whatsoever.
6.1 Generally.
For purposes of Articles 6 and 7, a Party having operational,
administrative or financial responsibility for any particular Asset shall
mean the following:
(a) A Party who has operational responsibility for an Asset means that
such Party shall be responsible for operational support of the Asset
including (i) the unpacking,
-16- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
configuration; staging, setup and installation of such Asset, and (ii)
the maintenance of such Asset.
(b) A Party who has administrative responsibility for an Asset means that
such Party shall be responsible for managing such Asset, including (i)
the tracking of renewal dates and license compliance provisions, (ii)
providing notice to the Party with legal responsibility when actions
need to be taken with respect to such Asset (e.g., notification of
renewal of the license for such Asset), and (iii) receiving invoices
from third party vendors, promptly reviewing such invoices, and
providing to the Party with financial responsibility the original
invoice together with a statement identifying which charges are proper
and valid and should be paid.
(c) A Party who has financial responsibility for an Asset means that such
Party shall be responsible for all current (applicable immediately
after the effective date of such financial responsibility) and future
financial costs and expenses related to acquisition, lease, license,
or other ownership costs for such current and future Assets, including
upgrades, enhancements, new releases, replacements, expanded license
rights, growth and technology refreshments (including third party
software maintenance agreements). Charges for items for which IBM has
financial responsibility are as specified in Schedule C.
6.2 Existing Equipment.
(a) Existing Owned Equipment.
As of the Effective Date: (i) Empire shall sell, and IBM shall
purchase, the Existing Owned Equipment as identified in Schedule F,
and (ii) IBM shall be operationally, administratively, and financially
responsible for all Existing Owned Equipment. Empire shall execute a
Xxxx of Sale in the form set forth as Schedule R to evidence such
conveyance. The purchase price shall be as set forth in such Xxxx of
Sale, and shall be paid by IBM within ten (10) days of the Effective
Date.
(b) Existing Leased Equipment.
Subject to Section 6.6, as of the Effective Date: (i) Empire assigns
to IBM, and IBM accepts such assignment for, the leases for Existing
Leased Equipment, including as identified in Schedule F, and (ii) IBM
shall be operationally, administratively, and financially responsible
for all Existing Leased Equipment. IBM shall pay directly (or
reimburse Empire in the case of prepayment of) the charges under such
leases that are attributable to periods on and after the Effective
Date. IBM shall comply with the duties imposed by such leases.
-17- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
6.3 Equipment Acquisitions During the Term.
(a) Existing Equipment. IBM shall acquire and shall be operationally,
administratively, and financially responsible for modifications,
repairs, upgrades, enhancements, additions and replacements of
Existing Equipment, including IBM's responsibility to refresh Existing
Equipment as provided in the Data Center Services Schedule, as
necessary or appropriate to provide the Services. Such Equipment shall
be acquired in the name of IBM.
(b) Additional Levels of Equipment.
IBM shall acquire and shall be operationally, administratively, and
financially responsible for additional levels of Equipment --
including modifications, upgrades, enhancements, additions and
replacements of such additional Equipment -- as necessary or
appropriate to provide the Services. Except as otherwise provided in
Section 3.3(f) of Schedule C, such additional Equipment shall be
acquired in the name of IBM and shall be purchased or leased as
designated by Empire. Any purchase or lease contract for such new
Equipment shall grant Empire or its designee the right to use such
Equipment.
6.4 Removal and Disposal of Equipment.
(a) Removal and Disposal of Equipment Owned or Leased by Empire. As
directed by Empire and as approved by Empire with respect to removal
and disposal charges, IBM shall dispose of Equipment owned (legally or
beneficially) or leased (in accordance with the applicable
requirements of the lease) by Empire and no longer needed for the
provision of the Services. Subject to the preceding sentence, Empire
shall be responsible for IBM's reasonable costs associated with the
removal and disposal of such Equipment, and IBM shall pay to Empire
the positive difference, if any, between the value received by IBM for
such Equipment and the costs reasonably incurred by IBM in disposing
of such Equipment.
(b) Removal and Disposal of Equipment Owned or Leased by IBM. IBM shall be
responsible for the removal and disposal of Equipment owned or leased
by IBM and no longer required for the provision of the Services. IBM
shall be responsible for all costs, charges or fees associated with
the disposal of such Equipment.
6.5 Third Party Service Contracts.
(a) Subject to Section 6.6, as of July 15, 2002, Empire assigns to IBM,
and IBM accepts such assignment for, the Third Party Service
Contracts, including as identified in Schedule E. IBM shall be
financially responsible for (or reimburse Empire in the case of
prepayment of) the charges under the Third Party Service Contracts
assigned to IBM where such charges are attributable to periods on and
after the Effective Date. IBM shall have administrative responsibility
for such Third Party Service Contracts and shall comply with the
duties imposed on Empire by such Third Party Service Contracts.
-18- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(b) The Parties acknowledge that certain Software and Equipment
maintenance and support agreements used by Empire prior to the
Effective Date (including maintenance and support provisions
incorporated into the related software license) are listed on
Schedules F and G. These agreements shall be treated in the same
manner as the Software or Equipment which is the subject of such
agreement is treated under this Article 6 (for Equipment) and Article
7 (for Software), including whether such agreement is retained by
Empire or assigned to IBM, and the allocation of financial,
operational, and administrative responsibility as between the Parties.
For example, if certain Software on Schedule F is being retained by
Empire (i.e., not assigned to IBM), but IBM is assuming financial,
operational and administrative responsibility with respect to such
Software, the retention and allocation of responsibility with respect
to the underlying maintenance agreement shall be handled the same as
the Software. The Software and Equipment maintenance and support
agreements and provisions described in this Section 6.5(b) shall
constitute Third Party Service Contracts for purposes of this
Agreement.
(c) Prior to entering into any new third party service contract to provide
the Services (including an extension or modification of a Third Party
Service Contract that is assigned or made available by Empire to IBM
pursuant to Section 6.5(a)), IBM shall comply with the following:
(i) IBM shall use Commercially Reasonable Efforts to obtain, at no
additional cost to Empire, any transfer or assignment rights
necessary for Empire to use such third party service contract,
for Empire or Empire's designee to continue providing the
Services after the applicable termination or expiration effective
date.
(ii) IBM shall determine whether such third party vendor will grant
such transfer or assignment rights in favor of Empire. With
respect to third party service contracts relating to
non-Generally Available Software, IBM shall also determine
whether such third party vendor will (A) grant such transfer or
assignment rights in favor of Empire but only if a fee is paid to
such third party vendor, or (B) not grant such transfer or
assignment rights in favor of Empire. In the event of item (A) or
(B) in the previous sentence, IBM shall notify Empire in writing
of its inability to obtain such transfer or assignment rights for
Empire and of available alternative terms, and of the cost and
viability of any other third party vendors that can perform the
requisite services and with respect to which IBM has the ability
to obtain such rights at no additional cost to Empire or for a
lower cost than the proposed solution. Such notice shall contain
the proposed third party vendor's then current terms and
conditions (as provided by such vendor to IBM), if any, for
making such new third party service contract available to Empire
after the applicable termination or expiration effective date.
With Empire's prior approval only (which Empire may withhold in
its sole discretion), IBM may enter into such new third party
service contract, for use in providing the Services.
(iii) Upon termination or expiration of the Agreement, if any fees are
necessary to transfer or assign to Empire the right to use any
third party service contract relating to non-Generally Available
Software used by IBM to provide the Services, then (A) Empire
shall be responsible for such fees, if IBM received
-19- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Empire's advance written approval to be responsible for such fees
before IBM entered into such then-new third party service
contract, and (B) IBM shall be responsible for such fees, if IBM
did not receive Empire's advance written approval to be
responsible for such fees before IBM entered into such then-new
third party service contract.
6.6 Special Terms.
(a) Required Consents. IBM, with the cooperation of Empire, shall be
administratively and financially responsible, subject to Section
6.6(b)(ii), for obtaining the Required Consents with respect to
Software, Equipment, Equipment leases and Third Party Service
Contracts, as necessary to perform the Services. Subject to Section
6.6(b)(ii), IBM shall pay such fees (such as transfer or upgrade fees,
additional licenses, sublicenses, and maintenance fees) as may be
required to obtain a Required Consent. If a Required Consent is not
obtained, then, unless and until such Required Consent is obtained,
IBM shall determine and adopt, subject to Empire's prior approval,
such alternative approaches as are necessary and sufficient to provide
the Services without such Required Consents. Without limiting IBM's
obligations under the foregoing, IBM hereby represents to Empire that
it shall obtain the Required Consents for the Computer Associates
Software and the BMC Software, which will permit IBM to utilize
Empire's Computer Associates and BMC Software agreements. IBM shall be
financially responsible for (i) charges under Empire's Computer
Associates or BMC Software agreements or (ii) any other applicable
costs associated with IBM's use of such software.
(b) Unidentified Resources.
(i) Equipment, Software and Third Party Service Contracts that are
the subject of Articles 6 and 7 are listed in Schedules E, F and
G. While the Parties intend that such schedules will be
comprehensive, neither Party warrants the completeness or
accuracy of such schedules.
(ii) During the Term, if either of the Parties discovers that any
Equipment, Third Party Software or Third Party Service Contract
is not identified in Schedules E, F and G, respectively
("Unidentified Resources"), and the equipment, software and
services relating to such Unidentified Resources are within the
scope of Services provided for in this Agreement, then such Party
shall notify the other. Upon the disclosure of Unidentified
Resources: (A) IBM shall be operationally and administratively
responsible for a (formerly) Unidentified Resource on the same
basis for which it is responsible for the most comparable
analogous resource already listed in an applicable Schedule, (B)
IBM shall be financially responsible for any identified Existing
Leased Equipment that is IBM Logoed Equipment and any identified
Systems Software, and IBM shall make appropriate payments to
Empire to reflect such Equipment or Systems Software that is
identified; (C) Empire shall be financially responsible for any
identified Existing Owned Equipment; (D) IBM shall be
administratively responsible, and Empire shall be financially
responsible, for obtaining any necessary Required Consents for
Unidentified Resources; and (E) such Unidentified Resources shall
be added to the appropriate Schedule by amendment of this
Agreement in accordance with Section 23.2.
-20- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(iii) With respect to any Unidentified Resources that are Straddle
Agreements, the Parties shall work together in good faith to
determine and implement the most appropriate, including the most
cost effective, method of leveraging such Straddle Agreement for
the benefit of both Parties, consistent with the foregoing
provisions of this Section 6.6(b).
7. SOFTWARE AND PROPRIETARY RIGHTS
This Article 7 addresses the Parties' respective rights in Software and
related materials. Grant by Empire to IBM of a license to Use or of rights
of Use pursuant to this Article 7 shall be deemed to include, subject to
the other provisions of this Agreement, grant of such license or rights to
IBM's subcontractors (subject to Section 10.5). Subject to Section 16.4(b),
Software made available by Empire to IBM is made available on an "as is,
where is" basis, with no warranties whatsoever.
7.1 Empire Software.
(a) Empire retains all right, title and interest in and to Empire
Software. Empire grants to IBM a worldwide, fully paid-up,
nonexclusive license during the Term to Use Empire Software solely to
the extent necessary for performing the Services. Empire Software will
be made available to IBM in such form and on such media as exists on
the Effective Date or as is later obtained by Empire, together with
available documentation and any other related materials. IBM shall not
be permitted to Use Empire Software except to provide the Services
without the prior written consent of Empire, which may be withheld at
Empire's discretion. IBM shall install, operate and support, in
accordance with Schedules A-1 and A-2, additional Empire Software that
Empire may designate from time to time during the Term. Except as
otherwise requested or approved by Empire, IBM shall cease all Use of
Empire Software upon expiration or termination of this Agreement.
(b) Empire shall be the sole and exclusive owner of all patents,
copyrights, trade secrets and other intellectual property and related
intellectual property rights owned by Empire as of the Effective Date
(collectively, "Pre-Existing Empire Intellectual Property"). Except
for the license rights contained in this Agreement, IBM is not
acquiring any interest in or to such intellectual property or rights.
Pre-Existing Empire Intellectual Property shall include all patents,
copyrights, trade secrets and other intellectual property rights in
and to Empire Software and Confidential Information of Empire.
7.2 IBM Software.
(a) IBM retains all right, title and interest in and to IBM Software, and
as of the Effective Date, IBM will have operational, administrative,
and financial responsibility for IBM Software, including, as necessary
or appropriate to provide the Services, modifications, upgrades,
enhancements, additions and replacements of IBM Software and
introduction of new IBM Software (and modifications, upgrades,
enhancements, additions and replacements thereof). IBM shall not
introduce any IBM Software in providing the Services without Empire's
prior written approval, which approval Empire may withhold in its sole
discretion. IBM shall be responsible for installing, operating and
maintaining IBM Software at no additional expense to Empire. As and to
the extent necessary for
-21- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Empire or a third party to perform work as permitted under this
Agreement, IBM grants to Empire or such third party a non-exclusive
license to Use such Software for such work during the Term for the
sole benefit of Empire, except that for purposes of this sentence,
"Use" shall not include the right to modify, enhance, make derivative
works or distribute.
(b) IBM shall be the sole and exclusive owner of all patents, copyrights,
trade secrets and other intellectual property and related intellectual
property rights owned by IBM as of the Effective Date (collectively,
"Pre-Existing IBM Intellectual Property"). Except for the license
rights contained in this Agreement, Empire is not acquiring any
interest in or to such intellectual property or rights.
(c) With respect to Existing Systems Software which is IBM Systems
Software, as of the Effective Date, Empire hereby assigns and IBM
hereby assumes the licenses for such Software, including as identified
in Schedules G-1 S, G-2 S and G-3 S. As of the Effective Date, IBM
shall be (i) operationally and administratively responsible for such
Software, and (ii) financially responsible for such Software,
including, as necessary or appropriate to provide the Services,
modifications, upgrades, enhancements, additions and replacements of
existing IBM Systems Software and introduction of new IBM Systems
Software (and modifications, upgrades, enhancements, additions and
replacements thereof). IBM shall pay directly (or reimburse Empire in
the case of prepayment of) the charges under such licenses that are
attributable to periods on and after the Effective Date.
(d) This Section 7.2(d)(but excluding Sections 7.2(d)(i)-(ii)) is
intended to supplement, and shall not alter the provisions of,
Schedule C. IBM shall be responsible for identifying the need for new
IBM Systems Software, evaluating potential options for satisfying the
need for new IBM Systems Software, recommending alternative approaches
at different price levels, if any, for satisfying such need, and
implementing the approach selected by Empire. In identifying such
need, IBM shall provide such information as required for Empire to
make an informed decision as to whether to install new IBM Systems
Software, including information regarding the management, utilization
and efficiency of then-existing Systems Software. Upon Empire's
request, IBM shall also recommend actions to decrease Empire's charges
with respect to IBM Systems Software under Section 3.3 of Schedule C.
If (A) as a result of IBM's capacity planning obligations or other
performance considerations (as provided in the Services Schedules and
Schedule C) IBM recommends that existing IBM Systems Software be
upgraded or new IBM Systems Software be supplied, or (B) Empire
requests that existing IBM Systems Software be upgraded or new IBM
Systems Software be supplied, IBM shall promptly provide to Empire a
quote as to the cost for IBM to supply such Software, in accordance
with Sections 3.3(b)(vi-vii) and 3.3(c) of Schedule C. The price for
acquiring or licensing such new IBM Systems Software shall be in
conformance with Schedule C. Upon receipt of the price quote from IBM,
Empire may decide, in its sole discretion, whether: (1) to approve
IBM's supplying such Software; (2) to take no action; or (3) to
purchase or license the Software itself.
(i) IBM shall be financially, operationally, and administratively
responsible for new IBM Systems Software -- including
modifications, upgrades, enhancements,
-22- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
additions and replacements of IBM Systems Software -- as
necessary or appropriate to provide the Services.
(ii) Unless otherwise agreed in writing by the Parties, all licenses
for new IBM Systems Software and all licenses for modifications,
upgrades and enhancements (which shall not be introduced without
Empire's prior written approval, which approval Empire may
withhold in its sole discretion) of Existing Systems Software
which is IBM Systems Software shall be in IBM's name. With
respect to any IBM Systems Software newly licensed in the name of
Empire: (A) Empire grants to IBM, solely to the extent necessary
for performing the Services, the rights of Use of such Software
that Empire has with respect to such Software, and (B) except as
otherwise requested or approved by Empire, IBM shall cease all
Use of such Software upon expiration or termination of this
Agreement.
(e) Effective upon termination or expiration of this Agreement:
(i) with respect to Generally Available IBM Software which IBM uses
to provide the Services and which is available to the public as
"one-time charge" software, IBM grants to Empire (and designees
thereof for the sole purpose of providing services to Empire) a
perpetual license to use such software under IBM's standard
commercial terms for such software, for no additional charge,
subject to Section 7.2(e)(i)(A). Maintenance and support of such
software after termination or expiration shall be under IBM's
standard commercial terms for such software; provided that (1)
such terms and charges shall be competitive with those offered by
IBM to similar entities in similar circumstances (e.g., similar
volumes, usages), and (2) IBM's charges shall be commercially
reasonable.
(A) With respect to such Generally Available IBM Software, in
the event of any Empire termination of this Agreement
pursuant to Sections 15.4(d), 21.1(a), 21.1(b), 21.2, 21.4,
21.6 or 21.7, at Empire's option, if Empire chooses to
acquire the licenses for any such Generally Available IBM
Software, Empire shall pay the unamortized portion of the
license fees for such Software over a standard straight-line
amortization period. With respect to such Generally
Available IBM Software, in the event of any IBM termination
of this Agreement pursuant to Sections 21.1(c) or 21.2, or
any Empire termination of this Agreement pursuant to Section
21.3, Empire shall pay, and in the case of a termination
pursuant to Section 21.3, such payment shall be Wind Down
Costs pursuant to Section 21.3, the unamortized portion of
the license fees for such Software over a standard
straight-line amortization period. For clarification, upon
any event of termination or expiration, IBM shall grant to
Empire licenses for Generally Available IBM Software that
Empire had assigned to IBM upon the Effective Date.
(B) With respect to any refresh or acquisition of such Generally
Available IBM Software during the Term that would result in
IBM amortizing such Software during any period of time after
expiration of the
-23- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Agreement: (I) prior to undertaking such refresh or
acquisition, IBM shall provide notice to Empire of the fact
that the refresh or acquisition would result in Empire being
responsible for the unamortized portion of the license fees
at the expiration of the Agreement in accordance with this
Section 7.2(e)(i)(B), including the cost of such Software
and the proposed amortization period; (II) the Parties will
discuss such matter and seek to mutually agree as to how to
approach such refresh or acquisition, which could include
agreement to a shorter amortization period, at Empire or
IBM's cost; agreement that either IBM or Empire will be
responsible for amortization costs after expiration of the
Agreement; or agreement not to proceed with the refresh or
acquisition; (III) in the event that the Parties are unable
to reach agreement under item (II), then Empire shall have
the right to direct IBM not to complete the refresh or
acquisition; and (IV) in the event that the Parties agree
not to proceed with any scheduled refresh or Empire directs
that there be no refresh, IBM's charges shall be equitably
reduced to reflect the fact that the refresh was not
completed (since such refresh is as of the Effective Date
included within the charges set forth in Schedule C). As
payment for the unamortized portion of the license fees
(amortized over a standard amortization period and not
back-end loaded) with respect to which IBM has followed the
foregoing process and with respect to which Empire has
agreed under item (II) above to proceed with the refresh or
acquisition, then upon expiration of the Agreement, Empire
shall pay the unamortized portion of the Software, provided
that such amount shall be equitably reduced if the original
Term of the Agreement is extended, including pursuant to
Section 4.2, or Empire requests IBM to continue to provide
Services after the effective date of expiration pursuant to
Section 21.9. This Section 7.2(e)(i)(B) applies to
expiration of the Agreement and not termination of the
Agreement;
(ii) with respect to Generally Available IBM Software used by IBM to
provide the Services and which is available to the public as
"periodic charge" software, IBM grants to Empire (and designees
thereof for the sole purpose of providing services to Empire) a
license to use such software under IBM's standard commercial
terms for such software. The periodic license fees after
expiration or termination of this Agreement, and the terms and
charges for IBM maintenance and support of such software, shall
be under IBM's standard commercial terms for such software;
provided that (A) such terms and charges shall be competitive
with those offered by IBM to similar entities in similar
circumstances (e.g., similar volumes, usages), and (B) IBM's fees
and charges shall be commercially reasonable;
(iii) with respect to non-Generally Available IBM Software used by IBM
to provide the Services:
(A) IBM grants to Empire (and Empire's designees) a perpetual,
worldwide, fully paid-up, nonexclusive license to Use such
software (including any available source code, programmer
interfaces, available documentation, manuals, and other
materials necessary for the Use thereof), for the sole
-24- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
purpose of maintaining the non-Generally Available IBM
Software for Empire's use, and not for distribution,
provided that IBM shall not be required to provide such
source code unless IBM fails to provide or withdraws support
and maintenance for such software, all as described in the
remainder of this Section. IBM shall provide maintenance and
support for such software upon terms and conditions to be
mutually agreed prior to expiration or termination of the
Agreement, provided that: (I) such terms and charges shall
be competitive with those offered by IBM to similar entities
in similar circumstances (e.g., similar volumes, usages); or
(II) if IBM is not maintaining and supporting such software
for any other IBM customer, IBM's charges for such
maintenance and support shall not exceed the lower of (1)
maintenance and support charges for the commercial
equivalent of such software; (2) rates based on the
personnel rates attached to Schedule C, as escalated by the
inflation index set forth in Schedule C; or (3) IBM's
then-standard commercial rates for maintenance and support
of custom software. In any event, IBM's charges shall be
commercially reasonable. If IBM fails to provide or
withdraws such maintenance and support of such software, IBM
shall promptly deliver to Empire any existing source code
for such software, including any existing copies of
machine-readable and human-readable source code and
technical documentation for such software, and the license
granted above shall be deemed to be irrevocable. Any source
code which IBM is obligated to provide Empire shall be made
available to Empire on an "as is" basis; or
(B) in lieu of providing the source code to Empire pursuant to
Section 7.2(e)(iii)(A) above, IBM may, at its option,
provide Empire with a license to substitute software that is
Generally Available Software, provided that such software
shall: (I) provide substantially the same functionality and
performance as the non-Generally Available IBM Software it
would replace; (II) be at no additional charge to Empire
(except for applicable ongoing license fees and maintenance
charges); and (III) be installed and integrated into the
Empire environment by IBM at no additional charge to Empire;
and
(iv) with respect to IBM Service Delivery Tools, IBM shall assist
Empire in identifying alternative Generally Available service
delivery tools and assist Empire in procuring such licenses on
commercially reasonable terms, the fees for which shall be at
Empire's expense.
7.3 Third Party Software.
(a) Existing Third Party Applications Software.
(i) With respect to the Third Party Applications Software licensed by
Empire, including as identified in Schedules G-1 A, G-2 A and G-3
A and subject to IBM having obtained Required Consents for Third
Party Software as provided in Section 6.6(a), Empire grants to
IBM, solely to the extent necessary for performing the Services,
the rights of Use of such Software that Empire has as of
-25- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
the Effective Date or later obtains with respect to such
Software. IBM (A) shall comply with the duties, including Use
restrictions and those of nondisclosure, imposed on Empire by the
licenses for such Software, and to the extent such duties are
modified by the Required Consent for such Software, IBM will
comply with the Required Consent as to the modified duties, and
(B) shall not seek to modify or otherwise revoke such terms.
(ii) Licenses for Existing Third Party Applications Software shall
remain in the name of Empire, except as the Parties otherwise
mutually agree. IBM shall be operationally and administratively
responsible for such Software, and Empire shall be financially
responsible for such Software. Except as otherwise requested or
approved by Empire, IBM shall cease all Use of such Software upon
expiration or termination of this Agreement.
(b) New Third Party Applications Software.
(i) IBM will not introduce new Third Party Applications Software in
providing the Services without Empire's prior written approval,
which approval Empire may withhold in its sole discretion. IBM
will install and maintain (and otherwise treat in the same manner
as existing Third Party Applications Software) additional Third
Party Applications Software that Empire may designate from time
to time during the Term. Unless otherwise agreed in writing by
the Parties, all licenses for new Third Party Applications
Software shall be in Empire's name, and Empire shall grant to
IBM, solely to the extent necessary for performing the Services,
the rights of Use of such Software that Empire obtains with
respect to such Software. IBM (A) shall comply with the duties,
including Use restrictions and those of nondisclosure, imposed on
Empire by the licenses for such Software, and to the extent such
duties are modified by the Required Consent for such Software,
IBM will comply with the Required Consent as to the modified
duties, and (B) shall not seek to modify or otherwise revoke such
terms.
(ii) IBM shall be operationally and administratively responsible for
new Third Party Applications Software, and Empire shall be
financially responsible for such Software. Except as otherwise
requested or approved by Empire, IBM shall cease all Use of such
Software upon expiration or termination of this Agreement.
(c) Existing Third Party Systems Software. Licenses for Existing Third
Party Systems Software, including as identified in Schedules G-1 S,
G-2 S and G-3 S, shall remain in the name of Empire, except as the
Parties otherwise mutually agree. As of the Effective Date, subject to
IBM having obtained Required Consents for such Software as provided in
Section 6.6(a), Empire grants to IBM solely to the extent necessary
for performing the Services, the rights of Use of such Software that
Empire has as of the Effective Date or later obtains with respect to
such Software. IBM (i) shall comply with the duties, including Use
restrictions and those of nondisclosure, imposed on Empire by the
licenses for such Software, and to the extent such duties are modified
by the Required Consent for such Software, IBM will comply with the
Required Consent as to the modified duties, and (ii) shall not seek to
modify or otherwise revoke such terms. As of the Effective Date, IBM
shall be (A) operationally and administratively responsible for all
-26- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Existing Third Party Systems Software, and (B) financially responsible
for all Existing Third Party Systems Software, including, as necessary
or appropriate to provide the Services, modifications, upgrades,
enhancements, additions and replacements of Existing Third Party
Systems Software and introduction of new Existing Third Party Systems
Software (and modifications, upgrades, enhancements, additions and
replacements thereof). Provided that Empire maintains legal
responsibility for any Existing Third Party Systems Software upon
expiration or termination of this Agreement, IBM shall cease all Use
of such Software upon expiration or termination of this Agreement,
except as otherwise requested or approved by Empire.
(d) New Third Party Systems Software.
(i) IBM shall not introduce any Third Party Systems Software in
providing the Services without Empire's prior approval, which
approval Empire may withhold in its sole discretion.
(ii) The following Section 7.3(d)(ii) is intended to supplement, and
shall not alter the provisions of, Schedule C. IBM shall be
responsible for identifying the need for new Third Party Systems
Software, evaluating potential options for satisfying the need
for new Third Party Systems Software, recommending alternative
approaches at different price levels, if any, for satisfying such
need, and implementing the approach selected by Empire. In
identifying such need, IBM shall provide such information as
required for Empire to make an informed decision as to whether to
install new Third Party Systems Software, including information
regarding the management, utilization and efficiency of
then-existing Systems Software. If requested by Empire, IBM shall
also recommend actions to decrease Empire's charges under Section
3.3 of Schedule C. If (A) as a result of IBM's capacity planning
obligations or other performance considerations (as provided in
the Services Schedules and Schedule C) IBM recommends that Third
Party Systems Software be purchased or upgraded, or (B) Empire
requests that Third Party Systems Software be purchased or
upgraded, IBM shall promptly provide to Empire a quote as to the
cost for IBM to procure such Software from third party vendors,
in accordance with Section 3.3(b)(viii) of Schedule C. The price
for acquiring or licensing such new Third Party Systems Software
shall also reflect the benefit of applicable volume purchasing
discounts and other similar discounted purchasing arrangements
with third party vendors available to IBM (to the extent that IBM
has the necessary rights) or Empire. Upon receipt of the price
quote from IBM, Empire may decide, in its sole discretion,
whether: (1) to approve IBM's procurement of such Software; (2)
to take no action; or (3) to purchase or license the Software
itself.
(iii) IBM shall be financially, operationally, and administratively
responsible for new Third Party Systems Software -- including
modifications, upgrades, enhancements, additions and replacements
of Third Party Systems Software -- as necessary or appropriate to
provide the Services.
(iv) Unless otherwise agreed in writing by the Parties, all licenses
for new Third Party Systems Software and all licenses for
modifications, upgrades and enhancements (which shall not be
introduced without Empire's prior written
-27- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
approval, which approval Empire may withhold in its sole
discretion) of Existing Third Party Systems Software shall be in
Empire's name. To the extent Empire obtains such Software itself,
the license shall be in Empire's name. With respect to any Third
Party Systems Software newly licensed in the name of Empire,
Empire grants to IBM, solely to the extent necessary for
performing the Services, the rights of Use of such Software that
Empire has with respect to such Software. IBM (A) shall comply
with the duties, including Use restrictions and those of
nondisclosure, imposed on Empire by the licenses for such
Software, and to the extent such duties are modified by the
Required Consent for such Software, IBM will comply with the
Required Consent as to the modified duties, and (B) shall not
seek to modify or otherwise revoke such terms. Except as
otherwise requested or approved by Empire, IBM shall cease all
Use of such Software upon expiration or termination of this
Agreement.
(e) With respect to Third Party Systems Software described in Sections
7.3(c) and 7.3(d), effective upon termination or expiration of this
Agreement:
(i) with respect to Generally Available Third Party Systems Software,
IBM shall provide to Empire (and designees thereof for the sole
purpose of providing services to Empire) licenses to each such
Software on the same terms that IBM has with respect to such
Software.
(A) With respect to Generally Available Third Party Systems
Software used by IBM to provide the Services, in the event
of any Empire termination of this Agreement pursuant to
Sections 15.4(d), 21.1(a), 21.1(b), 21.2, 21.4, 21.6 or
21.7, at Empire's option, if Empire chooses to acquire the
licenses for any such Generally Available Third Party
Systems Software, Empire shall pay the unamortized portion
of the license fees for such Software over a standard
straight line amortization period. With respect to such
Generally Available Third Party Systems Software, in the
event of any IBM termination of this Agreement pursuant to
Sections 21.1(c) or 21.2, or any Empire termination of this
Agreement pursuant to Section 21.3, Empire shall pay, and in
the case of a termination pursuant to Section 21.3, such
payment shall be Wind Down Costs pursuant to Section 21.3,
the unamortized portion of the license fees for such
Software over a standard straight-line amortization period.
(B) With respect to any refresh or acquisition of such Generally
Available Third Party Systems Software during the Term that
would result in IBM amortizing such Software during any
period of time after expiration of the Agreement: (I) prior
to undertaking such refresh or acquisition, IBM shall
provide notice to Empire of the fact that the refresh or
acquisition may result in Empire being responsible for the
unamortized portion of the license fees at the expiration of
the Agreement in accordance with this Section 7.3(e)(i)(B),
including the cost of such Software and the proposed
amortization period; (II) the Parties will discuss such
matter and seek to mutually agree as to how to approach such
refresh or acquisition, which could include agreement to a
shorter amortization period, at Empire or IBM's cost;
agreement that either IBM or Empire
-28- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
will be responsible for amortization costs after expiration
of the Agreement; or agreement not to proceed with the
refresh or acquisition; (III) in the event that the Parties
are unable to reach agreement under item (II), then Empire
shall have the right to direct IBM not to complete the
refresh or acquisition; and (IV) in the event that the
Parties agree not to proceed with any scheduled refresh or
Empire directs that there be no refresh, IBM's charges shall
be equitably reduced to reflect the fact that the refresh
was not completed (since such refresh is as of the Effective
Date included within the charges set forth in Schedule C).
As payment for the unamortized portion of the license fees
(amortized over a standard amortization period and not
back-end loaded) with respect to which IBM has followed the
foregoing process and with respect to. which Empire has
agreed under item (II) above to proceed with the refresh or
acquisition, then upon expiration of the Agreement, Empire
shall pay the unamortized portion of the Software, provided
that such amount shall be equitably reduced if the original
Term of the Agreement is extended pursuant to Section 4.2 or
Empire requests IBM to continue to provide Services after
the effective date of expiration pursuant to Section 21.9.
This Section 7.3(e)(i)(B) applies to expiration of the
Agreement and not termination of the Agreement.
(C) Notwithstanding the foregoing in this Section 7.3(e)(i),
with respect to Generally Available Third Party Systems
Software that IBM utilizes under an agreement which IBM
utilizes to provide services to multiple customers, IBM
shall procure for Empire, to be effective upon termination
or expiration of this Agreement, a license to each such
Software on commercially reasonable terms, at Empire's
expense; and
(ii) with respect to non-Generally Available Third Party Systems
Software, IBM shall either:
(A) prior to the introduction of such Software in providing the
Services during the Term, IBM shall comply with the
following:
(I) IBM shall obtain the right to grant to Empire (or
Empire's designee): (1) perpetual, irrevocable,
worldwide, fully paid-up, nonexclusive license to Use
such Software, at no additional cost to Empire, at the
expiration or termination of this Agreement, and (2)
the right for Empire to continue to receive maintenance
for such Software after the expiration or termination
of this Agreement; and
(II) IBM shall determine whether the vendor for such
non-Generally Available Third Party Systems Software
will (1) grant such rights as set forth in Section
7.3(e)(ii)(A)(I) in favor of Empire; (2) grant such
rights in favor of Empire but only if a fee is paid to
such third party vendor; or (3) not grant such rights
in favor of Empire. In the event of the occurrence of
item (2) or (3) in the previous sentence, IBM shall
notify Empire in writing of its
-29- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
inability to obtain such license for Empire and of
available alternative licensing terms, and of the cost
and viability of any other software that can perform
the requisite functions and with respect to which IBM
has the ability to obtain such a license at no
additional cost to Empire or for a lower cost than the
proposed solution. Such notice shall contain the
proposed third party vendor's then current terms and
conditions (as provided by such vendor to IBM), if any,
for making the software available to Empire after the
applicable termination or expiration effective date.
With Empire's prior approval only (which Empire may
withhold in its sole discretion), IBM may introduce
such Software, for use in providing the Services. If
IBM uses any non-Generally Available Third Party
Systems Software to provide the Services without first
complying with the foregoing in this Section
7.3(e)(ii)(A)(II), IBM shall be responsible for (x)
procuring the rights required by Section
7.3(e)(ii)(A)(I); or (y) providing to Empire substitute
software that is Generally Available Software and has
the rights required by Section 7.3(e)(ii)(B) below
(such compliance as determined by Empire in its
discretion). IBM shall be financially responsible for
all costs and charges incurred in connection with such
efforts as provided in the previous sentence. Upon any
termination/expiration of this Agreement, if any
payment of fees is necessary to obtain from a third
party vendor such rights required by Section
7.3(e)(ii)(A)(I), then Empire shall be responsible for
such fees if IBM received Empire's advance written
approval to be responsible for such fees before IBM
introduced such non-Generally Available Third Party
Systems Software, and IBM shall be responsible for such
fees, if IBM did not receive Empire's advance written
approval to be responsible for such fees before IBM
introduced such non-Generally Available Third Party
Systems Software; or
(B) provide a license to substitute software that is Generally
Available Software, provided that such software shall: (I)
provide substantially the same functionality and performance
as the non-Generally Available Third Party Systems Software
it would replace; (II) be at no additional charge to Empire
(except for applicable ongoing license fees and maintenance
charges); and (III) be installed and integrated into the
Empire environment by IBM at no additional charge to Empire.
7.4 Rights in Newly Developed Software and Other Materials.
(a) Newly Developed Software Under Other Agreements. The Parties'
respective rights and responsibilities with respect to software
developed during the Term under the Licensing and Joint Development
Agreement are set forth in the Licensing and Joint Development
Agreement.
(b) Newly Developed Software.
-30- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(i) Software developed pursuant to this Agreement by IBM (alone or
jointly with others) shall consist of the following: (A)
modifications to, or upgrades or enhancements (derivative works)
of, Empire Software; (B) modifications to, or enhancements
(derivative works) of, Third Party Software licensed to Empire;
(C) modifications to, or enhancements (derivative works) of,
Third Party Software licensed to IBM and developed under
Schedules A-1 or A-5; and (D) new software which is not a
modification to, or upgrade or enhancement (derivative work) of,
Empire Software or IBM Software and which is developed under
Schedules A-1 or A-5 (the foregoing, collectively, "Developed
Empire Software"). Empire shall own and shall have all rights,
title and interest (limited to the extent permitted by the terms
of any governing Third Party Software licenses with respect to
item (B) above) in and to Developed Empire Software and all
copies made from them; provided that: (1) patents reading on such
Developed Empire Software shall be jointly owned (as provided in
and limited by Section 7.5(a) below), and (2) Empire shall own
all copyrights and other intellectual property rights relating to
such.
(ii) The Parties acknowledge and agree that either Party may request
that certain of the Development described in Schedule A-5 be
performed pursuant to a Joint Development Addendum under the
Licensing and Joint Development Agreement. If Empire agrees, the
Parties shall enter into a Joint Development Addendum covering
such development, and the intellectual property rights and
licenses shall be as specified in Section 9.3 of the Joint
Development Agreement. The charges paid by Empire pursuant to
such Joint Development Addendum shall count towards Empire's
obligation to purchase $30 million of Systems Integration (as
specified in Section 4.1 of Schedule C), or to purchase $65
million of Services (as specified in Section 4.2 of Schedule C),
as applicable.
(c) Non-Software Materials. With respect to literary works or works of
authorship (other than software) generated under this Agreement by IBM
such as manuals, training materials and other materials containing
IBM's technical or operational procedures, including the Procedures
Manual and the Change Control Procedure ("Non-Software Materials"),
the following shall apply: IBM and its Affiliates shall retain
ownership of the Procedures Manual and pre-existing materials included
in the Non-Software Materials and owned by IBM or its Affiliates prior
to such use ("IBM Non-Software Materials"). IBM grants to Empire a
perpetual, irrevocable, worldwide, fully paid up, non-exclusive
license to use, copy, maintain, modify, enhance, distribute and create
derivative works of IBM Non-Software Materials. Empire shall own the
remainder of the Non-Software Materials ("Empire Non-Software
Materials").
(d) Works Made for Hire.
(i) Developed Empire Software and Empire Non-Software Materials shall
be deemed "works made for hire." To the extent any of the
Developed Empire Software or Empire Non-Software Materials are
not deemed "works made for hire" by operation of law, IBM hereby
irrevocably assigns, transfers and conveys to Empire without
further consideration all of its right, title and interest in
such Developed Empire Software or Empire Non-Software Materials,
-31- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
including all rights of copyright, trade secret or other
proprietary rights in such materials, and patent rights subject
to IBM's joint ownership of certain patent rights as described in
the last sentence of Section 7.4(b)(i). IBM agrees to execute any
documents or take any other actions as may reasonably be
necessary, or as Empire may reasonably request, to perfect
Empire's ownership of any such Developed Empire Software or
Empire Non-Software Materials; should the law award ownership of
any intellectual property right mentioned or unmentioned above to
IBM or any IBM Personnel, agent or contractor, IBM shall take
whatever steps are necessary to accomplish the intent of this
Section 7.4(d).
(ii) With respect to inventions discovered or developed by IBM or any
IBM Personnel, agent or contractor, in the course of the
performance of duties under this Agreement which are subject to
joint ownership as described in the last sentence of Section
7.4(b)(i), (each an "Invention"), IBM will disclose to Empire in
writing any and all patent applications it files with respect to
any such Invention. Moreover, IBM shall disclose to Empire in
writing any Invention for which it chooses not to file a patent
application, in order that Empire can determine whether to file a
patent application for such Invention.
(e) With respect to this Section 7.4, Empire Software shall specifically
exclude the Portal Toolkits and Framework Software, the rights to
which software are set forth in the Licensing and Joint Development
Agreement.
7.5 Patent Applications and Patent Infringement Claims.
(a) With respect to any patents which the Parties have agreed, pursuant to
this Agreement, shall be jointly owned (as described in the last
sentence of Section 7.4(b)(i)), the following shall apply: if IBM
chooses to file a patent application with respect to any Invention,
IBM shall be solely responsible for the expense of the patent
application. With respect to all such patent applications filed by IBM
with respect to Inventions, each Party shall own an undivided joint
ownership interest in any patent issued in respect of any such
Invention (including, but not limited to, the right to use and
license), without a right of accounting to, or consent of, the other
Party. IBM shall control prosecution of the Patent. Each Party shall
provide the other Party all reasonable assistance in connection with
the preparation or prosecution of any patent application filed by the
other Party and shall cause to be executed all assignments and other
instruments and documents as the other Party may consider necessary or
appropriate to carry out the intent of this Section 7.5(a).
(b) If IBM chooses not to file a patent application with respect to any
Invention, then (in addition to IBM's responsibility under the second
sentence of Section 7.4(d)(ii)):
(i) upon notice from Empire to IBM that Empire may desire to apply
for a patent or other form of protection for intellectual
property rights for an Invention developed under the Agreement,
IBM shall (A) keep and provide to Empire journals, logs, and
other records sufficient for patent application purposes; (B)
provide to Empire all such materials described in item (A) that
pre-date Empire's notice to IBM of Empire's intent to file for a
patent that are in IBM's
-32- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
possession or are reasonably obtainable by IBM; and (C) upon
reasonable request from Empire, have IBM employees and
subcontractors meet with Empire and its counsel for the purpose
of Empire's applying for and obtaining of such patent or other
form of protection for intellectual property rights; and
(ii) if Empire chooses to file a patent application with respect to
any such Invention, Empire shall be solely responsible for the
expense of the patent application, and Empire shall solely own
any patent issued in respect of such Invention.
(c) IBM shall not (and shall cause its Affiliates not to) assert against
Empire or any of its Affiliates any claim that any Empire Software
developed under this Agreement by IBM (or its Affiliates and
subcontractors) and as delivered by IBM infringes upon any patent
owned or exclusively licensed to IBM or such Affiliate. This
obligation shall survive termination or expiration of this Agreement.
(d) With respect to this Section 7.5, Empire Software shall specifically
exclude the Portal Toolkits and Framework Software, the rights to
which software are set forth in the Licensing and Joint Development
Agreement.
7.6 Residual Knowledge.
Either Party shall be free to use Residuals for any purpose, including use
in the development, manufacturing, marketing and maintenance of its
products and services, provided that such use does not infringe any valid
patents or published or unpublished patent applications (including
provisional applications), registered designs or copyrights of the other
Party or third parties who have licensed or provided materials to the other
Party. Notwithstanding the foregoing, this paragraph does not give a Party
the right to use or disclose any Confidential Information consisting of:
(a) financial, statistical or personnel data of the other Party;
(b) the business plans of the other Party including, in the case of
Empire, healthcare insurance products, services and ancillary
services;
(c) Empire customer information;
(d) proprietary information of third parties made available to IBM;
(e) information that could reasonably be deemed to be uniquely developed
for Empire that yields competitive advantage in the healthcare
industry, except where such information is required to develop,
implement or operate those elements of the Payor Services Offering (as
defined in the Licensing and Joint Development Agreement) for which
Revenue Sharing (as defined in the Licensing and Joint Development
Agreement) is applicable;
(f) healthcare provider information;
(g) Protected Health Information; or
-33- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(h) in the case where such Party is IBM, any J2EE compliant e-business
architecture substantially similar to the J2EE compliant e-business
architecture developed by Empire (or by a third party for Empire). For
the purposes of clarification, an e-business architecture that is
substantially similar to the e-business architecture developed by
Empire shall mean an architecture that includes substantially similar
methods, functions or design approaches to those incorporated into
Empire's architecture, including Empire's software infrastructure
topology, the application framework models, Empire's internal
framework software implementation, real-time experience (web
perspective) while batch mode processing, Empire's system and
methodologies for achieving real-time claims processing, Empire's
systems and methods of augmenting legacy data with XML, and all
software development models as defined by the UML guidelines of
software engineering. This Section 7.6(h) does not apply to non-unique
implementations of the J2EE specification.
Except for the license rights contained in this Article 7, neither this
Agreement nor any disclosure made hereunder grants any license to either
Party under any intellectual property rights of the other Party. The
preceding sentence is not intended to diminish any rights available under
this Section 7.6. This Section 7.6 shall survive termination/expiration of
this Agreement.
7.7 Export.
The Parties acknowledge that certain Software and technical data to be
provided hereunder and certain transactions hereunder may be subject to
export controls under the laws and regulations of the United States and
other countries. Neither Party shall export or re-export any such items or
any direct product thereof or undertake any transaction in violation of any
such laws or regulations. To the extent within IBM's control, IBM shall be
responsible for, and shall coordinate and oversee, compliance with such
export laws in respect of such items exported or imported hereunder.
8. FACILITIES
8.1 General.
(a) Subject to and pursuant to the Migration Plan, IBM shall perform the
Services for Empire at the locations specified in this Agreement or at
another mutually agreed location or locations as further specified
below.
(i) IBM will deliver the Services from the Empire Facilities from
which the Services are being provided as of the Effective Date,
the IBM data center in Southbury, Connecticut (for remote
operations) and Empire's Brooklyn, New York facility (Metrotech)
in accordance with Empire's Metrotech relocation plan, except as
follows: (A) the Help Desk Services will be provided from an IBM
facility in Toronto, Canada; and (B) a portion of the
Modernization Services and the Core Applications Services will be
provided from the IBM facilities in Bangalore, India described in
Section 8.3(a). The Parties acknowledge that their intent, at the
time of the Effective Date, is to maximize the use of the IBM
staff in Bangalore, India for performance of the Modernization
Services.
-34- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(ii) IBM shall provide Data Center Services from the Staten Island
Data Center for not less than twenty-four (24) months, unless
otherwise mutually agreed, after which time IBM may provide the
Data Center Services from a different facility, provided that IBM
obtains Empire's prior written approval.
(iii) IBM shall include in any proposal to relocate a site from which
IBM delivers the Services, an assessment of whether such
relocation will affect the taxes assessed on Empire's receipt of
the Services.
(b) Any IBM-proposed relocation of the facilities from which any of the
Managed Operations Services are provided is subject to the following:
(i) no less than 180 days before the proposed relocation, IBM shall
provide notice of the proposed relocation and an analysis of the
proposed impact to Empire;
(ii) IBM shall develop a migration plan reasonably acceptable to
Empire which is designed to minimize disruptions or degradation
in Service to Empire during the migration period;
(iii) IBM acknowledges that Empire's reasonable concerns with respect
to the security, staffing, physical capabilities, and related
factors of the new facility shall be a sufficient basis for
Empire to withhold approval of such relocation;
(iv) IBM shall assume financial responsibility for any of its
transition costs, unless otherwise agreed by the Parties;
(v) IBM shall assume financial responsibility for Empire's increased
operational costs and expenses incurred by Empire as a result of
the relocation; provided that such costs and expenses are
specified and mutually agreed in writing; and
(vi) IBM acknowledges that Empire's reasonable concerns with respect
to any proposed equitable adjustments to this Agreement relating
to the relocation shall be a sufficient basis for Empire to
withhold approval of such relocation.
(c) Any Empire-proposed relocation of facilities from which IBM delivers
the Services may be subject to a mutually agreed equitable adjustment
of the affected portions of this Agreement. Notwithstanding the
foregoing sentence, there will be no equitable adjustment for the
relocation to the Metrotech facility, provided, however, that Empire
will be responsible for performing, at its expense, such relocation.
(d) If Empire reasonably requests the right to install telecommunications
equipment in IBM facilities from which the Services are being
provided, IBM shall cooperate and provide space to Empire for such
telecommunications equipment, and shall provide Empire access to such
facilities in order to maintain such equipment, provided that the
installation, maintenance and operation of the telecommunications
equipment is performed in accordance with any applicable IBM
procedures.
-35- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
8.2 Staten Island Data Center.
(a) The Parties shall negotiate and, within thirty (30) days after the
Effective Date, shall execute an agreement containing commercially
reasonable terms, and having a term of ten (10) years with appropriate
agreed-upon adjustments relating to the Term, pursuant to which Empire
shall sublet to IBM Empire's Staten Island Data Center space (the
"Staten Island Data Center Sublease"). In the event that the Parties
fail to execute the Staten Island Data Center Sublease within such
thirty (30) day period, then, either Party may initiate the informal
dispute resolution procedure specified in Section 20.1.
(b) With respect to any IBM termination of this Agreement pursuant to
Section 21.1(c) or 21.2 or Empire termination of this Agreement
pursuant to Section 21.3, 21.4, or 21.5 IBM shall have the option, for
ninety (90) days after the non-terminating Party's receipt of such
notice of termination, to terminate the Staten Island Data Center
Sublease, with such termination to be effective no less than four (4)
months and no more than nine (9) months after the date of such notice
of termination, subject to Empire's right to receive
Termination/Expiration Assistance pursuant Section 21.10. With respect
to any Empire notice of termination of this Agreement pursuant to
Section 15.4(d), 21.1(a), 21.1(b), 21.2, 21.6 or 21.7, Empire shall
have the option, for ninety (90) days after IBM's receipt of such
notice of termination, to terminate the Staten Island Data Center
Sublease, with such termination to be effective no less than four (4)
months and no more than nine (9) months after the date of such notice
of termination, subject to Empire's right to receive
Termination/Expiration Assistance pursuant Section 21.10. In the event
that either Party terminates the Agreement pursuant to the previous
two sentences, but the Party with the option to terminate the Staten
Island Data Center Sublease chooses not to terminate the sublease,
then at Empire's option, the following shall apply: (i) the Parties
shall amend the Staten Island Data Center Sublease to further sublease
back to Empire such data center space in the Staten Island Data Center
as Empire identifies, if any (the "New Sublease"); (ii) the New
Sublease shall be on the same terms and conditions as the original
Staten Island Data Center Sublease; and (iii) charges to Empire shall
be based on the proportionate share of the space being leased to
Empire as compared to the entire premises, using the same rent as in
the Staten Island Data Center Sublease, and there shall be no xxxx-up
of such charges.
(c) Upon Empire's request, IBM shall use Commercially Reasonable Efforts
(but not including payment of fees) to assist Empire in obtaining the
consent of Prime Sublandlord and Prime Landlord (both as to be defined
in the Staten Island Data Center Sublease) to the Staten Island Data
Center Sublease, and will cooperate with Empire in this regard.
Without limiting the generality of the foregoing sentence, it is
specifically agreed that, concurrently with the execution of this
Agreement and to the extent required to obtain the consent of Prime
Sublandlord and Prime Landlord, IBM shall deliver to Empire (i) a
certified income statement, and (ii) a written authorization to
perform a credit check on IBM. Such items (and the resulting credit
check) as described in items (i)-(ii) may be delivered by Empire to
Prime Sublandlord and/or Prime Landlord.
(d) If IBM has not relocated Empire out of the Staten Island Data Center
on or before the date that is thirty-six (36) months after the
Effective Date, IBM agrees to make improvements to the Staten Island
Data Center space necessary to allow such space to support additional
commercial customers, and consisting of a minimum investment of
-36- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
$7.75 million, of which Empire shall be responsible for its
proportionate share upon Empire approval of such improvements, all as
described in Schedule C.
(e) If the Data Center Services are relocated from the Staten Island Data
Center to another location during the Term, IBM shall pay to Empire,
prior to relocating Empire out of the Staten Island Data Center, an
amount equal to what would have been the unamortized cost of the
leasehold improvements paid for by Empire pursuant to Section 8.2(d)
above and Schedule C, as if such cost was being charged to Empire over
the remaining term of this Agreement.
(f) IBM shall cooperate and work with the lessor of the Staten Island Data
Center, Xxxxxxx Xxxxx, as necessary to provide the Services.
(g) In the event that IBM materially breaches the Staten Island Data
Center Sublease, subject to any cure provisions set forth in the
Staten Island Data Center Sublease, Empire shall have the right to
terminate, at no cost, the Data Center Services.
8.3 IBM Facility in India.
(a) IBM shall be responsible for providing the facility located at: IBM
Global Services Pvt. Limited, Xxxxxxxxxx Xxxxxx, Xxxxxxxxxxxx Xxxx,
Xxxxxxxxx, Xxxxx, from which IBM shall provide Core Applications
Services. The space in such facility from which Services will be
provided for Empire shall be contiguous, or otherwise as approved by
Empire. Up to the demarcation points specified in Section 2.1(w) of
the Telecommunications Connectivity Services Schedule, such facility
shall comply with the India Facility Specifications, attached hereto
as Schedule S. IBM shall provide the facility in time so that the Core
Applications Services may be transitioned to India in accordance with
the Migration Plan, attached as Schedule H. IBM shall provide space in
the facility, at no charge to Empire, for Empire employees and
consultants, as requested by Empire. IBM shall also provide the items
described in Section 8.5(b) which Empire is providing with respect to
the Empire Facilities.
(b) In the event that IBM establishes, in its discretion, an e-health
utility facility in Bangalore, India (the "e-Health Utility
Facility"), then Empire shall have the option to have its Services
provided from such facility.
8.4 Disaster Recovery Sites.
If an IBM facility from which Services are provided (or prior to the
completion of the Migration to India, will be provided) becomes unavailable
(and subject to the applicable disaster recovery provisions of this
Agreement) and a temporary facility is required in order to provide the
Services, the Parties agree that:
(a) if the unavailable IBM facility is located in the United States, the
temporary facility shall be located in the United States;
(b) if the unavailable IBM facility is located in Canada, the temporary
facility shall be located in the United States or Canada;
-37- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(c) if the unavailable IBM facility is located outside of the United
States or Canada, the temporary facility may be located as IBM elects,
subject to the other applicable provisions of the Agreement;
(d) regardless of the location of the temporary IBM facility, the charges
payable by Empire for Services provided from the temporary IBM
facility shall be at the same rate as if such Services were being
provided prior to the disaster event at the originally planned
facility (i.e., as if such Services were being provided from the
now-unavailable IBM facility); and
(e) Services shall be provided from the temporary IBM facility only for
such time as the recovery requires and until the original IBM facility
can be rendered fit for providing the Services.
If the original IBM facility is permanently unavailable, a permanent site
shall be reasonably proposed by IBM and subject to Empire's approval,
including that Empire can require, at Empire's option, that the limitations
in items (a)-(d) above apply.
8.5 Empire Obligations.
(a) Subject to Section 8.6, Empire will provide to IBM, and IBM shall
utilize in providing the Services, the Empire Facilities from which
Empire provided services similar to the Services prior to the
Effective Date, or comparable facilities designated by Empire. IBM
shall be responsible for providing the other facilities and support it
needs to provide the Services. Empire will retain the costs of
applicable facilities leases and related leasehold improvements with
respect to the Empire Facilities. For those Empire Facilities that are
leased facilities, IBM shall comply with the applicable leases, as
directed by Empire.
(b) Empire will provide IBM at no charge with the use of space at the
Empire Facilities as used by Empire prior to the Effective Date to
provide the Services. This includes heat, light, power, air
conditioning, uninterruptible power supply (if any), and other similar
utilities, office space, furniture, secure storage space and equipment
staging facilities, telephone service in support of the Services,
office support services (including security and janitorial), and
coordination of Empire Facility access security requirements to be
used by IBM in support of the Services. Empire will provide IBM with
the same or similar access to Empire's workplace services, such as
parking and cafeteria facilities, if any, as Empire provides to its
employees. These requirements will be reduced consistent with the
staffing plan and Migration Plan reductions as those activities are
completed. Except as provided in this Agreement, Empire shall have no
responsibilities to IBM with respect to the Empire Facilities.
(c) Each Transitioned Employee (and his or her immediate replacement) will
use the workstation, if any, that such Transitioned Employee utilized
immediately prior to the Effective Date, and IBM will provide
technical support for such workstations, until the end of the
applicable lease. Until the expiration of the applicable lease,
maintenance for such workstations shall be provided under the terms of
the applicable lease. At the expiration of the applicable lease, IBM
will return to Empire and IBM will replace such workstations at its
expense, and IBM shall provide associated support and maintenance for
such replaced workstations.
-38- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(d) Empire will inform IBM of any plans or determination to relocate the
Empire Facilities so that IBM will have a reasonable amount of time to
prepare for and implement such change or relocation as it impacts IBM.
8.6 IBM Obligations.
(a) IBM shall use the Empire Facilities for the sole and exclusive
purposes of providing the Services under this Agreement. The use of
Empire Facilities by IBM does not constitute a leasehold or other
property interest in favor of IBM.
(b) IBM shall use the Empire Facilities in a manner that is coordinated,
and does not interfere, with Empire's business operations. To the
extent that IBM operates the space in a manner that materially and
unnecessarily increases facility or other costs incurred by Empire,
Empire shall notify IBM of such costs and IBM shall take such steps as
may be necessary to reduce such facility costs to a level reasonably
acceptable to Empire. IBM shall be responsible for any damage to the
Empire Facilities resulting from the abuse, misuse, or negligence of
IBM or other failure to comply with its obligations respecting the
Empire Facilities, and Empire shall have the right to set off the
reasonable and actual cost of repairing any such damage against
charges payable to IBM under this Agreement, in accordance with
Section 14.6.
(c) IBM shall keep the Empire Facilities in good order, not commit or
permit IBM personnel to commit waste or damage to Empire Facilities or
use Empire Facilities for any unlawful purpose or act, and shall
comply with Empire's standard policies and procedures and with
applicable leases as these are made available to IBM regarding access
to and use of the Empire Facilities, including procedures for the
physical security of the Empire Facilities.
(d) IBM shall not make improvements or changes to the Empire Facilities
without Empire's prior written approval. Any improvements to the
Empire Facilities will become the property of Empire.
(e) When the Empire Facilities are no longer required for performance of
the Services, IBM shall restore the Empire Facilities to substantially
the same condition as when IBM began use of them in the case of (i)
damage caused by IBM or its agents (subject to reasonable wear and
tear); and (ii) unauthorized changes to the Facilities.
8.7 Migration.
(a) During the period beginning on the Effective Date and in accordance
with the dates set forth in the Migration Plan, as described below,
IBM shall plan, prepare for, conduct and complete the migration and
transition of the data center, core applications and help desk
operations (the "Migration"). IBM's responsibilities with respect to
the Migration, as set forth in this Section 8.7, are referred to as
the "Migration Services." Such Migration Services include:
(i) establishing communications lines and network connections on
IBM's side of the demarcation points provided in Section 2.1(w)
of the Telecommunications Connectivity Schedule and as required
for IBM to access its own internal
-39- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
systems and facilities, and providing Equipment, Software, tapes,
records and supplies, as made necessary by the Migration;
(ii) maintaining without unplanned disruption the Services and not
otherwise unnecessarily disrupting Empire's business operations;
(iii) paying all costs associated with the Migration, including
in-scope communications lines costs (both installation and
ongoing); and
(iv) otherwise performing such migration tasks as are necessary to
enable IBM to provide the Services, including following the
Migration.
(b) IBM will designate an individual who will be authorized to act as
Empire's primary contact with respect to the Migration (the "IBM
Migration Manager"). IBM will further designate an individual for Data
Center, Help Desk and Core Applications who will manage the Migration
for such Services (each a "Tower Migration Manager"). IBM will not
remove the individuals serving as the IBM Migration Manager and the
Tower Migration Managers during such period of time from the Effective
Date through the completion of the Migration, unless any such
individual (i) voluntarily leaves IBM; (ii) is removed because of
performance reasons; or (iii) is physically unable to perform the
tasks required (e.g., because of sickness or accident).
(c) The Migration shall be conducted in accordance with the SMI Process
(as defined in Schedule A-1) and with a written plan (the "Migration
Plan") which shall include:
(i) a description of the Services being migrated;
(ii) a description of the methods and procedures, personnel (including
skill sets and allocation) and organization IBM will use to
perform the Migration;
(iii) a schedule of Migration activities, including a project plan
from beginning until production cutover, including milestones,
risks and risk management plans;
(iv) personnel information, such as years worked and years with
information technology experience and other relevant
qualifications, for the IBM Migration Manager and the Tower
Migration Managers and other key employees, as reasonably
specified by Empire;
(v) a detailed description of the respective roles and
responsibilities of Empire and IBM;
(vi) such other information and planning as are necessary to ensure
that the Migration takes place on schedule and without unplanned
disruption to Empire operations; and
(vii) a process by which Empire may require IBM to stop proceeding
with all or any part of the Migration if Empire determines in
good faith that such Migration, or any part of such Migration,
poses a material risk or hazard to Empire's business interests.
-40- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(d) The draft of the Migration Plan as of the Effective Date is attached
to this Agreement as Schedule H. IBM shall be responsible for revising
and finalizing the Migration Plan, provided that: (i) IBM shall
cooperate and work closely with Empire in making changes to the
Migration Plan; and (ii) any changes to the Migration Plan and
subsequent versions of the Migration Plan shall be subject to mutual
written agreement by the Parties.
(e) Except (i) with Empire's prior written consent, or (ii) if necessary
in the event of an emergency such that it would be impractical for IBM
to obtain such prior written consent (and solely for so long as the
emergency continues), IBM shall perform the Migration in accordance
with the Migration Plan and the Change Control Procedure. Empire shall
cooperate and provide reasonable assistance with respect to the
Migration as specified in the Migration Plan or as otherwise requested
reasonably in advance by IBM.
(f) During the Migration, the Tower Migration Managers shall report weekly
to IBM and Empire regarding the status of the Migration.
(g) No functionality of the Services being migrated shall be disabled
until the new location has capabilities as required to provide the
Services.
(h) Implementation of a Critical Milestone in the Migration Plan which
constitutes a transfer of responsibility to IBM shall be subject to
Empire's written approval.
(i) If the Migration is not completed on or before the dates set forth in
each Migration Plan (the "Migration Completion Dates"), then to the
extent that such failure is due to the fault of IBM or its
subcontractors, IBM shall continue to take any and all actions, at
IBM's expense, necessary to cause the Services to be provided to
Empire until such time as the incomplete portion of the Migration is
complete and IBM is able to provide the Services to Empire.
9. PERFORMANCE STANDARDS
9.1 General.
IBM shall perform the Services at least at the same level and with at least
the same degree of accuracy, quality, completeness, timeliness,
responsiveness and efficiency as was provided prior to the Effective Date
by or for Empire. Quantitative performance standards for certain of the
Services ("Service Levels") are set forth in Schedule B. At all times IBM's
level of performance shall be at least equal to the Service Levels.
9.2 Failure to Perform.
(a) In the event of an Equipment or Software failure, or if IBM fails to
meet a Performance Standard, IBM shall (i) investigate, assemble and
preserve pertinent information with respect to, and report on the
causes of, the problem, including performing a root cause analysis of
the problem; (ii) advise Empire, as and to the extent requested by
Empire, of the status of remedial efforts being undertaken with
respect to such problem; (iii) minimize the impact of the problem, use
Commercially Reasonable Efforts to correct the problem, and begin
meeting the Performance Standard (if impacted); and (iv) take
appropriate preventive measures so that the problem does not recur. As
part of such
-41- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
efforts, the staff of the various technical disciplines at IBM shall
work in a collaborative environment (including within reliability
meetings and by coordinating with Empire): (A) to identify offending
system(s) contributing to such failures or outages, and (B) to
determine the singular point of failure and reason for that failure.
(b) IBM recognizes that its failure to meet Critical Service Levels (as
set forth in Schedule B) may have a material adverse impact on the
business and operations of Empire and that the damage from IBM's
failure to meet a Critical Service Level is not susceptible of precise
determination. Accordingly, in the event that IBM fails to meet any
Critical Service Level for reasons other than the actions or omissions
of Empire or circumstances that constitute force majeure under this
Agreement, then in addition to any non-monetary remedies available to
Empire under this Agreement, at law or in equity, Empire may elect in
lieu of pursuing other monetary remedies to recover as its sole and
exclusive monetary remedy for such failure to meet Critical Service
Levels the Service Level Credits specified in Schedule B as liquidated
damages. Empire may, in the alternative, elect to make a claim for
damages against IBM with respect to such failure, provided that:
(i) Empire notifies IBM within eighteen (18) months from the date
that Empire received the invoice reflecting the Service Level
Credit(s) that are related to the failure upon which such claim
will be or is based. This Section 9.2(b) shall not limit Empire's
rights with respect to the events upon which Empire may rely as a
basis for Empire's termination of this Agreement for cause.
(ii) In the event Empire so notifies IBM, Empire shall refund to IBM
the Service Level Credits(s) associated with IBM's failure to
meet Service Level(s) upon which Empire's claim will be or is
based. In the event Empire makes such an election pursuant to the
previous item (i) and Empire reimburses IBM for such Service
Level Credit(s), the Service Level Credits paid previously by IBM
for the period covered by the refunded Service Level Credits
shall be recalculated, as if the refunded Service Level(s)
was/were never missed (e.g., if the total Service Levels Credits
paid by IBM in any month during such period exceeded the Amount
at Risk (as defined in Schedule B), then such Service Level
Credits shall be recalculated, and Service Level Credits that
previously exceeded the Amount at Risk that, after the foregoing
recalculation, fall within the Amount at Risk shall be paid by
IBM to Empire).
(iii) Empire shall not be required to reimburse IBM for the Service
Level Credit(s) as described above in item (ii), if and while the
Parties are attempting to resolve the issue in accordance with
Section 20.1; instead, Empire shall only be required to reimburse
such Service Level Credit(s) if Empire elects to make a formal
claim for damages in a court of law.
(c) In the event that any IBM Service failure under this Agreement results
in Empire being assessed a performance guarantee penalty to Empire's
customer, IBM ("Customer"), under Empire's customer agreement with
such Customer, then IBM shall be responsible for the full amount of
such performance guarantee penalty to be paid to such Customer.
-42- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
9.3 Periodic Reviews.
At least annually Empire and IBM, as more fully described in Schedule B,
shall review the Service Levels and shall make appropriate adjustments to
them at least annually, as mutually agreed, to reflect improved performance
capabilities associated with advances in the technology and methods used to
perform the Services. The Parties expect and understand that the Service
Levels will be improved over time.
9.4 Measurement and Monitoring Tools.
Initially, IBM shall have access to and use measurement and monitoring
tools as utilized and implemented by Empire immediately prior to the
Effective Date. IBM shall implement and utilize the necessary measurement
and monitoring tools and procedures required to measure and report IBM's
performance of the Services against the Service Levels as specified in
Schedule B. Empire shall have the right to approve such measurement and
monitoring tools and procedures prior to implementation by IBM. Such
measurement and monitoring shall permit reporting at a level of detail
sufficient to verify compliance with the Service Levels, and shall be
subject to audit by Empire. IBM shall provide Empire with information and
access to such tools and procedures upon request, for purposes of
verification. IBM shall implement, and maintain software currency for (to a
currency of n-1, as defined in Attachment A2-B to Schedule A-2), the agreed
to modules of the Tivoli software, in accordance with the Help Desk
Migration Plan and Section 3.1(h) of the Help Desk Services Schedule, as
its tool to track and provide notification with respect to Equipment and
Software failures.
9.5 Customer Survey.
IBM and Empire shall conduct a survey each year of the Empire user
community that is designed to determine the level of user satisfaction. IBM
and Empire will mutually agree on the form and content of the surveys,
which shall include representative samples of each major category of user
within Empire and an agreed upon number of in-depth face-to-face or
telephone interviews. The Parties will jointly review the results of the
surveys, and in those areas where users are dissatisfied, IBM will develop
and implement a plan to improve user satisfaction. Empire's satisfaction
shall be an element of IBM employees' personal measurements and a key
factor in determining business unit success. Such factors shall comprise a
significant percentage of the variable incentive compensation pay of each
individual holding a Key IBM Position, including as set forth in Section
5.1(a)(ii).
10. PROJECT AND CONTRACT MANAGEMENT
10.1 Governance Board.
The Parties shall form a governance board to facilitate communications
between them (the "Governance Board"). The Governance Board shall be
composed of senior management of both Empire and IBM, and such other
persons as may be mutually agreed by the Parties. The Governance Board
shall provide general oversight and guidance to the Parties, including
serving as the arbiter with respect to issues arising during and from
meetings, committees, and work groups formed by the Parties (e.g., change
request, reliability).
-43- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
10.2 Reports and Meetings.
(a) Reports.
(1) As of the Effective Date, IBM shall provide Empire the periodic
reports set forth in Schedule K, and within thirty (30) days
after the Effective Date, the Parties shall determine (as
discussed below) additional periodic reports to be issued by IBM
to Empire. Such reports shall (i) be no less comprehensive than
the internal reporting of Empire prior to the Effective Date; and
(ii) be issued at the frequency reasonably requested by Empire.
All Empire reports which were web-enabled by Empire prior to the
Effective Date shall be web-enabled by IBM, and IBM shall provide
Empire access to such information as of the Effective Date. As
one such report, IBM shall provide a monthly performance report,
which shall be delivered to Empire within fifteen (15) days after
the end of each month, describing IBM's performance of the
Services in the preceding month (the "Monthly Performance
Report"). Such Report shall:
(A) separately address IBM's performance in each area of the
Services;
(B) for each area of the Services, assess the degree to which
IBM has attained or failed to attain the pertinent
objectives in that area, including with respect to the
Service Levels;
(C) explain deviations from the Performance Standards and
include a plan for corrective action where appropriate;
(D) describe the status of problem resolution efforts, ongoing
projects, and other initiatives, and the status of IBM's
performance with respect to change requests;
(E) set forth a record of the material Equipment, Software and
personnel changes that pertain to the Services and describe
planned changes during the upcoming month that may affect
the Services;
(F) set forth the utilization of resources for the month and
report on utilization trends and statistics; and
(G) include such documentation and other information as Empire
may reasonably request to verify compliance with, and
meeting the objectives of, this Agreement.
(ii) Within thirty (30) days after the Effective Date, the Parties
shall determine additional periodic reports that shall be issued
by IBM to Empire. IBM shall provide Empire with suggested formats
for such reports for Empire's review and approval. Within ninety
(90) days after the Effective Date, IBM shall commence providing
such additional reports to Empire.
(b) Meetings. Within thirty (30) days after the Effective Date, the
Parties shall determine an appropriate set of meetings to be held
between representatives of Empire and IBM. IBM shall prepare and
circulate an agenda sufficiently in advance of each such meeting to
-44- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
give participants an opportunity to prepare for the meeting. IBM shall
incorporate into such agenda items that Empire desires to discuss. IBM
shall prepare and circulate minutes promptly after a meeting, although
Empire shall not be bound thereto and shall be under no obligation to
correct or object to any errors therein. As of the Effective Date,
such meetings shall include the following:
(i) a weekly meeting of the Empire Contract Executive and the IBM
Project Executive to discuss day-to-day operations and such other
matters as appropriate;
(ii) the three-times-weekly Empire reliability meeting;
(iii) a weekly environment change control meeting;
(iv) a weekly meeting to discuss change requests;
(v) a daily (or otherwise agreed) mid-tier infrastructure meeting;
(vi) a weekly senior management team ("SMT") meeting;
(vii) a monthly, or as requested by Empire, management meeting of the
Governance Board to review the reports for the quarter, review
IBM's overall performance under the Agreement, review progress on
the resolution of issues, provide a strategic outlook for
Empire's IT requirements, discuss and attempt to resolve any
issues arising under the Agreement (as provided in Section 10.1),
and discuss such other matters as appropriate; and
(viii) such other meetings between Empire representatives and IBM
Personnel reasonably requested by either Party as necessary to
address performance of the Services.
10.3 Procedures Manual.
(a) The "Procedures Manual" shall describe how IBM shall perform and
deliver the Services under this Agreement, the Equipment and Software
being used, and the documentation (e.g., operations manuals, user
guides, specifications) which provide further details of such
activities. The Procedures Manual shall also describe any actions
required by Empire in its receipt of the Services. The Procedures
Manual shall describe the activities IBM proposes to undertake in
order to provide the Services, including those direction, supervision,
monitoring, staffing, reporting, planning and oversight activities
normally undertaken to provide services of the type IBM is to provide
under this Agreement. The Procedures Manual also shall include
descriptions of the acceptance testing and quality assurance
procedures approved by Empire, IBM's problem management and escalation
procedures, and the other standards and procedures of IBM pertinent to
Empire's interaction with IBM in obtaining the Services.
(b) Within sixty (60) days after the Effective Date, IBM shall deliver a
draft Procedures Manual to Empire, for Empire's comments and review.
IBM shall incorporate reasonable comments or suggestions of Empire and
shall finalize the Procedures Manual within thirty (30) days after
IBM's receipt of comments from Empire. The final
-45- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Procedures Manual shall be subject to the approval of Empire. IBM
shall periodically (and no less frequently than every calendar
quarter) update the Procedures Manual to reflect changes in the
operations or procedures described therein. Updates of the Procedures
Manual shall be provided to Empire for review, comment and approval.
IBM shall perform the Services in accordance with the Procedures
Manual. The Procedures Manual shall not be used to amend this
Agreement. In the event of a conflict between the provisions of this
Agreement and the Procedures Manual, the provisions of this Agreement
shall control.
10.4 Change Control.
(a) The responsibility for establishing the IT architecture, standards and
strategic direction of Empire shall at all times remain with Empire.
IBM, in performing the Services, shall conform to and shall support
such architecture, standards and strategic direction. Any changes to
the Services required for such conformance shall be implemented
through the Change Control Procedures.
(b) IBM shall be responsible for all changes to Empire's IT environment
pertaining to the Services, including changes to programs, manual
procedures, chron jobs, distribution parameters and schedules. IBM
shall comply with the following change control requirements:
(i) Prior to using any new Software or new Equipment to provide the
Services, IBM shall have verified that the item has been properly
installed, is in good working order, and is performing in a
reliable manner.
(ii) IBM shall not make the following changes, including implementing
a change in technology or equipment and software configuration,
without first obtaining Empire's approval, which approval Empire
may withhold in its sole discretion: (A) a change adversely
affecting the function or performance of, or decreasing to any
significant degree the resource efficiency of, the Services; (B)
a change increasing Empire's charges under this Agreement or
other costs or fees of Empire; (C) a change inconsistent with the
IT architecture, standards or strategic direction specified by
Empire; or (D) a change impacting the way in which Empire
conducts its business or operations which impact Empire considers
to be adverse. IBM may make temporary changes required by an
emergency if it has been unable to contact an appropriate Empire
manager to obtain such approval after making Commercially
Reasonable Efforts, provided that IBM works diligently to remove
the need for such emergency change. IBM shall document and
promptly report such emergency changes to Empire, which changes
then shall be subject to Empire's approval hereunder.
(iii) IBM shall move programs from development and test environments
to production environments in a controlled manner using the
Empire promotion to production procedures which will be included
in the Procedures Manual, so that no changes are introduced into
the programs during such activity, and with the full capability
of restoring to the prior state until the programs have been
established as fully operational.
-46- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(c) As of the Effective Date, Empire's change control procedures in effect
as of the Effective Date shall govern changes to the Services and upon
mutual acceptance, the Change Control Procedure shall govern such
changes.
(d) Within forty-five (45) days after the Effective Date, IBM shall
prepare and provide to Empire a "Change Control Procedure" detailing
how IBM will comply with the requirements set forth in this Section
10.4 and otherwise control changes to Empire's IT environment
pertaining to the Services. The Change Control Procedures shall not be
used to amend the terms of this Agreement and shall be consistent with
Section 10.4(b)(ii) above. IBM shall incorporate reasonable comments
or suggestions of Empire and shall finalize the Change Control
Procedure within thirty (30) days after receiving Empire's comments.
The final Change Control Procedure shall be subject to the approval of
Empire. The Change Control Procedures shall be included as part of the
Procedures Manual, and IBM shall perform the Services in accordance
with the Change Control Procedures. In the event of a conflict between
the provisions of this Agreement and the Change Control Procedure, the
provisions of this Agreement shall control.
10.5 Use of Subcontractors and Other Support.
(a) IBM will not delegate or subcontract, without Empire's prior written
approval: (i) any of its material obligations, (ii) obligations that
are material to any particular function constituting a part of the
Services under this Agreement, or (iii) a material function or portion
of the Services. In seeking Empire's approval, IBM will specify in
writing to Empire: (A) the specific components of the Services that
IBM proposes to subcontract, (B) the scope of the proposed
subcontract, and (C) the identity and qualifications of the proposed
subcontractor. At Empire's request, IBM shall forward to Empire a
description of the scope and material terms (other than financial) of
the subcontract or proposed subcontract. Empire shall have the right
to approve or disapprove of proposed subcontractors in its sole
discretion. Schedule L contains a list of subcontractors that Empire
has approved and the specific Services that each subcontractor is
authorized to provide.
(b) Empire shall have the right to revoke its prior approval of a
subcontractor, or for those instances where no prior approval was
given, to request that an IBM subcontractor be removed, and in either
case IBM shall remove such IBM subcontractor from the Empire account
if: (i) the subcontractor's performance is materially deficient; (ii)
the subcontractor is bought by an Empire Competitor, or enters the
health insurance business; or (iii) there have been material
misrepresentations by or concerning the subcontractor.
(c) IBM shall remain responsible for obligations, services and functions
performed by subcontractors to the same extent as if such obligations,
services and functions were performed by IBM employees, and for
purposes of this Agreement such work shall be deemed work performed by
IBM. Any delegation or subcontracting by IBM in violation of this
Section 10.5 shall be null and void. IBM shall be Empire's sole point
of contact regarding the Services, including with respect to payment.
IBM shall not disclose Confidential Information of Empire to a
subcontractor unless and until such subcontractor has agreed in
writing to protect the confidentiality of such Confidential
-47- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Information in a manner substantially equivalent to that required of
IBM under this Agreement.
(d) To the extent subcontractors, agents, representatives and other
entities perform, or otherwise provide support to IBM related to, the
Services, IBM shall cause such entities to comply with the applicable
obligations and restrictions under this Agreement.
10.6 Technology Plan.
IBM shall prepare an annual technology plan in accordance with the
provisions of this Section and subject to Section 10.4(a) (the "Technology
Plan"). Each Technology Plan after the first shall review and assess the
immediately preceding Technology Plan. The Technology Plan shall consist of
a three-year plan and an annual implementation plan as described below.
(a) Three-Year Plan. The Technology Plan shall include a comprehensive
assessment and strategic analysis of Empire's then-current IT systems
and services for the next three (3) years, including an assessment of
the appropriate direction for such systems and services in light of
Empire's business priorities and strategies and competitive market
forces (to the extent such business information is provided by Empire
to IBM). The Technology Plan shall include a specific identification
of proposed software and hardware strategies and direction, a cost
projection, a cost/benefit analysis of any proposed changes, a
description of the types of personnel skills and abilities needed to
respond to any recommended changes or upgrades in technology, a
general plan and a projected time schedule for developing and
achieving the recommended elements, and references to appropriate
information services operations platforms that support service level
requirements, exploit industry trends in production capabilities and
provide potential price performance improvement opportunities.
(b) Annual Implementation Plan. As necessary to support the overall
objectives and directions of the three-year plan, the annual
implementation plan shall provide specific guidance as to the
information services requirements, projects and plans for the upcoming
year, including details on operations, maintenance backlog and
development activities. The annual implementation plan shall include a
summary review of IBM's performance of the Services in the year then
concluding, and shall provide updates and revisions of the long-term
plan as appropriate. An annual implementation plan shall be prepared
for each year of the Agreement. As part of the process for preparing
the annual implementation plan, the Parties shall review the overall
operation of the Agreement to ensure that the Services continue to
meet Empire's strategic IT requirements.
(c) Drafting Responsibility. IBM shall submit to Empire a draft of each
Technology Plan for Empire's review and approval, which draft shall
have been developed with input from key business users of Empire. IBM
shall submit the final Technology Plan within fifteen (15) days of
receiving Empire's comments. The draft of the Technology Plan for the
first year shall be provided within three (3) months after the
Effective Date and shall be in support of calendar year 2003.
(d) Technology Plan Timing and Update. The schedule for developing and
delivering each Technology Plan shall be coordinated to support
Empire's annual business planning cycle. The Technology Plan shall be
updated during the year as necessary to reflect
-48- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
changes in the business of Empire which materially impact the validity
of the then-existing Technology Plan. IBM shall recommend
modifications to the Technology Plan as it deems appropriate, and
shall revise the Technology Plan as requested or approved by Empire.
10.7 Quality Assurance and Improvement Programs.
IBM, as part of its total quality management process, shall provide quality
assurance and quality improvement through: (a) the identification and
application of proven techniques and tools from other installations within
its operations; and (b) the implementation of concrete programs, practices
and measures designed to improve Performance Standards. Such procedures
shall include checkpoint reviews, testing, acceptance, and other procedures
for Empire to confirm the quality of IBM's performance, and shall be
included in the Procedures Manual. IBM shall utilize project management
tools, including productivity aids and project management systems, as
appropriate in performing the Services.
10.8 Premier Customer Status.
(a) IBM acknowledges that it will treat Empire as a "premier customer" and
as such, IBM shall provide Empire the following:
(i) annual access to IBM research briefings, including insight into
unannounced products and research investments that are applicable
to Empire's business;
(ii) quarterly briefings on available technology and process and
procedure improvements permitting utilization and implementation
as approved and authorized through the contract management
processes; and
(iii) [**]
(b) Additionally, IBM shall provide Empire, as a premier customer, such
Services set forth in Section 19.3(d), with respect to IBM response to
a force majeure occurrence.
11. AUDITS
11.1 Audit Rights.
(a) IBM shall maintain records and supporting documentation of all
financial and nonfinancial transactions resulting from this Agreement,
sufficient to permit a complete audit thereof in accordance with this
Section. Empire, and its auditors (including internal audit staff and
external auditors), inspectors, regulators and other representatives
as Empire may from time to time designate in writing (collectively
"Empire Auditors") shall have the right to perform three (3) annual
audits at no additional charge to Empire, which may consist, at
Empire's option, of financial audits, security audits and/or
operations audits, provided that Empire shall be entitled to
additional audits (including as needed to meet Empire regulatory
requirements or Empire contractual requirements) so long as Empire
pays certain IBM costs relating to such audits, as described in
Section 11.3. IBM shall provide to Empire Auditors access at all
reasonable times and after reasonable notice, unless circumstances
reasonably preclude such notice (and in the case of regulators at any
time required by such regulators): (x) to any facility or part of a
-49- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
facility at which either IBM or any of its subcontractors is providing
the Services, (y) to IBM Personnel, and (z) to data and records
relating to the Services, for the purpose of performing audits and
inspections of either IBM or any of its subcontractors during the Term
and for the period IBM is required to maintain records hereunder to:
(i) verify the accuracy of charges, invoices, and IBM's
representation regarding the personnel rates set forth in Section
3.1(c) of Schedule C;
(ii) verify the integrity of Empire Data and examine the systems that
process, store, support and transmit that data; and
(iii) examine IBM's performance of the Services and conformance to the
terms of this Agreement including, to the extent applicable to
the Services and to the charges therefor, performing audits: (A)
of practices and procedures; (B) of systems, Equipment and
Software; (C) of supporting information and calculations
regarding compliance with Performance Standards; (D) of general
controls and security practices and procedures; (E) of disaster
recovery and back-up procedures; (F) of the efficiency of IBM in
performing the Services; (G) of IBM's charges for, or timing of,
Services; (H) of the basis of IBM's Services charges; and (I) as
necessary to enable Empire to meet, or to confirm that IBM is
meeting, applicable regulatory and other legal requirements.
(b) Empire may require to be performed, no more than once annually, a SAS
70 audit of the data center from which IBM provides Data Center
Services, by a certified public accounting firm or mutually agreeable
alternative. In the event that Empire is the primary customer within
such data center, then Empire shall be financially responsible for the
costs for such SAS 70 audit; in any other event, IBM shall be
financially responsible for the costs for such SAS 70 audit.
(c) Notwithstanding the foregoing, if Empire has a reasonable belief to
suspect any malfeasance or dishonest acts in relation to the Services,
and to the extent that notice would undermine the efficacy of the
audit, Empire Auditors shall be entitled to undertake such audit of
IBM in relation to the Services as Empire reasonably deems appropriate
without the foregoing notice. If any audit reveals that material
operational problems or material financial issues exist, subject to
IBM's right to dispute such determination, IBM shall reimburse Empire
for any reasonable and actual costs directly incurred in such audit,
if the issues revealed exceed $100,000 of actual overpayments for a
review period covering up to one year of charges. In such event,
Empire Auditors may conduct a follow-up audit when reasonably deemed
appropriate by Empire, at no additional charge. IBM shall, subject to
IBM's right to dispute such determination, respond promptly to any
conclusions and recommendations reported as part of an audit, and the
Parties will establish and monitor IBM's schedule for implementation
of such recommendations.
(d) IBM shall provide to Empire Auditors such assistance as they require,
including installing and operating audit software. IBM shall cooperate
fully with Empire Auditors in connection with audit functions and with
regard to examinations by regulatory authorities. IBM shall promptly
notify Empire once it determines that such cooperation may cause a
problem or delay in providing the Services, and the Parties shall work
-50- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
together to avoid interference with IBM's ability to provide the
Services. Empire Auditors (i) shall comply with IBM's reasonable
security and confidentiality requirements; and (ii) if Empire external
auditors, shall not, in IBM's reasonable judgment, be a competitor of
IBM that provides services similar to the Services. The Parties agree
that KPMG, Ernst and Young, and any auditor engaged by regulatory
agencies to perform an audit hereunder shall not be deemed to be
competitors of IBM for purposes of Section 11.1(d)(ii).
(e) IBM shall conduct audits of or pertaining to the Services in such
manner and at such times as is consistent with the audit practices of
well managed operations performing services similar to the Services.
IBM shall perform a security audit at least annually.
11.2 Audit Follow-up.
(a) Following an audit or examination, Empire shall conduct, or request
Empire Auditors to conduct, an exit conference with IBM to obtain
factual concurrence with issues identified in the review. IBM shall
promptly brief Empire on the results of any review or audit conducted
by IBM or its Affiliates (including by internal audit staff or
external auditors), or by inspectors, regulators or other
representatives (including internal and external auditors), relating
to IBM's operating practices and procedures to the extent relevant to
the Services or Empire.
(b) IBM and Empire shall meet to review each audit report promptly after
the issuance thereof and to mutually agree upon the appropriate
manner, if any, in which to respond to the changes suggested by the
audit report. Empire and IBM agree to meet and develop action plans to
address (i) the audit, and (ii) regulatory findings and reports
related to IBM's operating practices and procedures related to the
Services.
11.3 Audit Costs.
(a) With regard to audits during a contract year in addition to the three
(3) audits described in Section 11.1(a) above and as required to meet
regulatory requirements and Empire contractual requirements, if the
provision of such cooperation and support by IBM will cause IBM to
expend additional resources, above the authorized resource levels
described in Schedule C and that it otherwise would not spend in the
normal course of providing the Services, IBM will notify Empire of
such requirement for additional resources. Upon Empire's
authorization, IBM will provide such assistance, and Empire will be
charged at the personnel rates set forth in Schedule C, except that
there shall be no additional charge to Empire for any cooperation and
assistance provided by the IBM Project Executive or by IBM Personnel
holding Key IBM Positions.
(b) Except as provided in this Section 11.3, there shall be no additional
charge to Empire for any cooperation and assistance provided by IBM in
connection with audits conducted pursuant to Article 11.
11.4 Records Retention.
Until the later of (i) seven (7) years after expiration or termination of
this Agreement; (ii) all pending matters relating to this Agreement (e.g.,
disputes) are closed; or (iii) the information is
-51- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
no longer required to meet Empire's records retention policy as disclosed
by Empire to the IBM Project Executive and as such policy may be adjusted
from time to time as disclosed by Empire to the IBM Project Executive, IBM
shall maintain and provide access upon request to the records, documents
and other information required to meet Empire's audit rights under this
Agreement. Upon reasonable notice from Empire, IBM will recover such
information and deliver it to Empire within a reasonable period of time,
with Empire paying IBM's reasonable expenses.
12. CUSTOMER RESPONSIBILITIES
12.1 Responsibilities.
In addition to Empire's responsibilities as expressly set forth elsewhere
in this Agreement, Empire shall be responsible for the following:
(a) Empire shall designate one individual to whom IBM may address
operational communications concerning this Agreement (the "Empire
Contract Executive"). Empire may from time to time designate a
replacement Empire Contract Executive, by giving IBM prior written
notice of the replacement individual and the date upon which such
replacement will become effective. Empire acknowledges the benefits of
consistency with regard to the Empire Contract Executive and therefore
will use Commercially Reasonable Efforts to minimize the turnover of
the Empire Contract Executive.
(b) Empire shall cooperate with IBM, including by making available
management decisions, information, approvals and acceptances, as
reasonably requested by IBM so that IBM may accomplish its obligations
and responsibilities hereunder. The Empire Contract Executive or such
person's designee will be the principal point of contact for obtaining
such decisions, information, approvals and acceptances. Only personnel
as expressly so designated by the Empire Contract Executive will be
authorized to make commitments on the part of Empire that will subject
Empire to increased charges. Only the Empire Contract Executive shall
be authorized to amend this Agreement, as provided in Section 23.2.
12.2 Savings Clause.
(a) Due to the impact any termination of this Agreement would have on
Empire's business, Empire's failure to perform its responsibilities
set forth in this Agreement (other than as provided in Section 21.1(c)
or Section 21.2) shall not be deemed to be grounds for termination by
IBM. IBM Acknowledges That Empire Would Not be Willing to Enter Into
This Agreement Without Assurance That It May Not be Terminated by IBM
and That IBM May Not Suspend Performance Except, and Only to the
Extent, IBM Terminates Pursuant to Section 21.1 (C) or Section 21.2 or
IBM Suspends Performance Pursuant to Section 20.3. IBM's
nonperformance of its obligations under this Agreement shall be
excused if and to the extent (a) such IBM nonperformance results from
Empire's failure to perform its responsibilities; and (b) IBM provides
Empire with reasonable notice of such nonperformance and (if requested
by Empire) uses Commercially Reasonable Efforts to perform
notwithstanding Empire's failure to perform (with Empire reimbursing
IBM for its Out-of-Pocket Expenses for such efforts).
-52- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(b) Notwithstanding anything in this Section to the contrary, so long as
IBM has given Empire notice as hereinafter described and Empire has
not notified IBM that Empire is willing to pay IBM's expenses as
hereinafter described, IBM shall have no duty to (i) incur additional
costs in performing its obligations under the Agreement as a result of
a failure by Empire to perform any of its responsibilities or
obligations under the Agreement; or (ii) investigate any failure by
Empire to perform any of its responsibilities or obligations, unless,
in either case, IBM has given notice to Empire of Empire's failure and
the opportunity for Empire to pay IBM's expenses incurred in taking
action to circumvent or investigate such failure, and Empire agrees in
advance to pay IBM for such expenses (in which case IBM shall be so
obligated to perform its obligations, if practicable, or investigate
the corresponding failure by Empire, as applicable). Nothing in this
Section 12.2 shall be deemed to require a Party to perform the other
Party's obligations under the Agreement.
13. CHARGES
13.1 General.
All amounts IBM may charge for the Services are set forth in this Article
13, Sections 3.1(f), 5.4, 8.1(b)(vi), 21.10(b) and in Schedules C and D,
provided, however, that the foregoing does not relieve Empire of financial
responsibility where expressly provided in this Agreement. Empire shall not
be required to pay IBM any amounts for the Services other than those
payable to IBM under this Article 13, the sections referenced above or
Schedules C and D.
13.2 Pass-Through Expenses.
(a) "Pass-Through Expenses" means third party charges that are to be both
(i) paid directly by Empire through IBM on an Out-of-Pocket Expenses
basis and (ii) administered by IBM. As set forth in Schedule C,
initially there are no Pass-Through Expenses. Any Pass-Through Expense
must be agreed to by the Parties in writing. If the Parties so agree,
the provisions in this next section shall apply to such Pass-Through
Expenses.
(b) IBM shall arrange for delivery by third parties to IBM of invoices for
Pass-Through Expenses, and IBM promptly shall review such invoices and
provide Empire with the original invoice together with a statement
identifying which charges are proper and valid and should be paid by
Empire. IBM shall use Commercially Reasonable Efforts to minimize the
amount of Pass-Through Expenses. With respect to services or materials
paid for on a Pass-Through Expenses basis, Empire reserves the right
to: (i) obtain such services or materials directly from one or more
third parties; (ii) designate the third party source for such services
or materials; (iii) designate the particular services or materials
(e.g., equipment make and model) IBM shall obtain; (iv) designate the
terms for obtaining such services or materials (e.g., purchase or
lease and lump sum payment or payment over time); (v) require IBM to
identify and consider multiple sources for such services or materials
or to conduct a competitive procurement; and (vi) review and approve
the applicable Pass-Through Expenses before entering into a contract
for particular services or materials.
-53- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
13.3 Incidental Eimnses.
IBM acknowledges that, except as may be otherwise provided in this
Agreement, expenses that IBM expects to incur in performing the Services
(including travel and lodging, document reproduction and shipping, and
long-distance telephone) are included in IBM's charges and rates set forth
in this Agreement. Accordingly, such IBM expenses are not separately
reimbursable by Empire unless, on a case-by-case basis for unusual
expenses, Empire has agreed in advance and in writing to reimburse IBM for
the expense.
13.4 Taxes.
The Parties' respective responsibilities for taxes arising under or in
connection with this Agreement shall be as follows:
(a) Each Party shall be responsible for any personal property taxes on
property it owns or leases, for franchise and privilege taxes on its
business, and for taxes based on its net income or gross receipts.
(b) IBM shall be responsible for any sales, use, excise, value-added,
services, consumption and other taxes and duties payable by IBM on the
goods or services used or consumed by IBM in providing the Services
where the tax is imposed on IBM's acquisition or use of such goods or
services and the amount of tax is measured by IBM's costs in acquiring
such goods or services.
(c) Empire shall be responsible for any sales, use, excise, value-added,
services, consumption (including Arizona transaction privilege tax,
Arkansas gross receipts tax, Hawaii general excise tax, Illinois
retailer's occupation tax, and New Mexico gross receipts tax), or
other tax existing as of the Effective Date that is assessed on the
provision of the Services as a whole, or on any particular Service. To
the best of IBM's knowledge, as of the Effective Date, there is no
such tax, as set forth in the preceding sentence, applicable in the
following locations: New York; New Jersey; Pennsylvania; the delivery
of remote Data Center Services from Connecticut; the delivery of Help
Desk Services from Toronto; and the delivery of Core Applications
Services from Bangalore, India. The Parties shall share equally the
responsibility for any sales, use, excise, value-added, services,
consumption or other tax becoming applicable during the Term (or that
is increased during the Term) that is assessed on the provision of the
Services as a whole, or on any particular Service provided by IBM, or
on IBM's charges for some or all of the Services. Empire's obligations
to pay taxes under this Section 13.4 are subject to the following: (i)
IBM invoices shall reflect on a current basis (and in any event before
any such tax becomes due and payable) the amount of any such tax in
each jurisdiction and the taxable Services to which such tax relates,
and (ii) if IBM fails to reflect on its invoice any such tax on a
current basis and the cause for such failure lies solely within IBM,
IBM shall be financially responsible for any penalties and interest
assessed by the taxing authority with respect to such tax.
(d) The Parties acknowledge that any tax payable by Empire and billed
through IBM shall be paid by Empire on an Out-of-Pocket Expense basis.
-54- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(e) In the event that a sales, use, excise, value added, services,
consumption or other tax is assessed on the provision of any of the
Services, the Parties shall work together to segregate the payments
under this Agreement into three (3) payment streams:
(i) those for taxable Services;
(ii) those for which IBM functions merely as a payment agent for
Empire in receiving goods, supplies, or services (including
leasing and licensing arrangements); and
(iii) those for other nontaxable Services.
(f) The Parties agree to cooperate with each other to enable each to more
accurately determine its own tax liability and to minimize such
liability to the extent legally permissible. The Parties acknowledge
that, and Empire represents that as of the Effective Date, Empire is
tax-exempt within the State of New York. Empire will provide, on the
Effective Date, appropriate tax-exempt certificates to support the
foregoing representation, upon any such request by IBM. IBM shall
cooperate with Empire to leverage such tax-exempt status, in order to
allow Empire to minimize potential tax liability (e.g., through the
procurement of Equipment and Software). IBM's invoices shall
separately state the amounts of any taxes IBM is collecting from
Empire, and IBM shall remit such taxes to the appropriate authorities,
if any. Each Party shall provide and make available to the other any
resale certificates, information regarding out-of-state or
out-of-country sales or use of equipment, materials or services, and
other exemption certificates or information reasonably requested by
the other Party.
(g) IBM shall promptly notify Empire of any claim for taxes assessed by
applicable taxing authorities for which Empire is responsible
hereunder.
(i) If IBM decides not to challenge the assessment, Empire may itself
pursue such challenge.
(ii) If such challenge may not be brought by Empire directly under
applicable law, Empire may request that IBM itself challenge the
assessment, and IBM shall do so in a timely manner. IBM will
cooperate and coordinate on the tax strategy and consequences
with the tax advisors of Empire's choosing in such challenge.
Empire shall be responsible for paying its tax advisors, and
Empire shall reimburse IBM for the reasonable legal fees and
Out-of-Pocket Expenses paid to third parties by IBM and incurred
in connection with such challenge. If such challenge is rejected
by applicable taxing authorities, Empire agrees to pay applicable
assessed taxes.
(iii) Empire shall be entitled to any tax refunds or rebates granted
to the extent such refunds or rebates are of taxes that were paid
by Empire.
(h) In connection with any administrative or judicial proceedings relating
to taxes assessed or to be assessed on either Party relating to this
Agreement, each of the Parties shall make available to each other, as
reasonably requested and available, personnel (including officers,
directors, employees and agents of the Parties or
-55- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
their respective Affiliates) responsible for preparing, maintaining
and interpreting information and documents relevant to such taxes, and
personnel reasonably required as witnesses or for purposes of
providing information or documents in connection with such
proceedings. Any such information or documents provided under this
Section 13.4(h) shall be kept confidential by the Party receiving the
information or documents in accordance with Section 15.3, provided
that disclosure in connection with the filing of tax returns or with
any such administrative or judicial proceeding shall not be deemed to
be a violation of this Agreement.
13.5 Extraordinary Events.
(a) As used in this Agreement, an "Extraordinary Event" means a
circumstance in which (i) Empire's total Lives are reduced by more
than 500,000 Lives, in total, during any four (4) consecutive calendar
quarters, or (ii) with respect to any chargeable resource under this
Agreement (including Core Applications personnel), a circumstance in
which Empire's actual usage of such resource increases or decreases,
or is expected to increase or decrease, for the foreseeable future by
more than plus or minus twenty percent (20%); provided however, that
calculation of an Extraordinary Event shall not include any decreases
in Lives or resource usage due to Empire's performing itself, or
retaining third parties to perform, any of the Services, as provided
in Section 3.1(e); provided additionally, that in the event that
Empire outsources to a third party any part of its business that is
not in-scope Services, and such action results in a reduction in
Empire's need for Services, then such resulting reduction in Services
may be included in calculation of an Extraordinary Event.
(b) If Empire notifies IBM in writing of the occurrence of an
Extraordinary Event which references this Section 13.5, IBM's charges
and resources (including base charges and rates as appropriate) with
respect to the Services shall be adjusted in accordance with this
Section 13.5(b). IBM's adjustment in resources shall be in accordance
with a plan prepared by IBM and approved by Empire or, (1) if IBM
fails to prepare and present such a plan to Empire, as reasonably
requested by Empire, or (2) if the Parties are unable to agree on such
a plan, as determined through the dispute resolution process provided
in Article 20.
(i) As used in this Agreement: "Targeted Resource Reductions" shall
mean those resources no longer required by IBM to provide the
Services. "Targeted Cost Reductions" shall mean the costs
(including appropriate indirect and overhead costs) and related
profit that can be eliminated or reduced as and when the Targeted
Resource Reductions are eliminated. "Targeted Resource Additions"
shall mean those new or modified resources newly required by IBM
to provide the Services. "Targeted Cost Increases" shall mean the
costs (including appropriate indirect and overhead costs) and a
reasonable profit (which profit shall be consistent with the
gross profit margins for similar Services under this Agreement,
including Schedule C) that would be incurred as and when the
Targeted Resource Additions are placed in service.
-56- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(ii) IBM shall proceed to eliminate the Targeted Resource Reductions
as quickly as feasible, but in no more than six (6) months. As
the Targeted Resource Reductions are eliminated, the base charges
shall be reduced (subject to Empire payment of Wind Down Costs)
by the full amount of the Targeted Cost Reductions applicable to
Targeted Resource Reductions, and any affected baselines,
Services descriptions and Service Level agreements shall be
equitably adjusted, as appropriate. IBM shall proceed to deploy
the Targeted Resource Additions as necessary, but in no more than
six (6) months. As the Targeted Resource Additions are placed
into service, the base charges will be increased by the full
amount of the Targeted Cost Increases applicable to such Targeted
Resource Additions, and any affected baselines, Services
descriptions and Service Level agreements shall be equitably
adjusted, as appropriate. As such baseline and charges
adjustments as set forth in this Section 13.5(b)(ii) are made,
the increase/decrease methodology ratios set forth in Exhibit 4
to Schedule C shall also be equitably adjusted as appropriate to
reflect the changed circumstances.
(iii) The Parties initially shall attempt on a reasonable basis to
agree upon (A) the occurrence of an Extraordinary Event; (B)
Targeted Resource Reductions; (C) Targeted Cost Reductions; (D)
Targeted Resource Additions; (E) Targeted Cost Increases; and (F)
the appropriate adjustment to charges and the timing thereof. To
the extent that, within sixty (60) days following notice under
this Section 13.5, the Parties have not agreed upon the
foregoing, then at the initiative of either Party the issue shall
be treated as a dispute under Article 20. Decisions under the
dispute resolution process shall be effective from sixty (60)
days following notice under this Section 13.5.
13.6 New Services.
In the event that Empire requests IBM to perform functions that are
materially different from, and in addition to, the Services ("New
Services"), the Parties' obligations with respect to such functions shall
be as follows:
(a) To the extent that such additional functions require resources for
which a pricing metric or charging methodology exists under the
Agreement, the additional functions shall be priced in accordance with
such pricing metric or charging methodology, Empire will pay the
charges for such additional functions through such pricing metric or
charging methodology, and such additional functions shall be
considered "Services" (and not "New Services") and shall be subject to
the provisions of the Agreement.
(b) To the extent that such additional functions require resources for
which a pricing metric or charging methodology does not exist under
the Agreement, and IBM agrees to provide such additional functions,
then prior to performing such additional functions:
(i) IBM shall quote to Empire a charge for such additional functions.
Such quote shall be reduced, as applicable, to take into account
resources and expenses of IBM for then-existing Services that
would no longer be required if the additional functions would be
performed by IBM.
-57- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(ii) Upon receipt of such quote, Empire may then elect to have IBM
perform the additional functions, and the charges under this
Agreement shall be adjusted, if appropriate, to reflect such
functions. If Empire so elects (as set forth in the preceding
sentence), such services shall then be deemed "Services" and
shall be subject to the provisions of this Agreement.
(c) Empire may elect in its discretion (i) to solicit and receive bids
from, or otherwise enter into agreements with, third parties to
perform New Services, or (ii) to perform itself New Services. If
Empire so elects, IBM shall cooperate with Empire and the third
parties with respect to the provision of such services.
(d) Evolution, supplements, modifications, enhancements and replacements
of the Services over time to keep pace with technological advancements
and improvements in the methods of delivering services shall not be
deemed to be functions materially different from and in addition to
the Services, except to the extent that such evolution, supplements,
modifications, or enhancements cause a material change in the cost of
Services delivery and/or scope of Services.
(e) The Parties agree that in the event that Empire acquires or merges
with another entity, Empire may, in order to meet the information
technology requirements of such other entity, at its option: (i)
engage a third party to provide services similar to the Services to
such other entity, or (ii) direct IBM to provide Services to such
entity.
13.7 Benchmarks.
Empire shall have the right during the Term, beginning (subject to Section
3.3(e) of Schedule C) upon the second anniversary of the Effective Date, to
benchmark the cost and charges for, and IBM's performance of, all or a
portion of the Services (including personnel rates), provided that
benchmarking of particular charges cannot be undertaken more than one time
in any rolling two (2) year period.
(a) A benchmarking under this Section shall be conducted by an
independent, third party, industry-recognized benchmarking service
provider designated by Empire and approved by IBM ("Benchmarker"). The
Parties agree that Gartner Group, Compass Group, and Meta are
acceptable to serve as a Benchmarker as of the Effective Date. The
Parties shall cooperate with the Benchmarker, including, as
appropriate, making available knowledgeable personnel and pertinent
documents and records. The Benchmarker shall execute a confidentiality
agreement that contains confidentiality terms and conditions
substantially similar to those set forth in Section 15.3 of this
Agreement, unless there already exists a confidentiality agreement
with the Benchmarker.
(b) The Benchmarker shall perform the benchmarking in accordance with the
Benchmarker's documented procedures which shall be provided to the
Parties prior to the start of the benchmarking process and to which
the Parties may comment prior to the benchmarking. The Benchmarker
shall compare the costs, charges and/or performance of the Services
under this Agreement, as appropriate, for the Services being
benchmarked to the costs, charges, and/or performance in a
representative sample of well-managed IT operations performing
services similar to the Services. The Benchmarker shall select the
representative sample from entities (i) identified by the
-58- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Benchmarker, and (ii) identified by a Party and approved by the
Benchmarker. The following conditions apply to the representative
sample: (A) it shall include at least six (6) entities and no more
than eighteen (18) entities, (B) it may include entities that have not
outsourced IT operations, and (C) it may include entities that are
outsourcing customers of IBM.
(c) The Benchmarker is to conduct a benchmarking as promptly as is prudent
in the circumstances. In conducting the benchmarking, the Benchmarker
shall normalize the data used to perform the benchmarking to
accommodate, as appropriate, differences in volume of services, scope
of services, service levels, financing or payment streams, and other
pertinent factors. The transactions contemplated by the Claims Engine
License Agreement and the Licensing and Joint Development Agreement,
and the credits associated with such agreements, shall not be included
as part of the Benchmarker's analysis. Each Party shall be provided a
reasonable opportunity to review, comment on and request changes in
the Benchmarker's proposed findings. Following such review and
comment, the Benchmarker shall issue a final report of its findings
and conclusions.
(d) If in the final report of the Benchmarker, the costs, charges, and/or
performance to Empire under this Agreement for the benchmarked
Services are not in the top ten percent (10%) of the representative
sample (viewed from the perspective of Empire) (e.g., lower than
ninety percent (90%) of the representative sample) ("Top Ten
Percent"), then the following shall apply:
(i) After collaboration with and discussion between the Parties with
respect to the Benchmarker's final report (which the Parties
shall examine reasonably and in good faith), IBM shall give
Empire written notification within thirty (30) days after
issuance of the Benchmarker's final report whether IBM accepts
such final report. If IBM accepts such report, IBM promptly shall
develop a plan and schedule, subject to the approval of Empire,
to bring IBM within the Top Ten Percent (or such other percentage
as agreed by the Parties) in a reasonable period of time, but in
any event no longer than within six (6) months (unless otherwise
agreed by the Parties). IBM then shall implement the plan.
(ii) If (A) IBM does not provide notice that IBM accepts the
Benchmarker's final report within thirty (30) days, as provided
above, or (B) the Parties are unable to agree on an appropriate
plan and schedule to respond to the Benchmarker's final report,
as provided above, then the Parties will attempt to resolve the
dispute in accordance with Section 20.1. In the event (I) the
dispute is not so resolved, or (II) absent a dispute regarding
the Benchmarker's final report, IBM fails to bring IBM within the
Top Ten Percent (or such other percentage as agreed by the
Parties) in a reasonable period of time, but in any event no
longer than within six (6) months (unless otherwise agreed by the
Parties), then Empire may terminate the benchmarked Services or
any portion thereof, subject only to Empire payment of Wind Down
Costs, by giving IBM at least sixty (60) days' prior notice. In
the case of termination by Empire of Services in accordance with
this Section 13.7(d)(ii): (1) the charges payable under this
Agreement for continuing Services shall be equitably adjusted to
reflect the Services that are terminated, and (2) if Empire
terminates a portion of a Tower, then to the extent IBM
reasonably determines that the Services terminated by Empire
under this
-59- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
provision are integral to the entire Tower in which such Services
are included, IBM shall give notice to Empire of such fact, and
Empire shall have the option: (y) to terminate the entire Tower,
or (z) not to terminate the Services that IBM has identified as
integral to such Tower.
(e) If in the final report of the Benchmarker, the charges to Empire under
this Agreement for the benchmarked Services are in the Top Ten Percent
of the representative sample (viewed from the perspective of most
beneficial to Empire), then no adjustment shall be made. In no event
shall charges be increased as a result thereof.
(f) The Benchmarker shall be retained by Empire. Each Party shall pay the
Benchmarker one half (1/2) of all charges, expenses and costs incurred
by the Benchmarker in performing the benchmarking described in this
Section 13.7 as such charges, expenses and costs are invoiced.
[**]
14. INVOICING AND PAYMENT
14.1 Invoicing.
(a) General. All fixed charges shall be billed for receipt by Empire on
the first (1st) day of the month for which such charges relate, and
all variable charges and credits shall be billed or credited, as the
case may be, in arrears in the following month's invoice. Each invoice
shall, for each charge broken out on the invoice, cite the specific
section(s) of the Agreement on which such charge is based. IBM shall
include the calculations utilized to establish the charges. All
charges shall be stated in United States Dollars. Each invoice shall
separately state the amounts of any taxes IBM is collecting from
Empire, if any, and IBM shall remit such taxes to the appropriate
authorities.
(b) Credits Due Empire.
(i) To the extent a credit may be due Empire pursuant to this
Agreement (including refunds and Service Level Credits, but not
including those items in Section 14.1(b)(ii) below), IBM shall
provide Empire with an appropriate credit against amounts then
due and owing; if no further payments are due to IBM, IBM shall
pay such credits to Empire within thirty (30) days of the end of
the calendar month in which such credits are determined or are
determinable. Subject to the previous sentence, to the extent any
credits due Empire under this Section 14.1(b)(i) exceed the
amount due IBM from Empire, IBM shall provide such to Empire
within thirty (30) days of the end of the calendar month in which
such credits are determined or are determinable.
(ii) Application of Revenue Sharing Credits owed by IBM to Empire
under the Claims Engine License Agreement and the Licensing and
Joint Development Agreement shall be governed by Section 9.1 (c)
of Schedule C and the applicable provisions of the Claims Engine
License Agreement and the Licensing and Joint Development
Agreement.
-60- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(c) Form of Invoice. IBM shall render a single consolidated invoice for
each month's charges showing such details as reasonably specified by
Empire. Related fees and charges shall be grouped together in a
logical manner to facilitate review and verification by Empire.
Invoices will be in a format and at a level of detail and with
appropriate back-up documentation approved by Empire. The form of
invoice shall be as approved by Empire.
(d) Timely Invoices.
(i) In no event shall IBM invoice Empire for any Services more than
180 days after the date such Services were performed, provided,
however, that to the extent Empire is precluded from recouping,
despite Empire's Commercially Reasonable Efforts to so recoup,
any charges invoiced to Empire by IBM under Empire's cost-plus
financial agreements with Empire's customers, Empire shall not be
responsible for such IBM charges if invoiced to Empire more than
sixty (60) days after the date such Services were performed.
(ii) To the extent that IBM has administrative responsibility for an
Asset, as set forth in Article 6 or 7, if (A) IBM fails to timely
notify Empire of an invoice or xxxx with respect to such Asset,
or (B) IBM fails to timely forward payment with respect to such
invoice or xxxx, then IBM shall be financially responsible for
the full amount of any resulting penalties, interest and/or late
charges.
14.2 Payment Due.
(a) Subject to the other provisions of this Article 14, invoices provided
for under Section 14.1 and properly submitted to Empire pursuant to
this Agreement shall be due and payable by Empire:
(i) with respect to fixed charges, by the end of the calendar month
in which Empire receives such invoice from IBM, if Empire
receives such invoice and the applicable and adequate supporting
documentation by the applicable date set forth in Section 14.1(a)
above, or
(ii) if Empire receives an invoice for fixed charges and the
applicable and adequate supporting documentation after the
applicable date set forth in Section 14.1(a), and with respect to
variable charges invoiced in accordance with Section 14.1(a),
within thirty (30) days after receipt of such invoice by Empire.
Any amount due under this Agreement for which a time for payment is
not otherwise specified shall be due and payable within thirty (30)
days after receipt of a proper invoice for such amount.
(b) In the event that any undisputed payment, excluding any payment
withheld or paid into escrow pursuant to Section 14.7, is not received
by IBM within five (5) days after Empire's receipt of written notice
from IBM indicating that such payment is due and owing and unpaid,
then Empire will pay interest on such due and unpaid amount commencing
at the end of such five (5) day period and ending on the date that
payment
-61- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
is made, at an interest rate equal to the lesser of (i) twelve percent
(12%) per year; or (ii) the maximum amount permissible by law.
14.3 Accountability.
IBM shall maintain complete and accurate records of and supporting
documentation for the amounts billable to and payments made by Empire
hereunder, to the extent required to comply with Article 11 and in
accordance with generally accepted accounting principles applied on a
consistent basis. IBM agrees to provide Empire with documentation and other
information with respect to each invoice as may be reasonably requested by
Empire to verify accuracy and compliance with the provisions of this
Agreement.
14.4 Proration.
Except as may be otherwise provided in this Agreement, periodic charges
under this Agreement are to be computed on a calendar month basis, and
shall be prorated for any partial month.
14.5 Refundable Items.
(a) Prepaid Amounts. Where Empire has prepaid for a service or function
for which IBM is assuming, or shall become obligated to assume,
financial responsibility under this Agreement, IBM shall refund to
Empire, upon either Party identifying the prepayment, that portion of
such prepaid expense which is attributable to periods, on and after
the Effective Date, during which IBM is obligated to pay for such
service or function.
(b) Refunds and Credits. If IBM should receive a refund, credit or other
rebate for goods or services previously paid for by Empire, IBM shall
promptly notify Empire of such refund, credit or rebate and shall
promptly pay the full amount of such refund, credit or rebate, as the
case may be, to Empire.
14.6 Set Off.
At its option and in good faith, Empire may set off, as a credit against
the monthly charges payable to IBM under this Agreement, any amounts to be
paid, reimbursed, or otherwise owed or owing to Empire by IBM under this
Agreement, the Claims Engine License Agreement, the Licensing and Joint
Development Agreement, the Staten Island Data Center Sublease Agreement,
and such other agreements as the Parties may mutually agree, provided that
with respect to fees or services already paid by Empire that Empire later
disputes, Empire must set off such amounts within ninety (90) days after
payment of such disputed fees or services. Notwithstanding the ninety (90)
day limitation above, Empire may set off (pursuant to this Section 14.6)
any amounts owing to Empire, as identified in audits performed pursuant to
this Agreement.
14.7 Disputed Charges.
(a) Subject to Section 14.6, Empire shall pay charges when such payments
are due under this Article 14 and Schedule C. Notwithstanding the
previous sentence, Empire may withhold payment of particular charges
that Empire disputes in good faith, subject to Section 14.7(b). In the
event that charges cover both disputed and undisputed items, Empire
shall pay all undisputed items in accordance with this Article 14 and
Schedule C.
-62- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(b) With respect to particular charges that Empire disputes in good faith,
the provisions of this Section 14.7(b) shall apply. Subject to the
remainder of this Section 14.7(b), (i) if Empire has already paid any
disputed charge, Empire may set-off the disputed charge against other
charges owed by Empire hereunder, subject to Section 14.6; and (ii) if
Empire has not paid any disputed charge, Empire may withhold payment
of such charge. Empire shall notify IBM in writing on or before the
date that any amount is so withheld (whether in respect of dispute on
a current invoice or as a set off) and describe, in reasonable detail,
the reason for such withholding.
(c) Empire and IBM shall diligently pursue an expedited resolution of such
dispute. If the aggregate amount of all charges then under dispute
pursuant to this Section 14.7 exceeds one month of monthly charges
under this Agreement (the "Escrow Threshold"), then for any amounts in
dispute in excess of the Escrow Threshold, Empire shall deposit such
amount into an escrow account. Empire shall promptly furnish evidence
of any escrow deposit to IBM. The Parties agree that such escrow
account shall be mutually established by the Parties at the Bank of
New York, or its successor, or such other bank as may be mutually
agreed by the Parties, and the costs of such escrow shall be borne by
the Party which is not ultimately entitled to receive over fifty
percent (50%) of the escrowed funds (with the Parties splitting the
costs of escrow evenly, should they both be entitled to fifty percent
(50%) of the escrowed funds). The escrow account will be mutually
established pursuant to an escrow agreement that provides that the
funds therein, including accrued interest, will be disbursed to IBM or
Empire or both, as applicable, in accordance with the result of the
dispute resolution process referred to in Article 20 or by mutual
agreement of the Parties.
(d) For as long as Empire (i) makes such escrow deposits in accordance
with this Section 14.7 during the pendency of the dispute, and (ii)
pays undisputed amounts, then IBM shall continue to provide the
Services to Empire, provided, however, that if the aggregate amount of
charges then under dispute pursuant to this Section 14.7 and paid into
escrow exceeds three (3) months of additional monthly charges under
this Agreement (i.e., three (3) months of charges in addition to the
one (1) month of charges below the Escrow Threshold) (the "Escrow
Cap"), then for any amounts in dispute in excess of the Escrow Cap,
Empire shall pay such additional disputed charges to IBM under
protest, without prejudice, and without waiving its rights under this
Agreement.
15. SAFEGUARDING OF DATA; CONFIDENTIALITY
15.1 Empire Information.
(a) Empire Information shall be and remain, as between the Parties, the
property of Empire. IBM shall not possess or assert any lien or other
right against or to Empire Information. No Empire Information, or any
part thereof, shall be sold, assigned, leased or otherwise disposed of
to third parties by IBM or commercially exploited by or on behalf of
IBM.
(b) Upon Empire's request, the termination or expiration of this Agreement
for any reason (including termination for cause) or, with respect to
any particular Empire Information, on such earlier date that the same
shall be no longer required by IBM in order to render the Services
hereunder, Empire Information (including copies thereof) (i) shall be
promptly returned to Empire by IBM in a form reasonably requested by
Empire,
-63- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
provided that Empire has given prior approval to any reasonable costs
associated with the conversion of Empire Information from the form
maintained by IBM, or (ii) if Empire so elects, shall be destroyed by
IBM.
(c) Subject to Section 7.6 (Residual Knowledge), Empire Information shall
not be utilized by IBM for any purpose other than that of rendering
the Services under this Agreement.
15.2 Safeguarding Empire Data.
(a) IBM shall establish and maintain safeguards against the destruction,
loss or alteration of Empire Data in the possession or control of IBM
which are no less rigorous than those maintained by Empire as of the
Effective Date, as specified to the IBM Project Executive, and are no
less rigorous than those maintained by IBM for its own information of
a similar nature, but in no event shall IBM use less than Commercially
Reasonable Efforts to safeguard such Empire Data. Empire shall have
the right to establish backup security for Empire Data and to keep
backup Empire Data and Empire Data files in its possession if it
chooses.
(b) Without limiting the generality of Section 15.2(a):
(i) IBM Personnel shall not attempt to access, or grant access to,
any Empire Data which they are not permitted to access under this
Agreement. If such access is attained (or is reasonably
suspected), IBM shall immediately report such incident to Empire,
describe in detail the accessed Empire Data, and if applicable
return to Empire any copied or removed Empire Data.
(ii) IBM shall utilize Commercially Reasonable Efforts, including
through systems security measures, to guard against the
unauthorized access, alteration or destruction of Software and
Empire Data. Unless otherwise specified in the Procedures Manual
on a case-by-case basis or as requested by Empire, such measures
shall include the installation of Software which: (A) requires
all users to enter a user identification and password prior to
gaining access to the information systems; (B) controls and
tracks the addition and deletion of users; and (C) controls and
tracks user access to areas and features of the information
systems.
(c) Upon Empire's request, the termination or expiration of this Agreement
for any reason (including termination for cause) or, with respect to
any particular Empire Data, on such earlier date that the same shall
be no longer required by IBM in order to render the Services
hereunder, Empire Data (including copies thereof) (i) shall be
promptly returned to Empire by IBM in a form usable by Empire, as
reasonably requested by Empire, provided that Empire has given prior
approval to any reasonable costs associated with the conversion of
Empire Information from the form maintained by IBM, or (ii) if Empire
so elects, shall be destroyed by IBM.
15.3 Confidentiality.
(a) Confidential Information. IBM and Empire each acknowledge that they
may be furnished with, receive or otherwise have access to information
of or concerning the
-64- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
other-Party which such Party considers to be confidential. As used in
this Agreement, "Confidential Information" means all information, in
any form, furnished or made available directly or indirectly by one
Party, or to which either Party gains access in the course of or
incidental to the performance of this Agreement, and that should
reasonably have been understood by the recipient (because of legends
or other markings, the circumstances of disclosure, or the nature of
the information itself) to be confidential to the disclosing Party, an
Affiliate of the disclosing Party, or a third party. The terms and
conditions of this Agreement shall be deemed Confidential Information.
Confidential Information also shall include, whether or not designated
"Confidential Information," (i) Empire Data; (ii) the specifications,
designs, documents, correspondence, software, documentation, data and
other materials and work products produced by or for either Party
under this Agreement; (iii) all information concerning the operations,
affairs and businesses of the other Party, the financial affairs of
the other Party, and the relations of the other Party with its
customers, employees, providers, subscribers, business partners,
vendors, consultants, brokers and service providers (including
customer lists, customer information, account information and consumer
markets); (iv) Software provided to a Party by or through the other
Party; (v) Protected Health Information; and (vi) other information or
data stored on magnetic media or otherwise or communicated orally, and
obtained, received, transmitted, processed, stored, archived or
maintained by either Party under this Agreement.
(b) Obligations. Subject to Section 15.4:
(i) Empire and IBM shall each use at least the same degree of care as
it employs to avoid unauthorized disclosure of its own
information, but in any event no less than Commercially
Reasonable Efforts, to prevent disclosing to unauthorized parties
the Confidential Information of the other Party, provided that
IBM may disclose such information (except for the terms and
conditions of this Agreement) to properly authorized
subcontractors as and to the extent necessary for performance of
the Services, and Empire may disclose such information (except
for the terms and conditions of this Agreement) to third parties
as and to the extent necessary for the conduct of its business,
where in each such case, the receiving entity first agrees in
writing to the obligations described in this Section 15.3. Any
disclosure to such entities shall be under terms and conditions
contained in a written agreement containing substantially the
same terms and conditions as those provided herein.
(ii) As requested by Empire during the Term, upon expiration or any
termination of this Agreement, or completion of IBM's obligations
under this Agreement, IBM shall return or destroy, as Empire may
direct, all material in any medium that contains, refers to,
relates to, or is derived from Confidential Information of
Empire, and retain no copies.
(iii) Each Party shall use Commercially Reasonable Efforts so that its
Personnel comply with these confidentiality provisions, and each
Party shall cause each of its Personnel to annually certify that
he/she is complying with terms and conditions substantially the
same as those provided herein.
-65- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(iv) In the event of any actual or suspected misuse, disclosure or
loss of, or inability to account for, any Confidential
Information of the furnishing Party, the receiving Party promptly
shall (A) notify the furnishing Party upon becoming aware
thereof; (B) promptly furnish to the other Party full details of
the unauthorized possession, use, or knowledge, or attempt
thereof, and use reasonable efforts to assist the other Party in
investigating or preventing the reoccurrence of any unauthorized
possession, use, or knowledge, or attempt thereof, of
Confidential Information; (C) take such actions as may be
necessary or reasonably requested by the furnishing Party to
minimize the violation; and (D) cooperate in all reasonable
respects with the furnishing Party to minimize the violation and
any damage resulting therefrom.
(v) The Parties' obligations respecting Confidential Information
shall survive expiration or termination of this Agreement for a
period of six (6) years, except: (A) for medical, provider,
subscriber and customer information, which shall survive
indefinitely, and (B) as otherwise provided by law.
(c) Exclusions. The following is subject to Section 15.4:
(i) Section 15.3(b) shall not apply to any particular information
which IBM or Empire 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 receiving Party; (C) was in the
possession of the receiving Party at the time of disclosure to it
without obligation of confidentiality; (D) was received after
disclosure to it from a third party who had a lawful right to
disclose such information to it without any obligation to
restrict its further use or disclosure; or (E) was independently
developed by the receiving Party without reference to
Confidential Information (including unaided mental impressions)
of the furnishing Party. In addition, a Party shall not be
considered to have breached its obligations by disclosing
Confidential Information of the other Party (I) as required by
law, except with respect to those laws and regulations described
in item (II), to satisfy any legal requirement of a competent
government body; provided that, immediately upon receiving any
such request and to the extent that it may legally do so, such
Party advises the other Party of the request prior to making such
disclosure in order that the other Party may interpose an
objection to such disclosure, take action to assure confidential
handling of the Confidential Information, or take such other
action as it deems appropriate to protect the Confidential
Information; or (II) as required pursuant to any listing
agreement with or rules of any national securities exchange or
interdealer quotation system or federal or state securities laws
or insurance or health regulatory regulations; provided that the
Parties shall cooperate to minimize disclosure (e.g., redaction)
consistent with such agreements, rules, laws, and regulations,
including that the disclosing Party shall notify the other Party
before such disclosure.
(ii) Further, a Party shall not be considered to have breached its
obligations under this Section 15.3 for disclosing Confidential
Information to its attorneys, auditors and other professional
advisors in connection with services rendered by such advisors,
provided that such Party has confidentiality agreements with such
-66- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
professional advisors and/or such advisors owe professional
confidentiality obligations to such Party.
(d) No Implied Rights. Each Party's Confidential Information shall remain
the property of that Party. Nothing contained in this Section 15.3
shall be construed as obligating a Party to disclose its Confidential
Information to the other Party, or as granting to or conferring on a
Party, expressly or impliedly, any rights or license to the
Confidential Information of the other Party, and any such obligation
or grant shall only be as provided by other provisions of this
Agreement.
15.4 HIPAA Privacy and Security Requirements.
(a) Definitions.
(i) The "Privacy Rule" shall mean the HIPAA regulations governing
individually identifiable health information codified at 45
C.F.R. Parts 160 and 164.
(ii) "Protected Health Information" or "PHI" shall have the meaning
given to such term under the Privacy Rule, including 45 C.F.R.
(S) 160.103, created or received by IBM under the terms of this
Agreement.
(iii) "Covered Entity" shall have the meaning given to such term under
the Privacy Rule, including 45 C.F.R. (S) 160.103.
(iv) "Business Associate" shall have the meaning given to such term
under the Privacy Rule, including 45 C.F.R. (S) 160.103.
(b) Obligations of IBM under the Privacy Rule. In order to receive the
Services, Empire may be required to disclose certain PHI to IBM, and
IBM may receive such PHI or create PHI on Empire's behalf in
connection with its obligations under this Agreement. Empire and IBM
shall protect the privacy and provide for the security of PHI
disclosed to IBM pursuant to this Agreement in compliance with the
Privacy Rule. IBM may use and disclose PHI created or received
pursuant to this Agreement only as follows:
(i) To Carry Out the Purposes of this Agreement. IBM may use and
disclose PHI received from Empire or created on behalf of Empire
to perform its obligations under this Agreement solely in
accordance with the specifications set forth in this Agreement or
as required by law.
(ii) Nondisclosure. IBM shall not use or further disclose the PHI
received from or created on behalf of Empire in a manner that
would violate the requirements of the Privacy Rule (including the
minimum necessary requirements), if done by Empire or any covered
entity that Empire serves in the capacity of a business
associate.
(iii) Safeguards. IBM shall use appropriate safeguards to prevent use
or disclosure of the PHI other than as provided for under this
Agreement, including adopting policies and procedures regarding
the safeguarding of PHI; providing training to relevant
employees, independent contractors and subcontractors on such
policies
-67- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
and procedures to prevent the improper use or disclosure of PHI;
and implementing appropriate technical safeguards to protect PHI.
(iv) Reporting Improper Disclosures. IBM shall report in writing to
Empire any use or disclosure of the PHI not provided for under
this Agreement, of which IBM becomes aware promptly but in no
event later than five (5) Business Days of first learning of any
such use or disclosure.
(v) Use of Agents and Subcontractors. IBM shall ensure that any
Approved Subcontractors or agents to whom IBM provides PHI
created or received pursuant to this Agreement agree to the same
restrictions and conditions, as set forth in this Section 15.4,
that apply to IBM with respect to such PHI.
(vi) Availability of Information to Empire. Within ten (10) Business
Days of receipt of a request from Empire, IBM shall, in
accordance with such Empire request, make PHI available to
Empire, provide Empire access to PHI, and/or make a copy of PHI
available to Empire, all in accordance with the Privacy Rule,
including 45 C.F.R. (S) 164.524. If the individual requests PHI
directly from IBM, IBM shall not give the individual access to
the PHI unless access is approved by Empire. Empire shall have
full discretion to determine whether the individual shall be
given access. If and to the extent that the IBM project office
supporting the Empire environment or any IBM personnel providing
Services to Empire receives, directly or indirectly, a request
from an individual requesting PHI, IBM shall use Commercially
Reasonable Efforts to notify Empire in writing promptly after and
of such individual's request for PHI, as set forth in the
previous two sentences, but in no event later than ten (10)
Business Days of receiving such request.
(vii) Amendment of PHI. Within ten (10) Business Days of a request
from Empire, IBM shall make Empire's PHI available to Empire as
it may request to fulfill its obligations to amend such PHI
pursuant to the Privacy Rule, including 45 C.F.R. (S) 164.526.
IBM shall incorporate any amendments to Empire's PHI into any and
all PHI IBM maintains. If the individual requests an amendment to
PHI directly from IBM, IBM shall not amend the PHI unless
directed by Empire. Empire shall have full discretion to
determine whether the amendment shall occur. If and to the extent
that the IBM project office supporting the Empire environment or
any IBM personnel providing Services to Empire receives, directly
or indirectly, a request from an individual requesting PHI, IBM
shall use Commercially Reasonable Efforts to notify Empire in
writing promptly after and of such individual's request for an
amendment to PHI, as set forth in the previous two sentences, but
in no event later than ten (10) Business Days of receiving such
request.
(viii) Accounting of PHI. Within ten (10) Business Days of notice by
Empire of a request for an accounting of disclosures of PHI by
IBM or its subcontractors, IBM shall make available the account
of such disclosures to Empire as requested for Empire to fulfill
its obligations to provide an accounting pursuant to the Privacy
Rule, including 45 C.F.R. (S) 164.528. IBM shall implement a
process that allows for such an accounting. If the individual
requests an accounting of
-68- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
disclosures of PHI directly from IBM, IBM shall not provide the
individual the account of such disclosures unless directed by
Empire. Empire shall have full discretion to determine whether
the individual shall be given such accounting. If and to the
extent that the IBM project office supporting the Empire
environment or any IBM personnel providing Services to Empire
receives, directly or indirectly, a request from an individual
requesting PHI, IBM shall use Commercially Reasonable Efforts to
notify Empire in writing promptly after and of such individual's
request for an accounting of disclosures of PHI, as set forth in
the previous two sentences, but in no event later than ten (10)
Business Days of receiving such request.
(ix) Availability of Books and Records. As required by the Privacy
Rule, IBM shall make its internal practices, books, and records
relating to the use and disclosure of PHI received or created
pursuant to this Agreement available to the Secretary of Health
and Human Services for purposes of determining Empire's (or any
covered entities that Empire services) compliance with the
Privacy Rule.
(x) Record Retention. IBM shall retain all PHI received from Empire,
or created or received in the course of performing its
obligations under this Agreement, for the duration of the Term of
this Agreement unless otherwise directed by Empire.
(c) Audits and Inspection. Notwithstanding any provision set forth in
Article 11 to the contrary, if Empire, in good faith, believes that
IBM has breached any provision of this Section 15.4, then upon
providing five (5) Business Days' written notice, Empire may inspect
IBM's facilities, systems, books, records, agreements, policies and
procedures relating to the use or disclosure of PHI pursuant to the
Agreement, for the purpose of determining whether IBM has complied
with this Agreement.
(d) Termination by Empire for Material Violation.
(i) Subject to Section 15.4(d)(ii), Empire may terminate this
Agreement, in accordance with Section 21.1(a), if IBM violates a
material term of this Section 15.4. Upon termination of this
Agreement for any reason, IBM shall return and/or destroy all PHI
received or created pursuant to this Agreement that IBM maintains
in any form, and shall retain no copies of such PHI; or, if
return or destruction is not feasible, IBM shall continue to
extend protections of this Agreement to such information, and
limit further use or disclosure of such PHI to those purposes
that make the return or destruction infeasible, for so long as
IBM maintains such PHI.
(ii) Cure. With respect to any IBM violation of a material term of
Section 15.4(d)(i), IBM shall have the opportunity to cure such
violation, as set forth in Section 21.1(a). If such violation is
not cured within the time period set forth in Section 21.1(a),
Empire may declare a material breach of the Agreement in
accordance with Section 21.1 (a) or, if not feasible, report the
problem to the Secretary of U.S. Health and Human Services, as
set forth in 45 C.F.R. (S) 164.504(e)(1)(ii)(B).
-69- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(e) Modifications to Privacy Rule. If the Privacy Rule is modified in any
way impacting this Agreement, the Parties shall, at least sixty (60)
days prior to the compliance date for such modifications, amend this
Agreement to ensure compliance with such modifications. Actions to
achieve such compliance may be New Services.
(f) Interpretation of this Agreement. Any ambiguity in the terms set forth
in this Section 15.4 shall be construed to permit Empire's full
compliance with the Privacy Rule.
15.5 HIPAA Transactions Rule.
At least sixty (60) days prior to the compliance date for the HIPAA
Standards for Electronic Transactions ("Transactions Rule")(codified at 45
C.F.R. Parts 160 and 162), the Parties shall review this Agreement, and, as
necessary, modify this Agreement to incorporate any relevant provisions,
including provisions governing trading partner agreements. Actions to
achieve such compliance may be New Services.
15.6 HIPAA Security Rule
At least sixty (60) days prior to the compliance date for the HIPAA
Security and Electronic Signature Standards ("Security Rule")(63 Fed. Reg.
43,242 (August 12, 1998)), the Parties shall review this Agreement, and, as
necessary, modify this Agreement to incorporate any relevant provisions,
including provisions governing chain of trust partner agreements. Actions
to achieve such compliance may be New Services.
15.7 Other HIPAA Administrative Simplification Regulations
At least sixty (60) days prior to the compliance date for any other HIPAA
Administrative Simplification regulations, the Parties shall review this
Agreement, and, as necessary, modify this Agreement to incorporate any
relevant provisions. Actions to achieve such compliance may be New
Services.
16. REPRESENTATIONS AND WARRANTIES
16.1 Work Standards, Efficiency and Cost Effectiveness.
IBM represents and warrants that the Services shall be rendered with
promptness, efficiency and diligence and shall be executed in a workmanlike
and cost-effective manner, in accordance with the practices and high
professional standards used in well-managed operations performing services
similar to the Services. IBM represents and warrants that it shall use
adequate numbers of qualified individuals with suitable training,
education, experience and skill to perform the Services.
16.2 Maintenance.
IBM represents and warrants that it shall maintain the in-scope Equipment
and Software used to provide the Services, including (a) maintaining
Equipment in good operating condition; (b) undertaking repairs and
preventive maintenance on Equipment in accordance with the applicable
Equipment manufacturer's recommendations; and (c) performing Software
maintenance in accordance with the applicable Software vendor's
documentation and recommendations.
-70- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
16.3 Technology
IBM represents and warrants that it shall keep the Equipment, Software and
other technologies provided by IBM in performing the Services (and for
which IBM is responsible) current (which for purposes of this sentence
shall mean that, subject to Section 3.3(f) of Schedule C, each such
commercially available technology asset shall be generally supported by the
respective vendor of such asset), provided, however, that with respect to
the Equipment and Software appearing on the Refresh Matrix included as
Attachment A2-B to the Data Center Services Schedule, IBM's
responsibilities in this sentence shall be limited to, subject to Section
3.3(f) of Schedule C, complying with such Refresh Matrix. IBM represents
and warrants that if commercially reasonable, IBM shall implement upgrades
in technology, allowing the Parties to realize the benefits of any
applicable increases in efficiency and productivity. IBM shall proactively
seek out new technologies by surveying key suppliers to identify advances
or changes in technology that are appropriate and beneficial to Empire, and
shall contribute to the ongoing development of Empire's strategies,
principles and standards (including with respect to technical, data and
Applications architectures) through, at a minimum, periodic technical
briefings which will present to Empire developments in technology which may
be applicable to Empire business requirements.
16.4 Non-Infringement.
(a) IBM represents and warrants that it shall perform its responsibilities
under this Agreement in a manner that does not infringe, or constitute
an infringement or misappropriation of, any patent, copyright,
trademark, trade secret or other proprietary rights of any third
party.
(b) Empire represents and warrants that it shall perform its
responsibilities under this Agreement in a manner that does not
infringe, or constitute an infringement or misappropriation of, any
patent, copyright, trademark, trade secret or other proprietary rights
of any third party.
16.5 Authorization and Other Contracts.
Each Party represents and warrants to the other that:
(a) It has the requisite corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated by this
Agreement;
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement have
been duly authorized by the requisite corporate action on the part of
such Party and will not constitute a violation of any judgment, order
or decree;
(c) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement will
not constitute a material default under any material contract by which
it or any of its material assets are bound, or an event that would,
with notice or lapse of time or both, constitute such a default; and
-71- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(d) There is no proceeding pending or, to the knowledge of the Party,
threatened which challenges or may have a material adverse affect on
this Agreement or the transactions contemplated by this Agreement.
16.6 Inducements.
Each Party represents and warrants to the other Party that it has not
violated (a) any applicable laws or regulations, or (b) any policies of the
other Party of which it has been provided written notice in accordance with
Section 23.4 (with a copy to the IBM Project Executive or the Empire
Contract Executive, as applicable), regarding the offering of unlawful or
prohibited inducements of the other Party in connection with this
Agreement. If at any time during the Term, Empire determines that the
foregoing warranty is materially inaccurate, then, in addition to any other
rights Empire may have at law or in equity, Empire shall have the right to
terminate this Agreement for cause and without cost, without affording IBM
an opportunity to cure.
16.7 Viruses.
IBM represents and warrants that it shall use Commercially Reasonable
Efforts so that no Viruses are coded or introduced into the systems used to
provide the Services. "Virus" shall mean (i) program code or programming
instruction or set of instructions intentionally designed to disrupt,
disable, harm, interfere with or otherwise adversely affect computer
programs, data files or operations; or (ii) other code typically described
as a virus or by similar terms, including Trojan horse, worm or backdoor.
Virus does not include Disabling Code.
(a) In the event a Virus is found to have been introduced into the systems
used to provide the Services, IBM shall (i) use Commercially
Reasonable Efforts to (including assisting Empire in its efforts to)
eliminate the effects of the Virus, and (ii) if the Virus causes a
loss of operational efficiency or loss of data, assist Empire to the
same extent to mitigate and restore such losses. With respect to IBM's
initial efforts to perform the services as set forth in Sections
16.7(a)(i) and 16.7(a)(ii) above ("Initial Efforts"), such Initial
Efforts shall continue only for a commercially reasonable period of
time. The Parties acknowledge that (A) if IBM takes reasonable and
prudent steps with respect to such Initial Efforts, and (B) if IBM's
performance with respect to Service Levels is affected by such Initial
Efforts, IBM shall be relieved (with respect to the period of time
during which IBM took such Initial Efforts) from any failure to meet
Service Levels, if such failure is due to such Initial Efforts;
provided that immediately upon completion of IBM's Initial Efforts,
IBM shall notify Empire if additional time and/or efforts will be
needed to resolve issues with respect to the Virus. In response to
such notification, Empire will indicate either: (I) that IBM shall
continue to be relieved from performance with respect to those Service
Levels affected and that IBM should continue its efforts to respond to
such Virus, or (II) that IBM shall no longer be relieved from Service
Levels (in which case IBM shall be relieved of providing Initial
Efforts unless Empire approves additional resources to respond to the
Virus).
(b) In the event that both Parties used Commercially Reasonable Efforts to
avoid the introduction of the Virus, IBM's efforts as provided in
Section 16.7(a): (i) shall be at no additional charge to Empire, to
the extent in-scope personnel are utilized, and (ii) shall be at
Empire's cost, to the extent additional resources are utilized,
provided that Empire shall have the right to approve use of all such
additional resources.
-72- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(c) If IBM is found to have not used Commercially Reasonable Efforts to
avoid the introduction of the Virus: (i) IBM's efforts as set forth in
Section 16.7(a) shall be at no additional charge to Empire; (ii) IBM
shall engage additional resources, at IBM's cost, as necessary; and
(iii) notwithstanding Section 16.7(a) above, after completion of IBM's
Initial Efforts, IBM shall not be excused (as provided in Section
16.7(a)) with respect to those Service Levels affected, unless IBM's
efforts to meet such affected Service Levels would cause or allow the
Virus to spread.
(d) Notwithstanding Sections 16.7(a)-(c), to the extent that IBM does not
utilize additional resources to comply with its obligations under
Sections 16.7(a)-(c) (and irrespective of whether either Party used
Commercially Reasonable Efforts to avoid the introduction of the
Virus), there will be no cost to Empire for IBM's efforts under
Sections 16.7(a)-(c); otherwise, subject to Section 16.7(c)(ii),
Empire will be responsible for the cost of such additional resources,
provided that Empire shall have the right to approve use of all such
additional resources.
16.8 Disabling Code.
IBM represents and warrants that, without the prior written consent of
Empire, IBM shall not insert into the Software any code which would have
the effect of disabling or otherwise shutting down all or any portion of
the Services ("Disabling Code"); provided, however, that "Disabling Code"
shall not include programming code, programming instruction or set of
instructions that that is distributed as part of hardware or software to
ensure that the purchaser or licensee uses the product in accordance with
the acquisition or license agreement (such code "Commercially-Provided
Disabling Code") and which Software already contains such
Commercially-Provided Disabling Code. IBM further represents and warrants
that, with respect to any Disabling Code and Commercially-Provided
Disabling Code that may be part of the Software, IBM shall not invoke such
Disabling Code or Commercially-Provided Disabling Code at any time,
including upon expiration or termination of this Agreement for any reason,
without Empire's prior written consent.
16.9 Deliverables.
IBM represents and warrants that each Deliverable (as defined in the Core
Applications Schedule A) produced by Applications Software development
projects undertaken by IBM, or for which IBM otherwise has responsibility
for the successful completion as part of the Services, shall not, after
final acceptance of the Deliverable by Empire, materially deviate from the
specifications and requirements for such Deliverable set forth or referred
to in the applicable project plans, provided that this Section 16.9 shall
not be construed to relieve IBM from correcting any non-material deviations
from the specifications and requirements for a Deliverable (and for which
correction IBM shall be responsible).
16.10 SEI/CMM Level 5.
IBM represents and warrants that its Applications development and
maintenance operations in India which shall be utilized to provide the
Services (a) are, as of the Effective Date, certified as complying with the
requirements necessary to receive a Systems Engineering Institute ("SEI")
and Capability Maturity Model ("CMM") Level of five (5), and (b) will
comply with such requirements during the Term. Each three (3) years,
commencing with the Effective Date, IBM
-73- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
shall seek recertification as SEI/CMM Level five (5); to the extent IBM
does not attain SEI/CMM Level five (5) during any such recertification, IBM
shall take such measures as are necessary to achieve such recertification
as SEI/CMM Level five (5) within a commercially reasonable period of time.
-74- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
16.11 Disclaimer.
THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE. OTHER THAN AS
PROVIDED IN THIS AGREEMENT, THERE ARE NO EXPRESS WARRANTIES AND THERE ARE
NO IMPLIED WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
SUBJECT TO ITS OBLIGATIONS CONTAINED IN THIS AGREEMENT, IBM DOES NOT
WARRANT THE ACCURACY OF ANY REPORT, DATA OR OTHER MATERIAL DELIVERED TO
EMPIRE, AND IBM SHALL NOT BE LIABLE FOR ANY INACCURACY THEREOF, ALL TO THE
EXTENT THAT THE INACCURACY RESULTS FROM INACCURATE DATA SUPPLIED BY EMPIRE.
IBM does not warrant uninterrupted or error-free operation of any machines,
software, products, or Services or that IBM will find or correct all
defects.
17. INSURANCE
17.1 Insurance Coverage.
IBM shall during the Term have and maintain in force at least the following
insurance coverages:
(a) Employer's Liability Insurance, including coverage for occupational
injury, illness and disease, and other similar social insurance with
minimum limits per employee and per event of $1,000,000 and a minimum
aggregate limit of $1,000,000 or the minimum limits required by law,
whichever limits are greater.
(b) Worker's Compensation Insurance, including coverage for occupational
injury, illness and disease, and other similar social insurance in
accordance with the laws of the country, state or territory exercising
jurisdiction over the employee.
(c) Comprehensive General Liability Insurance, including Products,
Completed Operations, Premises Operations Personal and Advertising
Injury, Contractual and Broad Form Property Damage liability
coverages, on an occurrence basis, with a minimum combined single
limit per occurrence of $5,000,000 and a minimum combined single
aggregate limit of $10,000,000. This coverage shall be endorsed to
name Empire as additional insured.
(d) Electronic Data Processing Insurance providing coverage for all risks
of loss or damage to IBM's equipment, data, media and valuable papers,
with a minimum limit adequate to cover such risks on a replacement
cost or upgrade basis or $10,000,000, whichever is greater. Such
insurance shall include Extra Expense and Business Income coverage for
IBM with a separate minimum limit equal to $10,000,000.
(e) Property Insurance for all risks of physical loss of or damage to
buildings, business personal property (except property covered by
Electronic Data Processing Insurance) or other property that is in the
possession, care, custody or control of IBM pursuant to this
-75- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Agreement, with a minimum limit adequate to cover risks on a
replacement costs basis. Such insurance shall include Extra Expense
and Business Income coverage for IBM with a separate minimum limit
equal to $36,000,000.
(f) Automotive Liability Insurance covering use of all owned, non-owned
and hired automobiles for bodily injury, property damage, uninsured
motorist and underinsured motorist liability with a minimum combined
single limit per accident of $1,000,000 or the minimum limit required
by law, whichever limit is greater. This coverage shall be endorsed to
name Empire as additional insured.
(g) Commercial Crime Insurance, including blanket coverage for Employee
Dishonesty and Computer Fraud, for loss or damage arising out of or in
connection with any fraudulent or dishonest acts committed by the
employees of IBM, acting alone or in collusion with others, including
the property and funds of others in their possession, care, custody or
control, with a minimum limit per event of $10,000,000.
(h) Errors and Omissions Liability Insurance covering liability for loss
or damage due to an act, error, omission or negligence, or due to
machine malfunction, with a minimum limit per event of $10,000,000.
(i) Umbrella Liability Insurance with a minimum limit of $50,000,000 in
excess of the insurance coverage described in Sections 17.1(a),
17.1(c) and 17.1(f).
17.2 Insurance Terms.
(a) The insurance coverages under Sections 17.1(a) through 17.1(h) shall
be primary, except with respect to Section 17.1(c) for work performed
at Empire Facilities, and all coverage shall be non-contributing with
respect to any other insurance or self insurance which may be
maintained by Empire. To the extent any coverage is written on a
claims-made basis, it shall allow for reporting of claims until the
later of one (1) year after the Term or the expiration of the period
of the applicable limitations of actions.
(b) IBM shall cause its insurers to issue certificates of insurance
evidencing that the coverages and policy endorsements required under
this Agreement are maintained in force and that not less than thirty
(30) days' written notice shall be given to Empire prior to any
modification, cancellation or non-renewal of the policies. The
insurers selected by IBM shall be of good standing and authorized to
conduct business in the jurisdictions in which Services are to be
performed. When the policy is issued each such insurer shall have at
least an A.M. Best rating of A- and replacement coverage shall be
sought if the insurer's rating goes below B+, except for Property
Insurance in the United States where IBM may use its own captive
insurance company to meet regulatory requirements. IBM shall assure
that its subcontractors, if any:
(i) are endorsed as additional insureds on IBM coverages specified by
this Article 17; or
(ii) maintain:
(A) such insurance provided in Section 17.1(a), with minimum
limits of $1,000,000;
-76- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(B) such insurance provided in Section 17.1(b);
(C) such insurance provided in Section 17.1(c), with minimum
limits of $1,000,000, which coverage shall be endorsed to
name IBM as additional insured; and
(D) such insurance provided in Section 17.1(f), with minimum
limits of $250,000 per person and $500,000 per occurrence,
which coverage shall be endorsed to name IBM as additional
insured.
(c) In the case of loss or damage or other event that requires notice or
other action under the terms of any insurance coverage specified in
this Article 17, IBM shall be solely responsible to take such action.
IBM shall provide Empire with contemporaneous notice and with such
other information as Empire may request regarding the event. Moreover,
Empire shall provide to IBM reasonable assistance and cooperation with
respect to any insurance claim.
(d) IBM's obligation to maintain insurance coverage shall be in addition
to, and not in substitution for, IBM's other obligations hereunder and
IBM's liability to Empire shall not be limited to the amount of
coverage required hereunder.
18. INDEMNITIES
18.1 Indemnity by IBM.
IBM agrees to defend, at its expense, Empire and its Affiliates and their
respective officers, directors, employees, agents, successors and assigns
against any and all non-Affiliated third party claims set forth below:
(a) Any claim alleging an IBM failure to observe or perform any duties or
obligations to be observed or performed on or after the Effective Date
by IBM under any of the contracts, including Software licenses,
Equipment leases and Third Party Services Contracts, assigned to IBM
or for which IBM has assumed financial, administrative or operational
responsibility; provided that IBM shall not be responsible for any IBM
failure due to Empire's express instruction to IBM to continue to
operate under any of such contracts in violation of the duties or
obligations thereunder;
(b) Any claims of infringement or misappropriation of any patent, trade
secret, trademark, copyright or other proprietary rights, alleged to
have occurred because of systems or other resources provided by IBM to
Empire, or based upon performance of the Services by IBM; provided
that:
(i) this indemnity shall apply to third party systems or third party
resources unless: (A) with respect to third party systems or
other third party resources provided by IBM to Empire, IBM
determines that the indemnity provided by such third party with
respect to such systems or other resources is more limited than
the indemnity provided in this Section 18.1(b), and (B) IBM,
prior to using such systems or resources, notifies Empire and
requests that IBM's indemnity
-77- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
obligations be similarly limited as the indemnity offered by the
third party and Empire approves the limited indemnity in writing;
provided however, that if Empire does not approve the limited
indemnity, then: (I) if IBM proceeds with providing such third
party system or third party resource, then IBM shall be
responsible for the indemnity set forth in this Section 18.1(b),
or (II) IBM shall not provide such third party system or third
party resource; provided however, that such a decision by IBM not
to provide such system or resource shall not relieve IBM of its
obligation to provide the Services. Notwithstanding items (I) and
(II), Empire shall have the right to separately negotiate with
the third party providing such limited indemnity, or any other
third party, and to be legally responsible for such system or
resource; and
(ii) IBM shall have no obligation to indemnify Empire if and only to
the extent that such Loss arises out of:
(A) Empire's or Empire's agents modification of such Equipment,
Software or products or use by Empire of such Equipment,
Software or products in other than their specified operating
environment, unless such modification or use was at the
direction, request or recommendation of, or in accordance
with the specifications provided by, IBM;
(B) Empire's or Empire's agents combination of such Equipment,
Software or products with products, data, or apparatus not
provided by IBM unless such combination was at the
direction, request or recommendation of, or in accordance
with the specifications provided by, IBM;
(C) any portion of such Equipment, Software or products that are
designed in accordance with written, detailed specifications
provided by Empire, to the extent that infringement
necessarily arises from such specifications;
(D) any health care business process employed by Empire as of
the Effective Date and followed by IBM, and any IT business
process employed by Empire as of the Effective Date and
followed by IBM, which health care business process or IT
business process Empire specifically directs IBM to follow;
provided, however that with respect to IT business
processes, this item (D) shall only apply to claims arising
and asserted during the one (1) year following transition of
the Services from which the claim arises;
(E) any infringement or misappropriation claims for which Empire
is required to indemnify IBM under Section 18.2(b); or
(F) any claims of patent infringement, including contributory
infringement or inducement to infringe, of any call center
patents. Notwithstanding the previous sentence, IBM shall
have an obligation to indemnify Empire, in accordance with
this Article 18, for any claims of patent
-78- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
infringement, including contributory infringement or
inducement to infringe, of any call center patents where:
(I) (1)calls to the Help Desk are related solely to
information technology issues and questions related
directly to the Services; (2) the Help Desk Services
are provided from facilities owned or leased by IBM or
its Affiliates; and (3) no entity other than IBM or its
Affiliates update databases associated with provision
of the Help Desk Services (e.g., databases tracking
help desk calls and trouble tickets); or
(II) IBM fails to comply with applicable IBM licenses for
call center patents, if any, and such failure directly
causes a Loss to Empire.
IBM is only obligated to provide Help Desk Services in
accordance with Schedule A-3. IBM shall not be responsible
for determining whether Empire requires a license to call
center patents, obtaining any such license on Empire's
behalf, or paying any fees relating to any such licenses.
(c) Any claim or action by, on behalf of, or related to, a Transitioned
Employee's employment with IBM arising on or after the Employment
Start Date for such employee, including claims arising under
occupational health and safety, worker's compensation, ERISA or other
applicable federal, state, or local laws or regulations;
(d) Any claim or action by IBM's subcontractors arising out of IBM's
breach or violation of IBM's subcontracting arrangements;
(e) Any claim alleging a violation by IBM or act or omission of IBM
arising out of or relating to:
(i) any law or regulation for the protection of persons or members of
a protected class or category of persons,
(ii) sexual discrimination or harassment, or
(iii) any other aspect of the employment relationship between or among
IBM, IBM Personnel, IBM's subcontractors or agents or the
termination of such relationship (including claims for breach of
a contract of employment);
(f) Any claim alleging an IBM breach of its obligations with respect to
Confidential Information set forth in Article 15;
(g) Any claim with respect to IBM's use of any Third Party Software to the
extent the Loss results from a breach by IBM of any provisions of the
applicable third party license agreement;
(h) Any environmental claims (i.e., hazardous materials, asbestos, but not
environmental problems such as non-functioning chillers, air
conditioning) arising at IBM's facilities,
-79- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
except to the extent that the environmental claim or damage is caused
by Empire or arises from a failure of Empire's responsibilities;
provided however, that any environmental claims related to the Staten
Island Data Center shall be governed by the provisions of the Staten
Island Data Center Sublease between the Parties;
(i) Any claim alleging an IBM failure to obtain and provide to Empire any
Required Consent which IBM is obligated to provide under this
Agreement; and
(j) Any claim arising out of or related to occurrences that are covered by
the insurance coverages IBM is required to insure against pursuant to
Section 17.1(c) or 17.1(f), but only if IBM has failed to obtain the
required insurance coverage or obtained coverage in an amount less
than the insurance coverage limits that IBM is required to maintain
pursuant to such Sections and only to the extent such a claim would
have been covered under such insurance policies. In no event shall
IBM's liability under this Section 18.1(j) be greater, in the
aggregate, than the amount of insurance coverage IBM is required to
maintain pursuant to Article 17. The limitations set forth in this
Section 18.1(j) are not intended to otherwise limit IBM's overall
liability, but only IBM's liability under this Section 18.1(j).
18.2 Indemnity by Empire.
Empire agrees to defend, at its expense, IBM and its Affiliates and their
respective officers, directors, employees, agents, successors and assigns
against any and all non-Affiliated third party claims set forth below:
(a) Any claim alleging an Empire failure to observe or perform any duties
or obligations to be observed or performed (i) prior to the Effective
Date by Empire under any of the contracts, including Software
licenses, Equipment leases and Third-Party Services Contracts,
assigned to IBM or for which IBM has assumed financial, administrative
or operational responsibility, and (ii) during the Term under such
contracts, if and only to the extent Empire retains any duties or
obligations with respect to such contracts;
(b) Any claims of infringement or misappropriation of any patent, trade
secret, trademark, copyright or other proprietary rights, alleged to
have occurred because of Equipment and Software (except IBM Logoed
Equipment and IBM Software) provided by Empire to IBM to be utilized
by IBM in connection with the Services and only to the extent that IBM
so uses such Equipment and Software solely in connection with the
Services or otherwise for Empire's benefit; provided that Empire shall
have no obligation to indemnify IBM if and only to the extent that
such Loss arises out of:
(i) IBM's, or any IBM subcontractor's, modification of such
Equipment, Software or products or use by IBM of such Equipment,
Software or products in other than their specified operating
environment or unless such modification or use was at the
direction, request or recommendation of, or in accordance with
the specifications provided by, Empire;
(ii) IBM's or any IBM subcontractor's combination of such Equipment,
Software or products with products, data, or apparatus not
provided by Empire unless such
-80- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
combination was at the direction, request or recommendation of,
or in accordance with the specifications provided by, Empire;
(iii) any portion of such Equipment or Software that are designed in
accordance with written, detailed specifications provided by IBM,
to the extent that infringement necessarily arises from such
specifications; or
(iv) any infringement or misappropriation claims for which IBM is
required to indemnify Empire under Section 18.1(b).
(c) Any claim or action by, on behalf of, or related to, a Transitioned
Employee's employment with Empire arising prior to the Employment
Start Date for such employee, including claims arising under the
occupational health and safety, worker's compensation, ERISA or other
applicable federal, state or local laws or regulations;
(d) Any claim alleging a violation by Empire or act or omission of Empire
arising out of or relating to:
(i) any law or regulation for the protection of persons or members of
a protected class or category of persons,
(ii) sexual discrimination or harassment, or
(iii) any other aspect of the employment relationship between Empire,
Empire employees, its subcontractors or its agents or the
termination of such relationship (including claims for breach of
a contract of employment);
(e) Any claim alleging an Empire breach of its obligations with respect to
Confidential Information set forth in Article 15;
(f) Any claim with respect to Empire's use of any Third Party Software not
provided by IBM to the extent the Loss results from a breach by Empire
of any provisions of the applicable third party license agreement; and
(g) Any environmental claims (i.e., hazardous materials, asbestos, but not
environmental problems such as non-functioning chillers, air
conditioning) arising at Empire's facilities, except to the extent
that the environmental claim or damage is caused by IBM or arises from
a failure of IBM's responsibilities; provided however, that any
environmental claims related to the Staten Island Data Center shall be
governed by the provisions of the Staten Island Data Center Sublease
between the Parties.
18.3 Additional Indemnities.
IBM and Empire each agree to defend the other, and its Affiliates,
officers, directors, employees, agents, successors and assigns, against any
and all non-Affiliated third party claims set forth below: (a) the death or
bodily injury of any agent, employee (other than an employee of the
indemnitor), customer, business invitee, or business visitor or other
person caused by the tortious conduct of the indemnitor; (b) the damage,
loss or destruction of any real or tangible personal property caused by the
tortious conduct of the indemnitor; and (c) any claim, demand, charge,
-81- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
action, cause of action, or other proceeding asserted against the
indemnitee but resulting from an act or omission of the indemnitor in its
capacity as an employer of a person.
18.4 Procedures With Respect to Indemnities.
If IBM or Empire is obligated to provide the defense, as provided in
Section 18.1, 18.2 or 18.3, then subject to the procedures provided in
Section 18.6, such Party shall pay to the other Party all Losses (a)
finally awarded to a third party, or (b) paid via settlement to a third
party. The Parties acknowledge that such Losses shall not be limited by
Section 19.2(a).
18.5 Infringement.
If any item used by IBM to provide the Services becomes, or in IBM's
reasonable opinion is likely to become, the subject of an infringement or
misappropriation claim or proceeding, IBM shall, in addition to
indemnifying Empire and in addition to Empire's other rights, promptly take
the following actions, at no additional charge to Empire, in the listed
order of priority: (a) promptly at IBM's expense secure the right to
continue using the item, or (b) if this cannot be accomplished with
Commercially Reasonable Efforts, then at IBM's expense, replace or modify
the item to make it non-infringing or without misappropriation, provided
that any such replacement or modification will not degrade the performance
or quality of the affected component of the Services, or (c) if neither of
the foregoing can be accomplished by IBM with Commercially Reasonable
Efforts, and only in such event, then remove the item from the Services, in
which case IBM's charges shall be equitably adjusted to reflect such
removal, or if in Empire's reasonable opinion such removal is material to
all or any portion of the remaining Services Empire may terminate such
portion of the affected Services or the entire Agreement, as the case may
be, without penalty. The foregoing in this Section 18.5 shall not apply
with respect to any non-IBM Software or non-IBM Logoed Equipment: (i) made
available to IBM by Empire but for which Empire retains legal
responsibility; or (ii) assigned to IBM by Empire and for which IBM has not
re-negotiated, renewed, extended or replaced the underlying license, lease,
or other applicable agreement. In the event of any infringement or
misappropriation claim or proceeding related to non-IBM Software or non-IBM
Logoed Equipment specified in item (ii) in the previous sentence, IBM shall
pursue remedies available within such underlying license, lease, or other
applicable agreement.
18.6 Indemnification Procedures.
With respect to third party claims the following procedures shall apply:
(a) Notice. Promptly after receipt by any entity entitled to
indemnification under Sections 18.1 through 18.3 of notice of the
assertion or the commencement of any action, proceeding or other claim
by a third party in respect of which the indemnitee will seek
indemnification pursuant to any such Section, the indemnitee shall
promptly notify the indemnitor of such claim in writing. No failure to
so notify an indemnitor shall relieve it of its obligations under this
Agreement except to the extent that it can demonstrate damages
attributable to such failure. Within fifteen (15) days following
receipt of written notice from the indemnitee relating to any claim,
but no later than ten (10) days before the date on which any response
to a complaint or summons is due, the indemnitor shall notify the
indemnitee in writing if the indemnitor acknowledges its
indemnification
-82- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
obligation and elects to assume control of the defense and settlement
of that claim (a "Notice of Election").
(b) Procedure Following Notice of Election.
If the indemnitor delivers a Notice of Election relating to any claim
within the required notice period, the indemnitor shall be entitled to
have sole control over the defense and settlement of such claim;
provided that (i) the indemnitor shall obtain the prior written
approval of the indemnitee before entering into any non-monetary
settlement of such claim or ceasing to defend against such claim and
(ii) the indemnitee shall be entitled to participate in the defense of
such claim and to employ counsel at its own expense to assist in the
handling of such claim. After the indemnitor has delivered a Notice of
Election relating to any claim in accordance with Section 18.6(a), the
indemnitor shall not be liable to the indemnitee for any legal
expenses incurred by the indemnitee in connection with the defense of
that claim, except for legal expenses incurred by the indemnitee in
providing assistance requested by the indemnitor. In addition, the
indemnitor shall not be required to indemnify the indemnitee for any
amount paid or required to be paid by the indemnitee in the settlement
of any claim for which the indemnitor has delivered a timely Notice of
Election if such amount was agreed to without the written consent of
the indemnitor. The indemnitee shall provide such reasonable
assistance in connection with the defense and settlement of the claim
as may be requested by the indemnitor, at the expense of the
indemnitor; or
(c) Procedure Where No Notice of Election Is Delivered. If the indemnitor
does not deliver a Notice of Election relating to a claim, or
otherwise fails to acknowledge its indemnification obligation or to
assume the defense of a claim, within the required notice period, or
fails to reasonably diligently defend the claim, the indemnitee shall
have the right to defend the claim in such manner as it may deem
appropriate, at the cost, expense, and risk of the indemnitor,
including payment of any judgment or award and the costs of settlement
or compromise of the claim. The indemnitor shall promptly reimburse
the indemnitee for all such costs and expenses, including payment of
any judgment or award and the costs of settlement or compromise of the
claim. If it is determined that the indemnitor failed to defend a
claim for which it was liable, the indemnitor shall not be entitled to
challenge the amount of any settlement or compromise paid by the
indemnitee.
18.7 Subrogation.
In the event that an indemnitor shall be obligated to indemnify an
indemnitee pursuant to this Article 18, the indemnitor shall, upon
fulfillment of its obligations with respect to indemnification, including
payment in full of all amounts due pursuant to its indemnification
obligations, be subrogated to the rights of the indemnitee with respect to
the claims to which such indemnification relates.
-83- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
19. LIABILITY
19.1 General Intent.
Subject to the specific provisions of this Article 19, it is the intent of
the Parties that each Party shall be liable to the other Party for any
actual damages incurred by the non-breaching Party as a result of the
breaching Party's failure to perform its obligations in the manner required
by this Agreement.
19.2 Liability Restrictions.
(a) SUBJECT TO SECTION 19.2(c), IN NO EVENT, WHETHER IN CONTRACT OR IN
TORT (INCLUDING BREACH OF WARRANTY, NEGLIGENCE AND STRICT LIABILITY IN
TORT), SHALL A PARTY BE LIABLE FOR INDIRECT OR CONSEQUENTIAL,
EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN ADVANCE.
(b) Subject to Section 19.2(d), each Party's total and aggregate liability
to the other under this Agreement, whether in contract or in tort
(including breach of warranty, negligence and strict liability in
tort) shall be limited to an amount equal to the total charges payable
to IBM by Empire pursuant to this Agreement for the [**] prior to the
month in which the first event giving rise to the liability occurred;
provided that such amount shall be increased to the total charges
payable to IBM by Empire pursuant to this Agreement for the [**] prior
to the month in which the first event giving rise to the liability
occurred, if and to the extent that either Party suffers damages
occasioned by (i) the tortious willful misconduct or tortious gross
negligence of the other Party; or (ii) in the case of IBM, the failure
to provide Termination/Expiration Assistance to Empire, in accordance
with this Agreement. If the first event giving rise to liability
occurs during the [**] after the Effective Date [**], liability shall
be limited to an amount equal to the total charges that would be
payable to IBM pursuant to this Agreement for proper performance for
the Services during such [**] period [**]. Service Level Credits do
not count against and do not reduce the amounts available under the
foregoing limitations.
(c) The limitations set forth in Section 19.2(a) shall not apply with
respect to damages occasioned by a Party's breach of its obligations
with respect to Confidential Information. For clarification, the
limitations set forth in Section 19.2(a) shall not apply with respect
to: (i) any and all Losses to be paid pursuant to Section 18.4, (ii)
fines, penalties, interest and similar financial obligations levied as
a result of a Party's breach of Section 22.1 of this Agreement; or
(iii) charges due and payable to IBM under the Agreement (including
amounts owing for Services rendered).
(d) The limitations set forth in Section 19.2(b) shall not apply with
respect to:
(i) any and all Losses to be paid pursuant to Section 18.4;
(ii) damages occasioned by a Party's breach of its obligations with
respect to Confidential Information;
-84- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(iii) fines, penalties, interest and similar financial obligations
levied as a result of a Party's breach of Section 22.1 (a) of
this Agreement; and
(iv) Empire's failure to pay any charges due and payable to IBM under
the Agreement (including amounts owing for Services rendered).
(e) The following shall be considered direct damages and shall not be
considered consequential damages to the extent they result from a
Party's failure to fulfill its obligations in accordance with this
Agreement:
(i) costs of restoring, reloading, and (if necessary) recreating any
of Empire's information lost or damaged (including journals and
logs), in the event that IBM fails to make backups as required
under the Agreement (including failure to accurately or
completely make such backups) or fails to maintain and store such
backups;
(ii) costs of implementing a workaround in respect of a failure to
provide the Services;
(iii) costs of replacing lost or damaged equipment, software and
materials;
(iv) costs and expenses incurred to correct errors in software
maintenance and enhancements provided as part of the Services,
provided that this provision shall not be read to increase a
Party's obligations under this Agreement;
(v) costs and expenses incurred to procure the Services from an
alternate source; and
(vi) incremental compensation incurred by Empire or its Affiliates for
full-time and temporary personnel, and any required travel
expenses, telecommunication charges, and similar charges,
reasonably incurred by Empire in mitigating the effects of the
failure of IBM to provide the Services (including
Termination/Expiration Assistance) or incurred in connection with
(i) through (v) above, but excluding any costs associated with
relationship management of Empire's customers due to any such
failure (collectively "Overtime Damages").
The foregoing shall not preclude either Party from proving other
direct damages. If and only if Overtime Damages exceed one hundred
thousand dollars ($100,000) per event or series of related events
causing such Overtime Damages, Empire may claim such Overtime Damages
with respect to such event or series of related events, up to an
amount equal to five hundred thousand dollars ($500,000), subject to
the cumulative limits specified in Section 19.2(b). Notwithstanding
the previous sentence, in the event of a failure by IBM to provide
Termination/Expiration Assistance in accordance with this Agreement,
the foregoing limits shall not apply to a claim by Empire for Overtime
Damages, except that such Overtime Damages shall be subject to the
limits specified in Section 19.2(b). In any event, the amount of
Overtime Damages shall be reduced by the Service Level Credits
applicable to the event or series of events which lead to the Overtime
Damages. The foregoing states IBM's entire liability for Overtime
Damages.
-85- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(f) Each Party shall have a duty to mitigate damages for which the other
Party is responsible.
19.3 Force Majeure.
(a) No Party shall be liable for any default or delay in the performance
of its obligations under this Agreement (i) if and to the extent such
default or delay is caused, directly or indirectly, by acts of
terrorism, fire, flood, earthquake, elements of nature or acts of God,
riots, civil disorders, or any other such similar cause beyond the
reasonable control of such Party, and (ii) provided the non-performing
Party is without fault in causing such default or delay, and such
default or delay could not have been prevented by reasonable
precautions and could not reasonably be circumvented by the
non-performing Party through the use of alternate sources, workaround
plans or other means (including with respect to IBM by IBM meeting its
obligations for performing disaster recovery services as described in
this Agreement).
(b) In such event the non-performing Party shall be excused from further
performance or observance of the obligations so affected for as long
as such circumstances prevail and such Party continues to use
Commercially Reasonable Efforts to recommence performance or
observance without delay. Any Party so delayed in its performance
shall immediately notify the Party to whom performance is due by
telephone (to be confirmed in writing within twenty-four (24) hours of
the inception of such delay) and describe at a reasonable level of
detail the circumstances causing such delay.
(c) If any event under Section 19.3(a) substantially prevents, hinders or
delays performance of the Services substantially interfering with
Empire's business for more than three (3) consecutive days, then at
Empire's option: (A) Empire may procure such Services from an
alternate source, and IBM shall be liable for payment for such
Services from the alternate source, less any amounts that Empire did
not pay to IBM as the result of Services not being rendered, for so
long as the delay in performance shall continue; (B) effective
beginning seven (7) days after the occurrence of the force majeure
event, Empire may terminate any portion of this Agreement so affected,
subject only to Empire payment of Wind Down Costs, and the charges
payable hereunder shall be equitably adjusted to reflect those
terminated Services; or (C) effective beginning seven (7) days after
the occurrence of the force majeure event, Empire may terminate this
Agreement without liability to Empire or IBM, subject only to Empire
payment of Wind Down Costs, as of a date specified by Empire in a
written notice of termination to IBM. Subject to the preceding
sentence, IBM shall not have the right to any additional payments from
Empire for costs or expenses incurred by IBM as a result of any force
majeure occurrence. In the event that Empire pays such Wind Down
Costs, then upon Empire's request, IBM shall convey to Empire the
Equipment and Software, on a case-by-case basis, which Empire paid for
as part of such Wind Down Costs.
(d) In addition to Empire's rights set forth in this Section 19.3, as a
premier customer of IBM (as provided in Section 10.8), Empire shall
receive the following Services with respect to IBM response to a force
majeure occurrence:
(i) Whenever a force majeure occurrence causes IBM to allocate
limited resources between or among IBM's customers, IBM shall
allocate such resources in an
-86- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
equitable manner and shall not disadvantage Empire with respect
to such allocation.
(ii) In addition, in no event shall IBM re-deploy or reassign any
personnel filling Key IBM Positions on the Empire account to
another IBM customer, in the event of a force majeure occurrence;
provided however, that if a force majeure occurrence affects
another IBM customer and does not affect Empire, IBM may request
that Empire allow IBM, subject to IBM's obligations to perform
the Services in accordance with the Service Levels, to allocate
certain personnel filling Key IBM Positions to such other IBM
customers, on a temporary basis. Empire shall consider any such
IBM request in good faith and determine, in its sole discretion,
whether to permit such reallocation.
20. DISPUTE RESOLUTION
Any dispute between the Parties arising out of or relating to this
Agreement, including with respect to the interpretation of any provision of
this Agreement and with respect to the performance by IBM or Empire, shall
be resolved as provided in this Article 20.
20.1 Informal Dispute Resolution.
(a) Subject to Section 20.1(b), the Parties initially shall attempt to
resolve the dispute informally, in accordance with the following:
(i) Upon the written notice by a Party to the other Party of a
dispute ("Dispute Date"), each Party shall appoint a designated
representative who does not devote substantially all of his or
her time to performance under this Agreement, whose task it will
be to meet for the purpose of endeavoring to resolve such
dispute.
(ii) The designated representatives shall meet as often as the Parties
reasonably deem necessary in order to gather and furnish to the
other all information with respect to the dispute which the
Parties believe to be appropriate and germane in connection with
its resolution. The representatives shall discuss the problem and
attempt to resolve the dispute without the necessity of any
formal proceeding.
(iii) During the course of discussion, all reasonable requests made by
a Party to the other for non-privileged information, reasonably
related to the dispute, shall be honored in order that a Party
may be fully advised of the other's position.
(iv) The specific format for the discussions shall be left to the
discretion of the designated representatives.
(b) Litigation of a dispute may only be commenced by either Party upon the
earlier to occur of any of the following:
(i) the designated representatives conclude in good faith that
amicable resolution through continued negotiation of the matter
does not appear likely;
-87- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(ii) thirty (30) days have elapsed from the Dispute Date (this period
shall be deemed to run notwithstanding any claim that the process
described in this Section 20.1 was not followed or completed); or
(iii) commencement of litigation is reasonably deemed appropriate by a
Party to avoid the expiration of an applicable limitations period
or to preserve a superior position with respect to other
creditors, or a Party makes a good faith determination that a
temporary restraining order or other injunctive relief is
necessary with respect to this Agreement.
20.2 Litigation.
For all litigation which may arise with respect to this Agreement, the
Parties irrevocably and unconditionally submit (a) to the exclusive
jurisdiction and venue (and waive any claim of forum non conveniens) of the
United States District Court for the Southern District of New York or (b)
if such court does not have jurisdiction, to the Supreme Court of the State
of New York, New York County. The Parties further consent to the
jurisdiction of any state court located within a district which encompasses
assets of a Party against which a judgment has been rendered for the
enforcement of such judgment or award against the assets of such Party.
20.3 Continued Performance.
Each Party agrees to continue performing its obligations under this
Agreement while a dispute is being resolved, except to the extent the issue
in dispute precludes performance (dispute over payment shall not be deemed
to preclude performance) and without limiting either Party's right to
terminate this Agreement as provided in Article 21. Notwithstanding the
foregoing sentence, IBM may suspend performance upon Empire's failure to
materially comply with Section 14.7 in an amount equal to at least
$100,000, within fifteen (15) days of Empire's receipt of written notice
(sent by certified mail to the Empire Contract Executive) from IBM of such
failure; provided that IBM shall provide an additional four (4) days'
written notice (sent by certified mail to the Empire Contract Executive),
subsequent to the initial fifteen (15) days' notice period, prior to any
actual suspension of performance.
20.4 Governing Law.
This Agreement and performance under it shall be governed by and construed
in accordance with the laws of the state of New York without regard to any
portion of its choice of law principles which might provide for application
of a different jurisdiction's law. The Parties expressly intend to avail
themselves of the benefits of Section 5-1401 of the New York General
Obligations Law.
20.5 Customer Claims.
With respect to claims against IBM by Empire's customers related to the
provision of Services under this Agreement, Empire will use Commercially
Reasonable Efforts to attempt to resolve any issues with respect to any
such claim and shall cooperate with IBM in its defense of such claim;
provided however, that this Section 20.5 shall not obligate Empire to
formally defend IBM.
-88- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
20.6 Waiver of Right to Jury Trial.
The Parties hereby unconditionally waive their respective rights to a jury
trial of any claim or cause of action arising directly or indirectly out
of, related to, or in any way connected with the performance or breach of
this Agreement, and/or the relationship that is being established among
them.
21. TERMINATION
21.1 Termination for Cause.
(a) Empire may, by giving written notice to IBM, terminate this Agreement,
in whole or in-part, for cause and for no-cost, in the event of any of
the following:
(i) IBM commits a material breach of this Agreement, which breach is
not cured within ten (10) days after notice of such breach is
received by IBM from Empire; or
(ii) IBM commits numerous breaches, over a period of one year, of its
duties or obligations which breaches do not arise out of a single
event or series of closely related events, and which breaches
collectively constitute a material breach of this Agreement.
(b) Without limiting the generality of Section 21.1(a) of this Agreement,
if, for any four (4) months within any rolling twelve (12) consecutive
month period, IBM is assessed as liable to pay Service Level Credits
equal to the Amount at Risk for the applicable month within respect to
either (i) the Managed Operations Services, or (ii) the Modernization
Services, then Empire may, by giving written notice to IBM, terminate
the affected Services in whole (i.e., the entirety of the Managed
Operations Services or the Modernization Services, as applicable) for
cause and for no-cost.
(c) In the event that Empire fails to pay IBM when due charges totaling at
least one (1) month's charges under this Agreement (except for (i)
amounts set off pursuant to Section 14.6, and (ii) disputed payments
withheld or paid into escrow pursuant to Section 14.7) and fails to
make such payment within thirty (30) days of written notice from IBM
of the failure to make such payment, IBM may by giving written notice
to Empire terminate this Agreement upon at least thirty (30) days'
written notice, as specified in the notice of termination.
21.2 Termination for Material Infringement or Breach of Confidentiality.
Each Party ("Affected Party") may, by giving at least thirty (30) days'
written notice to the other Party, terminate this Agreement at no-cost to
the terminating Party, in the event of either of the following:
(a) the other Party materially infringes the intellectual property rights
with respect to the Affected Party's intellectual property, as
provided or made available by the Affected Party to the other Party
under this Agreement, or
-89- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(b) senior management of the other Party materially breaches its
responsibilities with respect to Confidential Information of the
Affected Party,
which infringement (with respect to item (a)) or breach (with respect to
item (b)) the other Party does not use Commercially Reasonable Efforts to
discontinue within twenty (20) days after written notice of such
infringement or breach is received from the Affected Party by the other
Party, provided however, that all infringements or breaches that are the
basis for the Affected Party's right to terminate pursuant to this Section
21.2 must have occurred within six (6) months of the notice of termination.
Termination under this Section 21.2 shall be deemed to be for cause.
21.3 Termination for Convenience.
Effective twenty-four (24) months after the Effective Date (i.e., at the
beginning of the twenty-fifth (25th) month of the Agreement), Empire may
terminate this Agreement, in whole or in-part, for convenience and without
cause at any time by giving IBM at least four (4) months' prior written
notice designating the termination date and paying to IBM on the effective
date of termination: (a) the applicable amount specified in Exhibit 10 to
Schedule C, and (b) Wind Down Costs, although such payment of Wind Down
Costs shall not be a condition precedent to the termination. The amount due
IBM pursuant to Schedule C for Wind Down Costs shall not include costs to
the extent Empire reduces the Wind Down Costs by purchasing Equipment or
Software from IBM or hiring IBM Personnel, as provided in Section 21.10, or
other mitigation of such costs. In the event that a purported termination
for cause by Empire under Section 21.1 is determined by a competent
authority not to be properly a termination for cause, then such termination
by Empire shall be deemed to be a termination for convenience under this
Section 21.3. Any partial termination pursuant to this Section 21.3 shall
be not less than a complete Tower, unless otherwise agreed by IBM. In the
event that Empire pays such Wind Down Costs, then upon Empire's request,
IBM shall convey to Empire the Equipment and Software, on a case-by-case
basis, which Empire paid for as part of such Wind Down Costs.
21.4 Termination Upon Change of Control.
(a) In the event (i) that (A) another entity, directly or indirectly, in a
single transaction or series of related transactions, acquires either
Control of IBM or all or substantially all of the assets of IBM, or
(B) IBM is merged with or into another entity, and (ii) Empire has a
reasonable concern with such other entity, including such instances in
which: (I) the entity is an Empire Competitor, (II) the entity has a
poor relationship with Empire, or (III) Empire has a significant
concern as to such entity's ability to perform, then, at any time
within six (6) months after Empire receives notice of the last to
occur of such events, Empire may terminate this Agreement, for
no-cost, by giving IBM at least ninety (90) days' prior written notice
and designating a date upon which such termination shall be effective.
(b) In the event that (i) another entity, directly or indirectly, in a
single transaction or series of related transactions, acquires either
Control of Empire or all or substantially all of the assets of Empire,
or (ii) Empire is merged with or into another entity, then, at any
time within twelve (12) months after Empire receives notice of the
last to occur of such events, Empire may terminate this Agreement by
(A) giving IBM at least ninety (90) days' prior written notice and
designating a date upon which such termination shall be
-90- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
effective, and (B) paying to IBM on the effective date of termination:
(I) the applicable amount specified in Exhibit 10 to Schedule C, and
(II) Wind Down Costs, although such payment of Wind Down Costs shall
not be a condition precedent to the termination. For purposes of this
Section 21.4(b), an initial public offering shall not be deemed to be
a change of Control of Empire.
21.5 Termination Due To Force Majeure Event.
This Agreement may also be terminated in whole or part as provided in
Section 19.3(c).
21.6 Termination Due To IBM's Financial Inability To Perform.
If: (a) IBM files any petition in bankruptcy, (b) IBM has an involuntary
petition in bankruptcy filed against it which is not challenged in twenty
(20) days and dismissed within sixty (60) days, (c) IBM becomes insolvent,
(d) IBM makes a general assignment for the benefit of creditors, (e) IBM
admits in writing its inability to pay its debts as they mature, (f) IBM
has a receiver appointed for its assets, or (g) IBM has any significant
portion of its assets attached, then Empire shall have the right to
terminate this Agreement, subject only to Empire payment of Wind Down
Costs.
21.7 Additional Termination Rights.
Given the sensitive nature of the Services provided by IBM to Empire,
Empire may terminate this Agreement, in whole or in-part, for no-cost, by
giving written notice to IBM within six (6) months after Empire receives
notice of any of the following events:
(a) IBM enters the health insurance business (provided that IBM's self
insurance of its own employees, or those of its Affiliates, shall not
be deemed entering into the health insurance business); or
(b) IBM, directly or indirectly, in a single transaction or series of
related transactions, acquires either (i) Control of, or (ii) all or
substantially all of the assets of another entity which is in the
health insurance business and continues to be in the health insurance
business subsequent to such transaction(s); or
(c) another entity which is in the health insurance business acquires,
directly or indirectly, in a single transaction or series of related
transactions, either (i) Control of, or (ii) all or substantially all
of the assets of IBM.
21.8 Charges Upon Partial Termination.
In the event of any termination in-part by Empire, as provided in this
Agreement, the charges payable under this Agreement for Services will be
equitably adjusted to reflect those services that are terminated.
21.9 Extension of Termination/Expiration Effective Date.
Empire may extend the effective date of termination/expiration one or two
times as it elects in its discretion, by providing not less than sixty (60)
days' prior written notice to IBM for each such extension, provided that
the total of all such extensions shall not exceed one hundred eighty
-91- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
(180) days following the effective date of termination/expiration in place
immediately prior to the initial extension under this Section.
21.10 Termination/Expiration Assistance.
(a) Provision of Services Prior to Termination/Expiration Date. Commencing
six (6) months prior to expiration of this Agreement or on such
earlier date as Empire may request, or commencing upon any notice of
termination or partial termination (as limited by the next sentence),
including notice based upon default by Empire or of non-renewal of
this Agreement, and continuing through the effective date of
expiration or, if applicable, of termination of this Agreement (as
such effective date may be extended pursuant to Section 21.9), IBM
shall provide to Empire, or at Empire's request to Empire's designee,
the reasonable termination/expiration assistance requested by Empire
to allow the Services to continue in accordance with the terms of the
Agreement and to facilitate the orderly transfer of the Services to
Empire or its designee ("Termination/Expiration Assistance"), provided
that to the extent that termination is pursuant to Section 21.1(c),
Empire shall either (1) pre-pay the estimated monthly charges for such
Termination/Expiration Assistance at least thirty (30) days prior to
each month (which charges shall be trued-up when actual charges become
available), or (2) post an irrevocable letter of credit (or
performance bond) in sufficient amount to meet the ongoing charges to
be incurred. In the event of any partial termination, the provision of
Termination/Expiration Assistance shall be provided by IBM only as
applicable to the Services terminated. Termination/Expiration
Assistance shall include the assistance described in Schedule I and
the following:
(i) Personnel.
(A) Prior to expiration or once notice of termination is given
for any reason, IBM shall provide to Empire or Empire's
designee such information as Empire may reasonably request
relating to all employees (including Transitioned Employees)
and contractors who are employed or contracted by IBM to
perform the Services or functions under the Agreement
(including information and copies of any records relating to
staffing levels, job titles, salary and benefit levels,
length of service, etc.), provided that:
(I) the Parties acknowledge that IBM shall only release
salary information of an employee or contractor if such
employee or contractor consents to such release;
(II) notwithstanding Section 21.10(a)(i)(A)(I), IBM shall,
as requested by Empire, inquire of any employee or
contractor who is employed or contracted by IBM to
perform the Services or functions under the Agreement,
whether such employee or contractor will consent to the
release of his/her salary information;
(III) notwithstanding Sections 21.10(a)(i)(A)(I)-(II), IBM
shall provide to Empire salary ranges for IBM positions
(i.e.,
-92- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
minimum salary, median salary, and maximum salary for
those employees performing a specific job function);
and
(IV) IBM shall not be required to disclose any IBM
Confidential Information to an Empire designee unless
and until such designee has agreed in writing to
protect the confidentiality of such Confidential
Information in a manner substantially equivalent to
that required of Empire under this Agreement.
(B) For six (6) months after notice of termination is given for
any reason (or if no notice is given, then beginning six (6)
months prior to expiration of the Agreement):
(I) IBM shall not make any material changes to the terms
and conditions of employment or engagement of IBM's
employees or contractors, respectively, who primarily
(i.e., greater than fifty percent (50%)) perform (as of
the date IBM receives notice of termination for any
reason and for six (6) months thereafter (or if no
notice is given, then for six (6) months prior to
expiration of the Agreement)) Services for Empire under
the Agreement; provided that this Section
21.10(a)(i)(B)(I) shall not apply with respect to
changes that affect IBM employees generally (as opposed
to the specific targeting of some or all of the
personnel working on the Empire account);
(II) Empire shall have such rights as are set forth in
Section 21.10(a)(ii) below; and
(III) IBM shall not terminate any such employment or
engagement contract (other than for misconduct or
performance-related issues), nor reassign such employee
or contractor away from performance of functions under
the Agreement, without Empire's prior written consent.
Upon the completion of such six (6) month period as provided
in this Section 21.10(a)(i)(B): the provisions of Sections
21.10(a)(i)(B)(I) and 21.10(a)(i)(B)(II) shall continue in
effect, but Section 21.10(a)(i)(B)(III) shall no longer
apply (i.e., IBM may terminate or reassign employees on the
Empire account, but such action shall not preclude Empire's
ability to hire such employees).
(ii) Hiring of Personnel. Notwithstanding Section 23.15, for six (6)
months after notice of termination is given for any reason (or if
no notice is given, then beginning six (6) months prior to
expiration of the Agreement), Empire or Empire's designee shall
be permitted to undertake, without interference from IBM, to hire
any IBM Personnel whose time is primarily (i.e., greater than
fifty percent (50%)) devoted to performing the Services for
Empire as of the date IBM receives notice of termination, or, in
the case of expiration, within the six (6) month period (or
longer period requested by Empire) prior to expiration,
-93- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
provided that any such employment with Empire may not be
effective until the Agreement terminates or expires, including as
extended by any IBM provision of Termination/Expiration
Assistance, except to the extent that Empire requests IBM to
continue to perform the Services pursuant to Section 21.10(b). In
such event, the employment of those affected employees shall be
effective upon completion of the Services required pursuant to
Section 21.10(b). IBM shall waive its rights (and shall use
Commercially Reasonable Efforts to cause its subcontractors to
waive their rights), if any, under contracts with such personnel
restricting the ability of such personnel to be recruited or
hired by Empire or Empire's designee; provided that such
Commercially Reasonable Efforts shall not require Empire to make
payments to such subcontractors for such waiver. IBM will provide
Empire or Empire's designee with reasonable access to such
employees for interviews and recruitment, and shall not interfere
with Empire's or Empire's designee's efforts to hire such
employees (e.g., by making counteroffers or targeting offers to
employees on the Empire account), provided that such personnel
shall be allowed to transfer to job positions within IBM which
are open to all IBM employees, and which job positions can be
requested through IBM's standard internal placement system (e.g.,
positions advertised on the IBM web site or in IBM employment
newsletters).
(iii) Software. If Empire is entitled pursuant to this Agreement to a
license or other rights relating to any Software owned or
licensed by IBM, IBM shall provide such license or other rights
to Empire. To the extent that (A) this Agreement requires
Software that is acquired during the Term to be in Empire's
name, and (B) IBM fails to procure such Software in Empire's
name, IBM shall obtain and provide to Empire a license for Empire
to Use such Software upon termination/expiration of this
Agreement.
(iv) Source Code. IBM shall provide source code and artifacts (e.g.,
documentation, use cases, test scripts, design models, activity
diagrams, systems configuration) which IBM has in its possession
or its subcontractors have in their possession for (A) any
modification or enhancement made hereunder by IBM to Empire
Software; (B) any software developed pursuant to this Agreement
which Empire owns or with respect to which Empire is otherwise
entitled to source code pursuant to Article 7; and (C) as
otherwise provided in this Agreement. IBM shall provide such
source code and artifacts as described in the previous sentence
(I) upon any request from Empire during the Term, and (II) upon
termination or expiration of this Agreement.
(v) Equipment. At Empire's request, IBM shall, at Empire's option:
(A) assign to Empire or its designee third party leases for some
or all (as designated by Empire) of the Equipment that was
primarily (i.e., greater than fifty percent (50%)) used as of the
date of termination/expiration of this Agreement to provide the
Services to Empire, and Empire shall assume the obligations under
such third party leases that relate to periods after such date;
(B) provide to Empire or its designee leases, on commercially
reasonable terms, for some or all (as designated by Empire) of
the Equipment leased by IBM or its Affiliates that was primarily
(i.e., greater than fifty percent (50%)) used as of the date of
termination/expiration of this Agreement to provide the Services
to Empire, and
-94- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
which was financed by IBM internally through its IBM financing
affiliate; and/or (C) sell to Empire or its designee, at the book
value for third party Equipment and at the fair market value for
IBM Logoed Equipment, in each case owned by IBM or its
Affiliates, some or all (as designated by Empire) of the
Equipment owned by IBM that was primarily (i.e., greater than
fifty percent (50%)) used as of the date of
termination/expiration of this Agreement to provide the Services
to Empire. In the event of any disagreement between the Parties
with respect to the fair market value, as provided in the
previous sentence, the Parties shall split the cost for a
mutually agreed-to independent third party to establish a fair
market value for transfer of the asset. IBM shall also provide
all user and other documentation relevant to the Equipment
described in this Section 21.10(a)(v) which is in IBM's
possession. Empire will assume responsibility under any
maintenance agreements for the Equipment for which Empire elects
to purchase or assume the lease, to the extent such
responsibilities relate to periods after the date of
termination/expiration of this Agreement.
(vi) Third Party Services and Third Party Service Contracts. IBM shall
make available to Empire or its designee, pursuant to reasonable
terms and conditions, any third party services then being
utilized by IBM to provide the Services to Empire, including
services being provided through third party service or
maintenance contracts on Equipment and Software, provided that:
(A) with respect to non-Generally Available Software for which
IBM has previously obtained rights of assignment in favor of
Empire and the right for Empire to receive maintenance for
such software upon termination or expiration of this
Agreement, as provided in Sections 6.5(c) and 7.3(e)(ii)
above, IBM shall comply with the requirements of Section
21.10(a)(vi); and
(B) with respect to (I) Generally Available Software, and (II)
non-Generally Available Software for which IBM attempted but
was not previously able to obtain assignment and maintenance
rights in favor of Empire, IBM's responsibilities to obtain
assignment and maintenance rights as set forth in Section
21.10(a)(vi) shall be limited, subject to Sections
6.5(c)(iii) and 7.3(e)(ii)(A)(II), to using Commercially
Reasonable Efforts to obtain such, provided that such
efforts do not include payment of additional fees to such
third parties.
IBM will be entitled to retain the right to utilize any such
third party services in connection with the performance of
services for any other IBM customer to which IBM is providing
such third party services prior to the effective date of
termination/expiration.
(vii) Required Consents. Subject to Sections 6.5(c)(iii) and
7.3(e)(ii)(A)(II), Empire shall be financially responsible, and
(at Empire's option, except as provided below) IBM shall be
administratively responsible, for obtaining any Required Consents
necessary to grant or assign to Empire (and for Empire to have
the rights with respect to): (A) the Software licenses described
in Section
-95- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
21.10(a)(iii); (B) the Equipment leases described in Section
21.10(a)(v)(A); and (C) the third party service and maintenance
contracts described in Section 21.10(a)(vi), provided however,
that in the event that an Empire third party vendor shall assume
responsibility for provision of the Services upon termination or
expiration of the Agreement, then Empire or its designee shall be
administratively responsible for obtaining such Required
Consents.
(viii) Cost of Termination/Expiration Assistance During the Term. IBM
shall use Commercially Reasonable Efforts to provide
Termination/Expiration Assistance utilizing those resources then
being regularly utilized to perform the Services. If and to the
extent that the Termination/Expiration Assistance described in
this Section 21.10(a) requires resources in addition to those
resources then being regularly utilized in performing the
Services, Empire will pay IBM for the resources utilized in
providing such Termination/Expiration Assistance at the personnel
rates set forth in Schedule C, unless otherwise agreed by the
Parties.
(b) Provision of Services After Termination/Expiration Date. For a period
of twelve (12) months following the effective date of termination or
expiration under other provisions of this Agreement (as such effective
date may be extended pursuant to this Agreement), IBM shall continue
to provide, at Empire's request, any or all of the Services being
performed by IBM prior to such effective date, including
Termination/Expiration Assistance. To the extent IBM is to perform
Services pursuant to this Section 21.10(b) which were being performed
prior to the termination/expiration date of this Agreement, the
provisions of this Agreement shall be applicable, as such provisions
would have been applicable to the Services prior to the effective date
of termination or expiration. Charges for such activities that are
provided without cessation by IBM after termination/expiration of the
Agreement shall be: (i) for those services for which there is a charge
in the Agreement, such charges as were in effect immediately prior to
the termination/expiration date (adjusted by (A) any applicable
increase/decrease utilizing the ratios set forth in Exhibit 4 to
Schedule C, and plus (B) any applicable cost of living adjustment
provided for in Schedule C), and (ii) for those services for which
there is no charge in the Agreement, at the personnel rates specified
in Schedule C, as applicable, or at such lower rates as are equitable
in the circumstances.
(c) Cooperation. In the process of evaluating whether to undertake or
allow termination/expiration or renewal of this Agreement, Empire may
consider obtaining, or determine to obtain, offers for performance of
services similar to the Services following termination/expiration of
this Agreement. As and when reasonably requested by Empire for use in
such a process, IBM shall provide to Empire such information and other
cooperation regarding performance of the Services as would be
reasonably necessary for a third party to prepare an informed,
non-qualified offer for such services. IBM's support in this respect
shall include providing information regarding Equipment, Software,
staffing and other matters described in Schedule I as applicable to
this Section 21.10(c). Such cooperation shall include, including upon
any termination in whole or inpart, providing Empire and its designee
(including third party vendors who shall transition the Services from
IBM): (i) descriptions of hardware and services configurations, and
(ii) reasonable access to IBM facilities utilized to provide the
Services, including the data center, provided however that IBM shall
not be required to
-96- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
house any such third party personnel at such IBM facilities and
subject to IBM's generally applicable confidentiality and security
requirements.
(d) Empire or Third Party Performance. As reasonably requested by Empire,
IBM shall provide Termination/Expiration Assistance in the case of
Empire's reduction of Services under Section 3.1(e).
22. COMPLIANCE WITH LAWS
22.1 Compliance with Laws and Regulations Generally.
(a) Each Party shall perform its obligations in a manner that complies
with the applicable federal, state and local laws, regulations,
ordinances and codes (including identifying and procuring required
permits, certificates, approvals and inspections) applicable to its
industry, and IBM shall be responsible for implementation of, and
shall implement, health care legal and regulatory mandates to the
extent provided by and directed by Empire (and such implementation may
be a New Services). If a charge occurs of noncompliance of a Party
with any such laws, regulations, ordinances or codes, the Party so
charged shall promptly notify the other Party of such charges in
writing.
(b) If Empire directs IBM to perform the Services in a particular manner
in order to comply with Empire regulatory requirements, and if IBM
fails to so perform the Services in such manner, Empire may claim as
damages, and IBM shall be responsible for, fines, penalties, interest,
and similar financial obligations levied against Empire for violations
of such regulatory requirements, if and to the extent resulting from
IBM's failure, up to a maximum of two hundred and fifty thousand
dollars ($250,000) in any contract year, which shall be the maximum
liability of IBM with respect to such damages, fines, penalties,
interest, and similar financial obligations.
(c) If Empire directs IBM to perform the Services in a particular manner
in order to comply with Empire regulatory requirements, and if IBM so
complies with such direction, IBM may claim as damages, and Empire
shall be responsible for, fines, penalties, interest, and similar
financial obligations levied against IBM for violations of Empire
regulations, if and to the extent resulting from IBM's compliance with
Empire's direction, up to a maximum of two hundred and fifty thousand
dollars ($250,000) in any contract year, which shall be the maximum
liability of Empire with respect to such damages, fines, penalties,
interest, and similar financial obligations.
22.2 Xxxxx-Xxxxx-Xxxxxx Act and Similar Laws.
Empire and IBM shall comply with all applicable federal, state or local
laws, and rules and regulations of regulatory agencies, protecting the
confidential material and privacy rights of Empire, its Affiliates, and/or
their customers and consumers, including, where applicable, Title V of the
Xxxxx-Xxxxx-Xxxxxx Act (15 U.S.C. (S) 6801 et. seq.) and the Economic
Espionage Act (18 U.S.C. (S) 1831 et. seq.).
22.3 Hazardous Products or Components.
If any materials to be brought onto Empire's premises by IBM are toxic or
hazardous under any federal, state or local law or if the material is
capable of constituting a hazard, then IBM shall be
-97- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
responsible for complying with all OSHA hazard communication regulations
for such regulated materials, including (if necessary) notifying Empire in
writing and supplying an appropriate and complete Material Safety Data
Sheet to the Empire Contract Executive as well as to the ship-to point. IBM
shall be responsible to ensure that all materials display all reasonable
notices and warnings of foreseeable hazards. If the material is classified
under the requirements of the OSHA Hazard Communication Standard, 29 C.F.R.
(S) 1910.1200, the name and address of the chemical manufacturer or
importer or other responsible parties must be marked on the label.
Appropriate hazard warnings specifying target organs must be on the label.
If any materials or containers would be or could be classified as hazardous
or otherwise regulated waste at the end of its useful life, IBM shall
advise Empire in writing and provide Empire with proper disposal
instructions, although unless otherwise provided herein, IBM shall be
responsible for the disposal thereof in compliance with all applicable laws
and regulations.
22.4 Equal Employment Commitments.
During the Term, IBM shall comply with the "Equal Employment Commitments --
Medicare" attached in Schedule O-1. Upon execution of this Agreement, IBM
shall have contemporaneously executed the "Equal Employment Commitments --
Non-Medicare" attached in Schedule O-2, and IBM shall comply with the
requirements therein during the Term.
23. GENERAL
23.1 Binding Nature and Assignment.
(a) This Agreement shall be binding on the Parties hereto and their
respective successors and assigns. Neither Party may, or shall have
the power to, assign this Agreement without the prior written consent
of the other, except that Empire may assign its rights and obligations
under this Agreement without the approval of IBM (i) to an entity
which acquires all or substantially all of the assets of Empire or
(ii) to any subsidiary or Affiliate or successor in a merger,
acquisition, restructuring or reorganization of Empire; provided that
in no event shall such assignment relieve Empire of its obligations
under this Agreement.
(b) IBM further acknowledges that Empire is contemplating as of the
Effective Date a corporate reorganization and that in connection with
such reorganization, Empire may assign its rights and obligations as
contemplated in Section 23.1(a)(i) and (ii) above to an Affiliate,
without IBM's prior written consent, and the proviso in the preceding
paragraph shall be inapplicable to such assignment; provided that such
Affiliate owns, directly or indirectly, the successor or equivalent
organization to Empire, its securities are publicly traded, and it
meets the minimum market capitalization requirements for listing on
the New York Stock Exchange. Without limiting the generality of the
foregoing, Empire may, without the approval of IBM, undertake any
transactions necessary with respect to an initial public offering of
Empire.
(c) Subject to the foregoing, any assignment by operation of law, order of
any court, or pursuant to any plan of merger, consolidation or
liquidation, shall be deemed an assignment for which prior consent is
required. Any assignment made without Empire's consent as required
above shall be null and void and of no effect as between the Parties.
-98- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
23.2 Entire Agreement; Amendment.
This Agreement, including any Schedules referred to herein and attached
hereto, each of which is incorporated herein for all purposes, constitutes
the entire agreement between the Parties with respect to the subject matter
contained in this Agreement and supersedes all prior agreements, whether
written or oral, with respect to such subject matter. No change, waiver, or
discharge hereof shall be valid unless in writing and signed by an
authorized representative of the Party against which such change, waiver or
discharge is sought to be enforced.
23.3 Mutually Negotiated.
Each Party acknowledges that the terms and conditions of this Agreement
(including any perceived ambiguity herein) shall not be construed in favor
of or against any Party by reason of the extent to which any Party or its
professional advisors participated in the preparation of the original or
any further drafts of this Agreement, as each Party has been represented by
counsel in its negotiation of this agreement and it represents their mutual
efforts.
23.4 Notices.
All notices, requests, demands and determinations under this Agreement
(other than routine operational communications), shall be in writing and
shall be deemed duly given (a) when delivered by hand, (b) on the
designated day of delivery after being timely given to an express overnight
courier with a reliable system for tracking delivery, or (c) six (6) days
after the day of mailing, when mailed by United States mail, registered or
certified mail, return receipt requested and postage prepaid, and addressed
as follows:
In the case of Empire: Empire Blue Cross Blue Shield
00 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxx
With a copy to: Empire Blue Cross Blue Shield
00 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
And with a copy to: Xxxx Xxxxxxx
0000 X Xxxxxx, XX
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
In the case of IBM: IBM Project Executive
c/o Empire Blue Cross Blue Shield
00 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
With a copy to: IBM Global Services
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
-99- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
Attention: General Counsel
A Party may from time to time change its address or designee for
notification purposes by giving the other prior written notice of the new
address or designee and the date upon which it will become effective. In
addition to the foregoing, notices for breach, suspension of Services and
termination of Services shall be sent by certified mail.
23.5 Counterparts.
This Agreement may be executed in several counterparts, all of which taken
together shall constitute one single agreement between the Parties.
23.6 Headings.
The article and section headings and the table of contents used in this
Agreement are for reference and convenience only and shall not enter into
the interpretation of this Agreement.
23.7 Relationship of Parties.
IBM, in furnishing the Services, is acting as an independent contractor,
and as between the Parties, IBM has the sole right and obligation to
supervise, manage, contract, direct, procure, perform or cause to be
performed, all work to be performed by IBM under this Agreement. No
contract of agency and no joint venture is intended to be created hereby.
IBM is not an agent of Empire and has no authority to represent Empire as
to any matters, except as expressly authorized in this Agreement. None of
IBM's employees shall be deemed employees of Empire, and as between the
Parties, IBM shall be responsible for reporting and payment of all wages,
unemployment, social security and other payroll taxes, including
contributions from them when required by law. Empire does not and shall not
have actual, potential or any other control over IBM or its employees.
23.8 Severability.
In the event that any provision of this Agreement conflicts with the law
under which this Agreement is to be construed or if any such provision is
held invalid by a competent authority, such provision shall be deemed to be
restated to reflect as nearly as possible the original intentions of the
Parties in accordance with applicable law. The remainder of this Agreement
shall remain in full force and effect.
23.9 Consents and Approval.
Except where expressly provided as being in the discretion of a Party,
where approval, acceptance, consent or similar action by either Party is
required under this Agreement, such action shall not be unreasonably
delayed or withheld. An approval or consent given by a Party under this
Agreement shall not relieve the other Party from responsibility for
complying with the requirements of this Agreement, nor shall it be
construed as a waiver of any rights under this Agreement, except as and to
the extent otherwise expressly provided in such approval or consent.
Empire's representatives may not be fully familiar with, or necessarily
insist at all times on the full and complete performance with, the terms of
the Agreement. Empire's failure to insist in any one or more instances upon
strict performance of any provision of the Agreement, or failure or delay
to take advantage of any of its rights or remedies hereunder, or failure to
notify IBM of
-100- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
any breach, violation, or default, shall not be construed as a waiver or
construction by Empire of any such performance, provision, rights, breach,
violation, or default either then or in the future or the relinquishment of
any of its rights and remedies. Each Party shall, at the request of the
other Party, perform those actions, including executing additional
documents and instruments, reasonably necessary to give full effect to the
terms of this Agreement.
23.10 Waiver of Default; Cumulative Remedies.
(a) A delay or omission by either Party to exercise any right or power
under this Agreement shall not be construed to be a waiver thereof. A
waiver by either of the Parties of any of the covenants to be
performed by the other or any breach thereof shall not be construed to
be a waiver of any succeeding breach thereof or of any other covenant
herein contained.
(b) Except as otherwise expressly provided herein, all remedies provided
for in this Agreement shall be cumulative and in addition to and not
in lieu of any other remedies available to either Party at law or in
equity.
23.11 Survival.
Any provision of this Agreement which contemplates performance or
observance subsequent to termination or expiration of this Agreement shall
survive termination or expiration of this Agreement and continue in full
force and effect.
23.12 Public Disclosures.
All media releases, public announcements and public disclosures by either
Party relating to this Agreement or the subject matter of this Agreement,
including promotional or marketing material, but not including
announcements intended solely for internal distribution or disclosures to
the extent required to meet legal or regulatory requirements beyond the
reasonable control of the disclosing Party, shall be coordinated with and
approved by the other Party prior to release. Notwithstanding the
foregoing, IBM may list Empire as a customer and describe in general terms
the services provided by IBM under this Agreement in proposals and other
marketing materials.
23.13 Service Marks.
Neither Party shall, without the other Party's prior written consent, use
the name, service marks or trademarks of the other Party or, with regard to
IBM, those of the Blue Cross and Blue Shield Association, an association of
independent Blue Cross and Blue Shield plans.
23.14 Third Party Beneficiaries.
This Agreement is entered into solely between, and may be enforced only by,
Empire and IBM, and this Agreement shall not be deemed to create any rights
in third parties, including suppliers and customers of a Party, or to
create any obligations of a Party to any such third parties.
23.15 Nonsolicitation of Employees.
Subject to Section 21.10(a)(ii), during the Term of the Agreement: (a)
Empire shall neither solicit, directly or indirectly, nor hire IBM's
employees engaged in the provision of the Services,
-101- Empire/IBM CONFIDENTIAL
FINAL EXECUTION COPY
during the period they are so engaged and for nine (9) months thereafter,
without the prior written consent of IBM, and (b) IBM shall neither
solicit, directly or indirectly, nor hire Empire's employees and
consultants, during the period they are so engaged and for nine (9) months
thereafter, without the prior written consent of Empire, provided however
that item (b) shall not restrict IBM's ability to hire Affected Employees
within the first year of the Term. The Parties acknowledge that the
restrictions provided in Sections 23.15(a)-(b) shall not apply with respect
to solicitation by IBM employees and Empire employees and consultants that
are not directly or indirectly involved in the day-to-day operations of the
Empire environment.
23.16 Intentionally Left Blank.
23.17 Intentionally Left Blank.
23.18 Covenant of Good Faith.
Each Party, in its respective dealings with the other Party under or in
connection with this Agreement, shall act in good faith.
IN WITNESS WHEREOF, Empire and IBM have each caused this Agreement to be signed
and delivered by its duly authorized officer, all as of the date first set forth
above.
EMPIRE HEALTHCHOICE, INC. INTERNATIONAL BUSINESS MACHINES
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Xxxxx
----------------------------------- --------------------------------
Title: Chief Executive Officer Title: Senior Client Executive
-------------------------------- ------------------------------
-102- Empire/IBM CONFIDENTIAL
