EXHIBIT 10.13
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
SOFTWARE LICENSE AND SUPPORT AGREEMENT
BETWEEN
EMPIRE HEALTHCHOICE, INC.
AND
INTERNATIONAL BUSINESS MACHINES CORPORATION
DATED
JUNE 1, 2002
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
TABLE OF CONTENTS
1. BACKGROUND ................................................................ 1
1.1 Background .......................................................... 1
1.2 Construction ........................................................ 1
2. DEFINITIONS ............................................................... 1
2.1 Certain Definitions ................................................. 1
2.2 Other Terms ......................................................... 5
3. SOFTWARE DEVELOPMENT AND SYSTEMS INTEGRATION .............................. 5
3.1 Overview ............................................................ 5
3.2 Development Responsibilities ........................................ 5
3.3 Project Management .................................................. 7
3.4 Testing and Initial Approval of the Licensed Works .................. 7
3.5 Migration Planning; Implementation and Systems Integration .......... 8
3.6 Completion of Development and Systems Integration ................... 8
3.7 Acceptance of the Licensed Works .................................... 8
3.8 "Grace Period"; Remedy for Delayed Completion of the
Development and Systems Integration ............................. 9
3.9 Training ............................................................ 10
3.10 Financial Commitment to Complete the Licensed Software .............. 11
3.11 Users Group ......................................................... 11
3.12 Subcontracting ...................................................... 11
3.13 IBM Contract Executive .............................................. 12
4. LICENSES AND RESTRICTIONS ................................................. 12
4.1 License Grant ....................................................... 12
4.2 Copies .............................................................. 12
4.3 Sublicenses ......................................................... 13
4.4 Usage Parameters .................................................... 13
4.5 Certain Restrictions ................................................ 13
4.6 Access to Systems 13
4.7 Patent Rights ....................................................... 14
5. OWNERSHIP; INTELLECTUAL PROPERTY RIGHTS ................................... 14
5.1 Ownership of Intellectual Property .................................. 14
5.2 Third Party Products ................................................ 14
5.3 Reporting ........................................................... 14
5.4 Residual Knowledge .................................................. 14
6. SUPPORT AND MAINTENANCE ................................................... 15
7. FEES; PAYMENT; AND TAXES .................................................. 15
7.1 Fees ................................................................ 15
7.2 Organic Growth; Growth by Merger .................................... 16
7.3 Future Discussion of Maintenance Fees ............................... 00
-x-
XXXXXX/XXX XXXXXXXXXXXX FINAL Version 13
7.4 Invoices .......................................................... 16
7.5 Payment Due ....................................................... 16
7.6 Set Off ........................................................... 17
7.7 Disputed Charges .................................................. 17
7.8 Taxes ............................................................. 18
7.9 Audit of Empire ................................................... 19
7.10 Audit of IBM (and deNovis) ........................................ 20
8. NO OTHER SERVICES ........................................................ 22
9. ESCROW OF SOURCE CODE .................................................... 22
10. LIMITED WARRANTIES AND DISCLAIMERS ....................................... 23
10.1 IBM represents and warrants to Empire that: ....................... 23
10.2 DISCLAIMER OF WARRANTIES .......................................... 24
11. LIABILITY ................................................................ 24
11.1 General Intent .................................................... 24
11.2 Liability Restrictions ............................................ 24
12. INDEMNIFICATION .......................................................... 26
12.1 Intellectual Property Indemnification ............................. 26
12.2 Subcontractor Indemnity ........................................... 26
12.3 Additional Indemnities ............................................ 26
12.4 Infringement: Injunctive Relief ................................... 26
12.5 Procedures With Respect to Indemnities ............................ 27
12.6 Indemnification Procedures ........................................ 27
12.7 Subrogation ....................................................... 28
13. SAFEGUARDING OF DATA; CONFIDENTIALITY .................................... 28
13.1 Empire Information ................................................ 28
13.2 Safeguarding Empire Data .......................................... 29
13.3 Confidentiality ................................................... 29
13.4 HIPAA Privacy and Security Requirements ........................... 31
13.5 HIPAA Transactions Rule ........................................... 34
13.6 HIPAA Security Rule ............................................... 34
13.7 Other HIPAA Administrative Simplification Regulations ............. 34
14. TERM AND TERMINATION ..................................................... 34
14.1 Term .............................................................. 34
14.2 Termination For Cause by Empire ................................... 34
14.3 Additional Termination Rights ..................................... 35
14.4 Termination Prior To The Acceptance Date .......................... 35
14.5 Termination of Maintenance and Support Services by Empire ......... 35
14.6 Termination Upon Change of Control ................................ 35
14.7 Due To IBM's Financial Inability To Perform ....................... 36
14.8 Termination by Empire Due To Force Majeure Event .................. 36
14.9 Termination by Empire for Convenience ............................. 36
-ii-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
14.10 Termination related to Staten Island Sublease ..................... 36
14.11 Effect of Termination ............................................. 37
14.12 Survival .......................................................... 37
15. DISPUTE RESOLUTION ....................................................... 37
15.1 Informal Dispute Resolution ....................................... 37
15.2 Litigation ........................................................ 38
15.3 Continued Performance ............................................. 38
15.4 Waiver of Right to Jury Trial ..................................... 38
16. GENERAL PROVISIONS ....................................................... 38
16.1 Governing Law; Jurisdiction ....................................... 38
16.2 Assignment ........................................................ 38
16.3 Amendments; Waivers ............................................... 39
16.4 Complete Agreement ................................................ 39
16.5 Suspension of Performance ......................................... 39
16.6 Notices ........................................................... 40
16.7 Compliance with Laws .............................................. 40
16.8 No Third Party Beneficiaries ...................................... 41
16.9 Counterpart and Facsimile Signatures .............................. 41
16.10 Force Majeure ..................................................... 41
16.11 Revenue Sharing for Sales of the Licensed Software ................ 42
16.12 Most Favored Customer ............................................. 45
16.13 Public Disclosures ................................................ 45
16.14 Service Marks ..................................................... 45
16.15 Nonsolicitation of Employees ...................................... 46
16.16 Covenant of Good Faith ............................................ 46
16.17 Consents and Approval ............................................. 46
16.18 Severability ...................................................... 46
16.19 Relationship of the Parties ....................................... 46
16.20 Mutually Negotiated ............................................... 47
16.21 Effect of Headings ................................................ 47
-iii-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
ATTACHMENTS
Attachment A: Description of Licensed Works and Software Requirements
Document
Attachment A-1: Description of Licensed Software
Attachment A-2: Empire's Business Features and Function Requirements
Attachment A-3: Description of Licensed Software Features and
Functions
Attachment A-4: Empire's Technical Requirements (Including Specific
"Scalability" Requirements)
Attachment A-4-1: Empire's Technical Requirements for the
Licensed Software
Attachment A-4-2: Empire's "Scalability" Requirements for the
Licensed Software
Attachment A-5: Information Resource Management Requirements (Data
Access and Integration Requirements
Attachment B: Support and Maintenance
Attachment C: Development and License Fee and Maintenance Fees
Attachment D: Identification of Escrow Agreement
Attachment D-1: Preferred Escrow Agreement
Attachment E: Third Party Products
Attachment F: Development Project Management Guidelines
Attachment F-1: Project Management Process
Attachment G: Development Project Testing Procedures
Attachment H: [Not Used.]
Attachment I: Development Project Software Engineering Process
Attachment I-1: Details of Development Project Software Engineering
Process
Attachment J: Overall Project Plan
Attachment K: Development Project Plan
Attachment L: Development Project Disaster Recovery Plan Outline
Attachment M: DeNovis Statement Regarding Back-Up of Licensed Software
Attachment N: Empire Competitors
-iv-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
SOFTWARE LICENSE AND SUPPORT AGREEMENT
This Software License and Support Agreement, effective as of June 1, 2002
(the "Effective Date"), is entered into by and between International Business
Machines Corp., a New York corporation, having a place of business at Xxxxx 000,
Xxxxxx, Xxx Xxxx 00000 ("IBM"), and Empire HealthChoice, Inc. doing business as
Empire Blue Cross and Blue Shield, a New York corporation with its corporate
headquarters located at 00 X. 00/xx/ Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 ("Empire")
an independent licensee of the Blue Cross and Blue Shield Association.
1. BACKGROUND
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, which savings (a
key element of generating these savings to Empire is the utilization
of IBM Personnel in India) will be used in part in connection with the
Licensed Software, 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) this
Agreement, (ii) the Licensing and Joint Development Agreement, and
(iii) the Master Services Agreement.
1.2 Construction.
The provisions of this Section 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 Section 1.
2. DEFINITIONS
2.1 Certain Definitions.
(a) "Acceptance Date" has the meaning specified in Section 3.7(d).
(b) "Affiliate" means, with respect to any entity, any other entity
Controlling, Controlled by or under common Control with such entity.
-1-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(c) "Administrative Services Only Processing" or "ASO Processing" means
any processing for self-insured accounts of Empire for which Empire
administers, in whole or in part, health benefits and for which Empire
has no liability for the payment of claims (IBM is an example of an
ASO customer as of the Effective Date).
(d) "Agreement" means this Software License and Support Agreement,
including its schedules, exhibits, and appendices, as the same may be
amended by the Parties from time to time in accordance with Section
16.3.
(e) "Applicable Auditee" has the meaning specified in Section 7.10(a).
(f) "Commercially Reasonable Efforts" means taking such steps and
performing in such a manner as a well managed software development
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.
(g) "Confidential Information" has the meaning specified in Section
13.3(a).
(h) "Control" and its derivatives means 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.
(i) "CS-90" has the meaning specified in Section 3.2(f).
(j) "Deficiency Notice" has the meaning specified in Section 3.4(a).
(k) "Deliverables" has the meaning specified in Section 3.2.
(l) "deNovis" means deNovis, Inc., the entity from which IBM is licensing
the Licensed Works.
(m) "deNovis Revenue Sharing Credits" has the meaning specified in Section
16.11(d)(ii).
(n) "Development and License Fee" has the meaning specified in Section
7.1.
(o) "Development Project Plan" has the meaning specified in Section
3.2(a).
(p) "Disabling Code" means any code which would have the effect of
disabling or otherwise shutting down all or any portion of the
Licensed Software.
(q) "Dispute Date" has the meaning specified in Section 15.1(a)(i).
(r) "Divested Entity" means a divested line of business or entity of
Empire (no longer Controlled by Empire) acting either as an
independent entity or a part of another entity.
(s) "Documentation" means all written or electronic documentation
pertaining to the Licensed Software including manuals, user guides,
help screens which are provided by or for IBM to Empire hereunder.
(t) "Earned" has the meaning specified in Section 16.11(d)(iii).
(u) "Empire Auditors" has the meaning specified in Section 7.10(a).
(v) "Empire Confidential Information" has the meaning specified in Section
13.3(a).
(w) "Empire Data" has the meaning specified in Section 5.1(b).
(x) "Empire Information" means 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.
-2-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(y) "Empire's Processing" means the use of the Licensed Works for
Empire's business purposes, including processing being performed by
Empire as of the Effective Date and, in the case of Empire business
currently being processed by NASCO for Empire, to the extent such
processing is subsequently performed by Empire, but excluding
Empire's use of the Licensed Works as a Service Bureau. "Empire's
Processing" also includes (i) permitting third parties to access or
to interact with the Licensed Works in connection with Empire's
business, but excludes use of the Licensed Software by third party
service providers (such access is described in Section 4.3); and
(ii) the use of the Licensed Works by Empire to process work for
Divested Entities (to the same extent that such Divested Entity was
permitted to benefit from the License hereunder as an Affiliate of
Empire) for a period up to twelve (12) months after the date such
Divested Entity ceases to be an Affiliate. For the avoidance of
doubt the term "Empire's Processing" shall not limit the number of
users, number of locations, sites or instances of the Licensed Works
maintained by Empire.
(z) "Escrow Agent" has the meaning specified in Section 9.
(aa) "Escrow Agreement" has the meaning specified in Section 9.
(bb) "Escrow Cap" has the meaning specified in Section 7.7(b).
(cc) "Escrow Threshold" has the meaning specified in Section 7.7(b).
(dd) "Errors" has the meaning specified in Section 10.1(f).
(ee) "Export Act" has the meaning specified in Section 16.7(b).
(ff) "Grace Period" has the meaning specified in Section 3.8(a).
(gg) "Gross Revenues" has the meaning specified in Section 16.11(b).
(hh) "Harmful Code" means (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. "Harmful Code" does not include Disabling Code.
(ii) "IBM Contract Executive" has the meaning specified in Section 3.13.
(jj) "Including" and its derivatives (such as "include" and "includes")
mean including without limitation. This term is as defined, whether
or not capitalized in this Agreement.
(kk) "Initial Approval Date" has the meaning specified in Section 3.4(c).
(ll) "License" has the meaning specified in Section 4.1.
(mm) "Licensed Software" means deNovis' eHD enterprise software platform
(including the Third Party Products) as described in Attachment A
and summarized in Attachment A-1 thereto, together with all
Modifications thereto. The Licensed Software is also referred to as
the "Claims Engine".
(nn) "Licensed Works" means collectively, the Licensed Software and the
Documentation.
(oo) "Licensing and Joint Development Agreement" means that certain
Licensing and Joint Development Agreement by and between the Parties
executed concurrently with this Agreement.
(pp) "Life" ("Lives") means 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.
-3-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(qq) "Losses" means 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).
(rr) "Maintenance Fees" has the meaning specified in Section 7.1.
(ss) "Master Services Agreement" means that certain Master Services
Agreement by and between the Parties executed concurrently with this
Agreement.
(tt) "Merger Growth" has the meaning specified in Section 7.2(b).
(uu) "Modification" means any error correction, workaround, update,
revision, enhancement, modification or derivative work of the
Licensed Software (including Updates and Upgrades (as defined in
Attachment B)) which is provided by or on behalf of IBM to Empire
hereunder.
(vv) "NASCO" means National Accounts Services Company, LLC.
(ww) "Notice of Election" has the meaning specified in Section 12.6(a).
(xx) "Object Code Form" means a form of software code resulting from the
translation or processing of software in Source Code Form by a
computer into machine language, which thus is in a form that would
not be convenient to human understanding of the software.
(yy) "Organic Growth" has the meaning specified in Section 7.2(a).
(zz) "Out-of-Pocket Expenses" means 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.
(aaa) "Overall Project Plan" means a high-level project plan attached
hereto as Attachment K describing the plan for completing the
development of the Licensed Works and the Systems Integration
Effort, which includes major milestones and dates by which such
milestones will be completed.
(bbb) "Party" means either Empire or IBM, as applicable; "Parties" means
both Empire and IBM.
(ccc) "Permitted Users" has the meaning specified in Section 12.4.
(ddd) "Project Plan" means, collectively, the Overall Project Plan, the
Development Project Plan and the Systems Integration Project Plan.
(eee) "Residuals" means 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, learns or discloses under this
Agreement.
(fff) "Revenue Sharing" has the meaning specified in Section 16.11(a).
(ggg) "Revenue Sharing Escrow Threshold" has the meaning specified in
Section 16.11(f)(ii).
(hhh) "Security Rule" has the meaning specified in Section 13.6.
(iii) "Service Bureau" means a business offering whereby Empire or its
Affiliates processes health insurance claims utilizing the Licensed
Software for insurance companies or health plans without including a
material business offering other than such processing. Service
Bureau shall not include ASO Processing.
-4-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(jjj) "Source Code Form" means a form of software code in which a computer
program's logic is easily deduced by a human being with reasonable
skill in the art.
(kkk) "Software Specifications" mean the specifications and use cases for
the Licensed Software developed (following the software engineering
process attached hereto as Attachment I) pursuant to the Development
Project Plan based on the software description, business and
technical requirements attached hereto as Attachment A (and the
related schedules thereto).
(lll) "Systems Integration Effort" has the meaning specified in Section
3.5.
(mmm) "Systems Integration Project Plan" has the meaning specified in
Section 3.5.
(nnn) "Term" has the meaning specified in Section 14.1.
(ooo) "Testing Period" has the meaning specified in Section 3.4(a).
(ppp) "Testing Procedures" has the meaning specified in Section 3.4(a).
(qqq) "Third Party Products" means those third party software programs,
data and databases that are embedded or included within the Licensed
Works. The Third Party Products are listed on Attachment E.
(rrr) "Transactions Rule" has the meaning specified in Section 13.5.
(sss) "Usage Parameters" has the meaning specified in Section 4.4.
(ttt) "Users Group" has the meaning specified in Section 3.11(a).
(uuu) "Warranty Period" has the meaning specified in Section 10.1(f).
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. SOFTWARE DEVELOPMENT AND SYSTEMS INTEGRATION
3.1 Overview.
As of the Effective Date the Licensed Works are under development. IBM will
complete development of the Licensed Works as further described in this
Section 3. During such development effort and continuing thereafter IBM
will perform the Systems Integration Effort (as defined below) to
implement, migrate and fully systems integrate the Licensed Works into
Empire's environment. As further described in Section 3.5, such Systems
Integration Effort will be performed by IBM as a "Project" under Schedule
A-5 of the Master Services Agreement.
3.2 Development Responsibilities.
IBM will use Commercially Reasonable Efforts to complete the development of
the Licensed Works and provide to Empire all deliverables identified in the
Development Project Plan ("Deliverables") in accordance with the
Development Project Plan by the times set forth in the Development Project
Plan and in accordance with other attachments attached hereto and as
described in Sections 3.2(a) through 3.2(e), below:
-5-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(a) The Licensed Works development effort will be performed by IBM in
accordance with the Overall Project Plan and the development project
plan described in Attachment K, which shall be consistent in all
respects with the Overall Project Plan as updated from time to time by
the mutual agreement of the Parties (the "Development Project Plan"),
which includes major milestones and dates by which the milestones will
be completed.
(b) The Licensed Software will satisfy the description of the Licensed
Software and the business and technical requirements (including
hardware/third party software environments) for the Licensed Software
as described in Attachment A. As described in the Development Project
Plan, the business and technical requirements will be used by IBM to
develop the Software Specifications. The business and technical
requirements are comprised of several components:
(i) Attachment A-1: Description of Licensed Software.
(ii) Attachment A-2: Empire's Business Features and Functions
Requirements.
(iii) Attachment A-3: Description of Licensed Software features and
functions.
(iv) Attachment A-4: Empire's Technical Requirements (Including
Specific "Scalability" Requirements).
(v) Attachment A-5: Information Resource Management Requirements
(Data Access and Integration Requirements).
(vi) In addition, Empire will have the right to collaborate with IBM
(and deNovis), as part of the Development Project Plan, with
respect to the "HICL Editor" and "HICL Testing Tools and
Environment" and will have the right to approve the design of
such Editor and Testing and Tools Environment that is intended
for implementation at Empire. The HICL Editor and HICL Testing
Tools and Environment will have to pass Empire's acceptance
criteria (as part of the requirements) before implementation of
the Licensed Software begins.
(vii) In addition, IBM will "port" the Licensed Software, in
accordance with the Development Project Plan from a Sun Solaris
environment to an AIX environment, then from an AIX environment
to a "System 390" (z/OS operating system) environment. As part
of the "port" from AIX to System 390, IBM will ensure that the
Licensed Software includes the ability to take advantage of a
"parallel sysplex enabled" environment.
The following order of precedence shall govern in the event of
inconsistencies between the above requirements: (1) subsections (vi)
and (vii); (2) Attachment A-5; (3) Attachment A-2; (4) Attachment A-4;
(5) Attachment A-3; and (6) Attachment A-1.
(c) The Licensed Software will be developed using the software engineering
process described in Attachment I.
(d) The interim testing, acceptance testing and quality assurance
processes and criteria for the development of the Licensed Software
are described in Attachment G.
(e) IBM and deNovis will establish and maintain a disaster recovery
process to protect the development of the Licensed Works within thirty
(30) days of the Effective Date and such disaster recovery process
shall be consistent with the draft disaster recovery process attached
hereto as Attachment L. In addition, deNovis has provided
representation to Empire (attached hereto as Attachment M) regarding
its current practice (as of the Effective Date) regarding back-up of
the Licensed Software and shall perform such back-ups in a manner
consistent with such current practice.
-6-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(f) For the avoidance of doubt, as a requirement of the Licensed Software
(and included within the Development and License Fee and Maintenance
Fee), the Licensed Software will include all customization work to
make necessary Modifications to the Licensed Software to move all of
Empire's business from Empire's legacy CS-90 system ("CS-90") to the
Licensed Software, including all business that my be added to the
CS-90 system (whether from new business or conversion of NASCO
Processing to CS-90) after the Effective Date and prior to the
completion of the Systems Integration Effort. After completion of the
Systems Integration Effort, if new customizations to the Licensed
Software are required that are Empire-specific (e.g. not required for
other licensees of the Licensed Software), and not envisioned by IBM
to be included in the ongoing evolution of the Licensed Software and
such customizations cannot be developed from (i.e. requires the coding
of new "OPS") the existing features and functions of the Licensed
Software (e.g.: "CVC", "OPS" and "Data Model"), such customizations
shall be performed as part of the "Modernization" efforts under the
Master Services Agreement and will not be "Modifications" under this
Agreement.
(g) In addition, IBM shall, during the development process to complete the
Licensed Software under this Agreement, modify the Portal Toolkits (as
defined in the Licensing and Joint Development Agreement): (i) to
enable the Portal Toolkits to run on IBM's z/OS operating system; and
(ii) to achieve full integration with the Claims Engine, which shall
be completed no later than the Initial Approval Date of the Licensed
Software (and such modifications will be tested by Empire as part of
such testing of the Licensed Software). Such modifications to the
Portal Toolkits shall be included in the Development and License Fee.
Empire acknowledges that the success of the development effort being
undertaken by IBM pursuant to this Agreement is dependent (in part) upon
Empire's reasonable cooperation and interaction with deNovis and IBM,
including as specified in the Development Project Plan. Empire will make
its personnel reasonably available to respond to IBM's inquiries and to
consult with IBM during the development of the Licensed Software to clarify
requirements. IBM shall not be responsible for any delays in the
development schedule if and only to the extent caused directly or
indirectly by Empire or its respective Affiliates or its or their
unreasonable refusal or delay in cooperating or responding in a timely
manner to IBM's inquiries or requests for information; provided IBM has
promptly notified Empire of all such Empire delays as they occur at the
next bi-weekly SMT Process meeting (as further described in Attachment F)
and in writing. The validity and impact of such delays on the Development
Project Plan schedule will be fully and finally resolved through the SMT
Process.
3.3 Project Management.
The Parties agree to comply with the development project management
guidelines set forth in Attachment F. The development project management
guidelines will include a detailed change order and bug tracking process.
3.4 Testing and Initial Approval of the Licensed Works.
(a) The testing procedures to evaluate the Licensed Works' compliance with
Attachment A and the Software Specifications (the "Testing
Procedures") are attached to this Agreement as Attachment G and shall
include, at a minimum, a process to convert the use cases in the
Software Specifications to test cases, a process to confirm that the
Licensed Software conforms to the requirements set forth in Attachment
A and a process for testing and certifying the proper performance of
the Licensed Software in a
-7-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
mainframe environment. After completion and delivery of the final
Licensed Works in accordance with the Development Project Plan
schedule, Empire will have a period of ninety (90) days in which it
shall evaluate and test the Licensed Software and review the
Documentation in accordance with the Testing Procedures to determine
its compliance with Attachment A and the Software Specifications (the
"Testing Period"). Throughout the Testing Period, the Parties shall
work together as part of an iterative process to review the progress
of the development effort to complete the Licensed Works. In the event
that the Licensed Software does not comply with Attachment A and the
Software Specifications, Empire shall deliver to IBM written reports
detailing instances in which Licensed Software fails to so comply,
together with all relevant diagnostic and testing output and history
generated by Empire (each, a "Deficiency Notice"). IBM shall use
Commercially Reasonable Efforts to correct the identified deficiencies
promptly and in any case within thirty (30) days from receipt of
Deficiency Notice and make corrected version(s) of the Licensed Works
available to Empire for re-evaluation.
(b) During the testing process, the Parties will regularly assess the
Development Project Plan in light of the development process to
mutually determine any changes to the Development Project Plan
schedule.
(c) The date on which the Parties mutually agree that all Licensed
Software conforms in all material respects with Attachment A and the
Software Specifications shall be termed the "Initial Approval Date".
IBM will continue to use Commercially Reasonable Efforts to promptly
correct any identified non-material nonconformities. Notwithstanding
the foregoing, the Initial Approval Date shall not be deemed to
constitute the Acceptance Date as defined in Section 3.7(d).
3.5 Migration Planning; Implementation and Systems Integration.
Following the Initial Approval Date (as specified in the Systems
Integration Project Plan (defined below)), IBM shall install and implement
the Licensed Software; systems integrate the Licensed Software to
surrounding systems, both existing and new, into Empire's environment (so
that Empire will be able to process and pay claims in live production
operations); and migrate Empire's core processing operations from Empire's
legacy CS-90 system to the Licensed Software (collectively, the "Systems
Integration Effort"). IBM will perform such Systems Integration Effort (if
any) as a "Project" under the Master Services Agreement, pursuant to
Schedule A-5 for Systems Integration and Modernization. The details of this
Systems Integration Effort will be described in the "Systems Integration
Project Plan" (as defined in Schedule A-5 to the Master Services Agreement)
for the Claims Engine, which shall be consistent in all respects with the
Overall Project Plan, unless otherwise mutually agreed by the Parties.
3.6 Completion of Development and Systems Integration.
IBM agrees to use Commercially Reasonable Efforts to complete the
development of the Licensed Works and achieve Empire's acceptance of the
completed Systems Integration Effort by the respective dates set forth in
the Development Project Plan and the Systems Integration Project Plan.
3.7 Acceptance of the Licensed Works.
(a) Empire's acceptance testing of the Licensed Works as part of the
Systems Integration Effort into Empire's environment will be as
described in the applicable Testing Procedures developed pursuant to
Schedule A-5 to the Master Services Agreement and will include a test
of the Licensed Works as integrated into Empire's environment
-8-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(targeted to be ninety (90) days); parallel operation of two systems
(CS-90 and the Licensed Software) for Empire's first lines of business
(i.e., PPO/EPO/NEPO, as identified in the Overall Project Plan) to be
converted to the Licensed Works (targeted to be ninety (90) days); and
will be concluded upon Empire's commencement of paying claims in live
production operations using the Licensed Software.
(b) The Parties shall commence and will perform such acceptance testing
upon IBM's completion of the Systems Integration Effort for Empire's
first lines of business.
(c) Upon the successful completion of Empire's testing of the Licensed
Works pursuant to the applicable Testing Procedures as integrated into
Empire's environment (including the "scalability" requirements set
forth in Attachment A-4) and such parallel operation with CS-90 for
ninety (90) continuous days (or less time at Empire's option) and the
Licensed Works produce the same results as the CS-90 system (except to
the extent that CS-90 is producing incorrect results and excluding
testing of the "scalability" requirements of the Licensed Works in
comparison to CS-90), Empire shall accept the Licensed Works by (a)
providing written notice to IBM; or (b) utilizing the Licensed
Software to pay actual claims for members in live production
operations, at which time Empire shall notify IBM of its acceptance in
writing.
(d) The earlier of the date of either of such occurrences set forth in
Section 3.7(c) shall be the "Acceptance Date" of the Licensed
Software. In the event that an unauthorized person at Empire begins to
utilize the License Software to pay actual claims, Empire may, by
written notice to IBM, withdraw its acceptance of the Licensed Works;
provided that (i) such withdrawal is within three (3) business days of
the start of such utilization; and (ii) Empire immediately ceases use
of the Licensed Software to pay actual claims.
3.8 "Grace Period"; Remedy for Delayed Completion of the Development and
Systems Integration.
(a) Provided that IBM is continuing to work in good faith toward
completion of the development effort and Systems Integration Effort,
Empire agrees that, subject to this Section 3.8, IBM will have an
eight (8) month (two hundred and forty four (244) day) grace period in
which to complete the development effort for the Licensed Software and
achieve Empire's acceptance of the completed Systems Integration
Effort for Empire's first lines of business to be converted to the
Licensed Works (the "Grace Period"). The Grace Period will be added to
the applicable date (the date to achieve Empire's commencement of
paying claims in live production operations using the Licensed
Software (called "Go Live (PPO/EPO/NEPO)" in the Overall Project Plan)
set forth in the Overall Project Plan. Such date shall initially be
July 16, 2004 and may be extended due to Empire's delays pursuant to
the last paragraph of Section 3.2.
(b) Notwithstanding Section 3.8(a), Empire shall have the right to
terminate the Grace Period as of July 16, 2004, (which date may be
extended due to Empire's delays pursuant to the last paragraph of
Section 3.2), if by such date IBM has not yet successfully completed
both the "IBM Accepts eHD R2 (Empire R1) System on System 390" and the
"deNovis/IBM completes eHD R2 (Empire R1) Scalability Test" milestones
identified in the Overall Project Plan.
(c) If (A) IBM terminates the development effort or the Systems
Integration Effort for convenience (pursuant to Section 14.4); (B) IBM
fails to complete the development of the Licensed Software and achieve
Empire's acceptance of the completed Systems Integration Effort by the
date set forth in the Overall Project Plan as extended by the Grace
Period; (C) IBM fails to complete the development of the Licensed
Software and
-9-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
achieve Empire's acceptance of the completed Systems Integration
Effort by the date set forth in the Overall Project Plan and Empire
terminates the remaining portion of the Grace Period pursuant to
Section 3.8(b); or (D) if Empire terminates this Agreement pursuant to
Section 14.2, 14.3, 14.6(a), 14.7 or 14.8, then Empire may, upon
written notice to IBM, as its sole remedy with respect to such failed
delivery under this Agreement:
(i) Terminate this Agreement upon written notice and have no
liability to pay the Development and License Fees or Maintenance
Fees hereunder;
(ii) Within five (5) business days of the effective date of Empire's
written request following such termination, receive a refund
from IBM (which IBM shall provide) of (A) all Development and
License Fees prepaid by Empire (as of the Effective Date)
pursuant to Attachment C; and (B) all amounts spent by Empire on
the implementation and systems integration services provided by
IBM under the Master Services Agreement related to the Licensed
Software (if any), not to exceed thirty million U.S. dollars
($30,000,000);
(iii) To the extent that the amount refunded under section
3.8(c)(ii)(B) is less than thirty million U.S. dollars
($30,000,000), IBM will also, within five (5) business days of
the effective date of such termination, pay Empire the
difference between such amount and thirty million U.S. dollars
($30,000,000). But, such difference shall be reduced (not below
$0) by the amount that IBM demonstrates to Empire that IBM has
spent on its own (not paid by Empire) or with deNovis on the
Licensed Software development (starting on the Effective Date)
through the effective date of such termination. By way of
example, but not limitation, if Empire had spent $5,000,000 on
systems integration with IBM and IBM had spent $10,000,000 with
deNovis, the amount refunded would be $20,000,000: [$5,000,000
spent on systems integration] + [[$25,000,000 (difference
between $30MM and $5MM)] - [$10,000,000 spent with deNovis]] =
$20,000,000;
(iv) Terminate any and all remaining obligations of Empire under
Section 4.2 of Schedule C to the Master Services Agreement; and
(v) Terminate the Limited Exclusivity under the Licensing and Joint
Development Agreement.
3.9 Training.
IBM agrees to provide the following training services to Empire as part of
the Development and Licensing Fee:
(a) IBM will provide three (3) four (4) week classes reasonably adequate
to train Empire designated "super users" (as defined in Section
3.9(c)) with regard to the Licensed Software at a location specified
by Empire. Empire shall be responsible for providing appropriate space
for IBM to provide the classes. Each class will include a minimum of
two (2) trainers.
(b) IBM will provide detailed training materials to support the classes.
(c) The intended audience for such classes will be Empire "super users,"
which shall be those Empire personnel who will be involved in the
configuration of the Licensed Software, those involved in the
configuration of HICL, and those who will train the Empire End-Users.
The classes will include instruction on (i) "train the trainer" with
regard to the use of "Release 1.1" of the Licensed Software that is
installed at Empire
-10-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
pursuant to the Systems Integration Effort, or such other release as
agreed to by Empire; (ii) configuration of HICL rules; (iii)
configuration of benefits plans; and (iv) generic configuration of
the Licensed Software.
3.10 Financial Commitment to Complete the Licensed Software.
In addition, IBM agrees to spend (itself or with deNovis) an amount equal
to all of the Maintenance Fees paid by Empire solely on the development /
maintenance of the Licensed Software and the Systems Integration Effort
under this Agreement until the Systems Integration Effort is fully
completed for the roll-out of the Licensed Software into Empire's
business.
3.11 Users Group.
(a) When there are sufficient users to support a users group, IBM will
use Commercially Reasonable Efforts to establish or assist the
commercial user community Licensed Software users to establish a
users group (the "Users Group"). IBM will use Commercially
Reasonable Efforts to support such Users Group.
(b) If IBM or deNovis enters into a transaction with a single major
government or commercial user for the Licensed Software, IBM and
deNovis each warrant and shall ensure that the priorities with
respect to Updates and Upgrades for the Licensed Software arising
out of the IBM or deNovis relationship with such user will not take
priority over the Users Group's priorities for Updates and Upgrades
to the Licensed Software.
3.12 Subcontracting.
(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 IBM's
obligations under this Agreement, or (iii) a material function or
portion of the maintenance and support services. In seeking Empire's
approval, IBM will specify in writing to Empire: (A) the specific
components of IBM's obligations that IBM proposes to subcontract,
(B) the scope of the proposed subcontract, and (C) the identity and
qualifications of the proposed subcontractor. Empire shall have the
right to approve or disapprove of proposed subcontractors in its
sole discretion. Empire agrees and hereby approves deNovis as a
subcontractor to IBM. In addition, Empire agrees that a reasonable
number routine individual programmers who are independent
contractors or are provided as individual programmers or analysts
from a third party entity providing such services to IBM or deNovis
will be deemed to be approved subcontractors as of the Effective
Date.
(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 a competitor of
Empire, which competitors are listed in Attachment N as such
Attachment N may be reasonably updated by Empire from time to time,
or enters the health insurance business; or (iii) otherwise, or
there have been material misrepresentations by or concerning the
subcontractor. Notwithstanding the foregoing, Section 3.12(b)(i) and
(iii) shall not apply to deNovis, and Empire shall have no right to
revoke its acceptance of deNovis as a subcontractor hereunder.
(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
-11-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
deemed work performed by IBM. Any delegation or subcontracting by
IBM in violation of this Section 3.12 shall be null and void. IBM
shall be Empire's sole point of contact with respect to this
Agreement, 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 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
IBM's obligations hereunder, IBM shall cause such entities to comply
with the applicable obligations and restrictions under this
Agreement.
3.13 IBM Contract Executive.
IBM shall designate an individual to serve as "IBM Contract Executive."
The IBM Contract Executive shall (i) serve as the single point of
accountability for IBM with respect to this Agreement; and (ii) have
day-to-day authority for undertaking to ensure customer satisfaction.
4. LICENSES AND RESTRICTIONS
4.1 License Grant.
Subject to the terms and conditions of this Agreement, IBM hereby grants
to Empire and its Affiliates a worldwide, royalty-free (subject to the
payment of the Development and License Fee hereunder), perpetual,
irrevocable, non-exclusive, non-transferable (except in connection with a
permitted assignment hereunder) license (the "License"):
(a) to use, load, execute, display, perform, configure and operate the
Licensed Software in Object Code Form for purposes of testing
pursuant to the Testing Procedures and for continued testing through
the Acceptance Date;
(b) to use, load, execute, display, perform, configure, operate and
support the Licensed Software in Object Code Form for and on behalf
of Empire solely for Empire's Processing after the Acceptance Date;
(c) to reproduce and make copies of the Licensed Software and
Documentation solely as permitted by Section 4.2 below;
(d) to use the Documentation solely for purposes of supporting the
permitted uses of the Licensed Software described herein; and
In addition, IBM agrees that Empire shall have the right to create
adapters for and interfaces to the Licensed Software (and the Licensed
Software will include connection points, as described in the applicable
requirements and Software Specifications, for such adapters and
interfaces); provided that such right does not include the right to create
derivative works (as defined by the Copyright Act, 18 U.S.C. ss. 101, as
amended) of the Licensed Software.
4.2 Copies.
Empire may make a reasonable number of copies of the Licensed Software in
Object Code Form and the Documentation for use including for backup and
archive purposes in accordance with the licenses granted herein. Such
copies shall be deemed to constitute Confidential Information
-12-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
hereunder. Upon IBM's reasonable request, Empire shall notify IBM in
writing of each copy made of the Licensed Software, and the facility where
such copy will be stored and/or operated.
4.3 Sublicenses.
Solely to support Empire's Processing, Empire may permit use of the
Licensed Works under this Agreement by Empire or its Affiliates and
Empire's (and its Affiliates) consultants, outsourcers and other
contractors (including IBM and deNovis, if applicable) who are, in each
case, bound by commercially-reasonable, legally-enforceable obligations
(whether through their employment relationship or by written contract)
that are sufficient to maintain the confidentiality of the Confidential
Information in a manner that is consistent with restrictions on Empire.
Without limiting Empire's Processing rights hereunder, Empire shall not
allow use of the Licensed Works by all other persons. Empire shall be
responsible for all use and misuse of the Licensed Works made by or
authorized by Empire.
4.4 Usage Parameters.
Empire acknowledges that the Licensed Software has specific usage
parameters such as applicable load limitations, sizing parameters,
hardware configurations, and other technical parameters set forth in the
Software Specifications (the "Usage Parameters"). IBM shall have no
responsibility for errors or performance defaults to the extent caused by
Empire's use of the Licensed Software outside of these parameters.
Notwithstanding the foregoing, the Usage Parameters for the Licensed
Software will meet or exceed the requirements specified in Attachment A
and the Software Specifications (including that the Licensed Software will
meet or exceed Empire's scalability requirements in a mainframe
environment and that, at a minimum, the Licensed Software will be able
support seven million five hundred thousand (7,500,000) Lives within a
single logical database).
4.5 Certain Restrictions.
Except as expressly permitted hereby or by another agreement between the
Parties, Empire shall not (a) copy or reproduce the Licensed Works in
whole or in part; (b) modify, translate or create derivative works of the
Licensed Works; (c) reverse engineer, decompile, disassemble or otherwise
reduce the Licensed Software to Source Code Form; (d) distribute,
sublicense, assign, share, timeshare, sell, rent, lease, grant a security
interest in, use for service bureau purposes or otherwise transfer the
Licensed Works; (e) export, re-export or transship the Licensed Works from
any country in violation of applicable export or import laws; or (f)
remove or modify any copyright, trademark or other proprietary notice of
IBM or its suppliers affixed to the media containing the Licensed Works or
contained within the Licensed Works. ALL RIGHTS NOT EXPRESSLY GRANTED
HEREUNDER ARE RESERVED.
4.6 Access to Systems.
As reasonably determined by Empire, Empire will allow IBM (and, if
applicable, IBM's subcontractors hereunder), at no charge, to access and
use any computer system and software of Empire or any of their respective
Affiliates solely as necessary to perform IBM's obligations hereunder
(including the support and maintenance obligations set forth in Attachment
B). IBM agrees to comply with any applicable third party license
agreements pertaining to such use and access to the extent that such
agreements are provided to IBM.
-13-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
4.7 Patent Rights.
IBM and deNovis each agree not to assert against Empire any claim of
infringement of any IBM or deNovis patents embodied in or related to the
Licensed Works that are or may be infringed by the use of such Licensed
Works by Empire to the extent authorized in this Agreement.
5. OWNERSHIP; INTELLECTUAL PROPERTY RIGHTS
5.1 Ownership of Intellectual Property.
(a) Empire acknowledges and agrees that this Agreement grants only those
license rights specified herein, and does not convey any title or
ownership of the Licensed Works to Empire.
(b) IBM acknowledges that it shall obtain no proprietary interest in or
to any or all information, data and/or content entered, processed,
stored or transmitted by the Licensed Software, in the course of
Empire's exercise of the License hereunder, excluding information,
data and/or content first provided by IBM to Empire as part of the
Licensed Works ("Empire Data").
5.2 Third Party Products.
All Third Party Products are included as part of the Development and
License Fee hereunder. Without limiting IBM's responsibilities with
respect to the Licensed Works hereunder, IBM makes no specific
representations or warranties with respect to such Third Party Products.
For the avoidance of doubt, notwithstanding the failure of any Third Party
Products, IBM is responsible (and IBM is not relieved of its obligations):
(a) to provide the Licensed Works to Empire in accordance with this
Agreement; (b) to provide maintenance and support services in accordance
with this Agreement and (c) to comply with IBM's obligations under this
Agreement, as if such Third Party Products were not incorporated into or
being used by the Licensed Software. Empire will comply with any
additional terms or conditions with respect to the use of such Third Party
Products that are contained on Attachment E, as amended from time to time
by mutual agreement of the Parties.
5.3 Reporting.
Empire shall promptly report to IBM upon becoming aware of any actual
violation of Sections 4 or 5 hereof of which it has actual knowledge and
shall take such further steps as may reasonably be requested by IBM to
stop an ongoing violation and to prevent the re-occurrence of such
violation.
5.4 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;
-14-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(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
(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 5.4 does not apply to non-unique
implementations of the J2EE specification.
Except for the license rights contained in this Agreement, 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 5.4. This Section 5.4 shall survive termination/expiration of
this Agreement.
6. SUPPORT AND MAINTENANCE
Attachment B sets forth the obligations of IBM in connection with the
maintenance, support and updating of the Licensed Software which shall commence
effective as of the Acceptance Date (but Maintenance Fees shall not be charged
to Empire until the expiration of the Warranty Period). Such obligations shall
terminate upon any release of the escrowed Source Code Form of the Licensed
Software (and Empire's obligation to pay Maintenance Fees shall also terminate).
7. FEES; PAYMENT; AND TAXES
7.1 Fees.
Empire shall pay the fees set forth on Attachment C for the development,
testing, modification, customization, warranty, training and use of the
Licensed Works (the "Development and License Fee") and for the support and
maintenance of the Licensed Works (the "Maintenance Fees").
-15-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
7.2 Organic Growth; Growth by Merger.
(a) The Development and License Fee hereunder anticipates that the
number of Lives covered by Empire's (and Empire's Affiliates')
processing using the Licensed Software will grow as Empire's
business grows ("Organic Growth").
(b) Organic Growth, however, excludes growth in the number of Lives
covered by the Licensed Software which results from Empire's merger
with or acquisition of another health plan ("Merger Growth").
(c) If the number of Lives covered by Empire's processing using the
Licensed Software is greater than five million (5,000,000) Lives
covered and subsequently increases as a result of Merger Growth (but
excluding any Organic Growth in the covered Lives), then Maintenance
Fees hereunder will be increased by $1.20 per Life per year for
Lives acquired as a result of such Merger Growth for the remainder
for the Term (beginning in the month following the effective date of
such Merger Growth).
(d) If the number of Lives covered by Empire's processing using the
Licensed Software has increased above the amount specified in
Section 7.2(c) and subsequently decreases as a result of a
divestiture of a line of business (but not losses in the number of
covered Lives in the ordinary course of business), then Maintenance
Fees hereunder will be reduced at a rate $1.20 per Life decreased
(to a minimum of the Maintenance Fees set forth in under this
Agreement as of the Effective Date) effective as of the date such
line of business is no longer processed using the Licensed Software
under this Agreement (beginning in the month following such date).
If the number of Lives covered by Empire's processing using the
Licensed Software decreases below five million (5,000,000) Lives
covered as a result of the reduction in covered Lives in the
ordinary course of business, the then-current Maintenance Fees shall
be reduced to the Maintenance Fees set forth in under this Agreement
as of the Effective Date (beginning in the month following such date
such reduction occurs).
7.3 Future Discussion of Maintenance Fees.
Commencing ten (10) years after the Acceptance Date, the Parties agree to
discuss in good faith appropriate adjustments to the Maintenance Fee.
7.4 Invoices.
(a) General. All Fees are payable in U.S. Dollars. Attachment C
describes the Development and License Fee and Maintenance Fees
hereunder. The Development and License Fees shall be invoiced as
specified in Attachment C. The Maintenance Fees shall be invoiced
monthly as specified in Attachment C. 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) Form of Invoice. IBM shall render a single consolidated invoice for
the Development and License Fees and each month's Maintenance Fees.
The form of invoice shall be as approved by Empire.
7.5 Payment Due.
(a) Subject to the other provisions of this Section 7, invoices provided
for under Section 7.4(a) and properly submitted to Empire pursuant
to this Agreement shall be due and payable by Empire within thirty
(30) days after receipt of such invoice by Empire.
-16-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(b) In the event that any payment, excluding any payment withheld or
paid into escrow pursuant to Section 7.7, 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 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.
7.6 Set Off.
At its option and in good faith, Empire may set off, as a credit against
the Fees 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 Staten Island Data Center Sublease, the Master Services
Agreement, the Licensing and Joint Development 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 7.6) any
amounts owing to Empire, as identified in audits performed pursuant to
this Agreement.
7.7 Disputed Charges.
(a) Subject to Section 7.6, Empire shall pay charges when such payments
are due under this Section 7. Notwithstanding the previous sentence,
Empire may withhold payment of particular charges that Empire
disputes in good faith, subject to Section 7.7(b). In the event that
charges cover both disputed and undisputed items, Empire shall pay
all undisputed items in accordance with this Section 7 and
Attachment C.
(b) With respect to particular charges that Empire disputes in good
faith, the provisions of this Section 7.7(b) shall apply. Subject to
the remainder of this Section 7.7(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 7.6; 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. 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 7.7 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
Section 15 or by mutual agreement of the Parties. For as long as
Empire makes such escrow deposits in accordance with this Section
7.7 during the pendency of the dispute and pays undisputed amounts,
IBM shall continue to
-17-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
provide the services to Empire; provided however that if the
aggregate amount of charges then under dispute pursuant to this
Section 7.7 and paid into escrow exceeds six (6) months of
additional monthly charges under this Agreement (i.e., five (5)
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.
7.8 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, transfer and other taxes and duties payable
by IBM on the goods or services used or consumed by IBM in
performing its obligations under this Agreement or the provision of
the License hereunder 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) IBM shall be responsible for any sales, use, excise, value-added,
services, consumption, transfer or other tax existing as of the
Effective Date that is assessed on the performance of IBM's
obligations under this Agreement (including maintenance and support
services) or the provision of the License hereunder as a whole, or
on any particular portion thereof. The Parties shall share equally
the responsibility for any sales, use, excise, value-added,
services, consumption, transfer or other tax becoming applicable
during the Term (or that is increased during the Term) that is
assessed on the provision of the License hereunder or the
maintenance and support services as a whole, or on any particular
portion thereof provided by IBM, or on IBM's charges for some or all
of same; provided that "becoming applicable" shall not mean any tax
existing as of the Effective Date that becomes applicable due to
Empire's conversion from a tax-exempt entity to a taxable entity
(i.e. Such taxes will be IBM's responsibility).
(d) In the event that a sales, use, excise, value added, services,
consumption, transfer or other tax is assessed on the performance of
IBM's obligations under this Agreement or the provision of the
License hereunder, the Parties shall work together to segregate the
payments under this Agreement into three (3) payment streams:
(i) those for taxable services and the software;
(ii) those for which IBM functions merely as a payment agent for
Empire in receiving goods, supplies, or services and software
(including leasing and licensing arrangements); and
(iii) those for other nontaxable services and software.
(e) 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 and (thereafter upon IBM's request so long as Empire
continues to be tax-
-18-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
exempt in the State of New York), appropriate tax-exempt
certificates to support the foregoing representation, upon ay 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 any 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.
(f) 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, provided that IBM shall be entitled to any tax
refunds or rebates granted to the extent such refunds or
rebates are of taxes that were paid by IBM.
(g) 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 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 7.8(g) shall be kept confidential by the Party
receiving the information or documents in accordance with Section
13, 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.
7.9 Audit of Empire.
(a) Records. Empire shall maintain complete and accurate records, audit
trail and supporting documentation, in accordance with generally
accepted accounting principles applied on an consistent basis,
relating to Empire's Lives processed using the Licensed Software, as
such numbers increase (through Organic Growth and Merger Growth) and
decrease (through ordinary course and through divestitures).
(b) IBM shall have the following audit rights:
-19-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(i) If IBM has a reasonable basis to doubt Empire's compliance
with the License, Empire will allow IBM to access for the
purpose of auditing the Empire and Affiliate records and
facilities applicable to the use of the Licensed Works in
order to verify Empire's compliance with the License;
(ii) If IBM has a reasonable basis to doubt Empire's compliance
with Section 7.2, Empire will allow IBM to access for the
purpose of auditing the Empire and Affiliate records and
facilities applicable to the number Lives covered by Empire's
use of the Licensed Works in order to verify Empire's
compliance with Section 7.2; or
(iii) If IBM has a reasonable basis to doubt Empire's compliance
with Section 13, Empire will allow IBM to access for the
purpose of auditing the Empire and Affiliate records and
facilities applicable Empire's compliance with Section 13.
Any such audit may be conducted by IBM or its independent
accountants or consultants who Empire, in its reasonable discretion,
deems not to be competitors of Empire or that are pre-approved by
Empire in its sole discretion. Such audits shall be conducted in
person during regular business hours at IBM or Empire facilities,
with one (1) month's written notice. In all cases, IBM or its
consultants shall commit to maintain the confidentiality of Empire
information obtained from such audit, except as necessary to enforce
IBM's rights under this Agreement. IBM will pay for any such audit,
unless, with respect to an audit under Section 7.9(b)(ii), the
amount that should have been paid to IBM is greater than five
percent (5%) (but at least $75,000) of the amount reported by IBM.
In these cases, Empire shall reimburse IBM for actual and reasonable
audit costs in addition to the underpaid amounts and applicable late
fees in accordance with Section 7.5(b) hereof.
(c) Records Retention. Until the later of (a) six (6) years after
expiration or termination of this Agreement; (b) all pending matters
relating to this Agreement (e.g., disputes) are closed; or (c) the
information is no longer required to meet IBM's records retention
policy as disclosed by IBM to Empire and as such policy may be
adjusted from time to time as disclosed by IBM to Empire, Empire
shall maintain and provide access upon request to the records,
documents and other information required to meet IBM's audit rights
under this Agreement. Upon reasonable notice from IBM, Empire will
recover such information and deliver it to IBM within a reasonable
period of time, with IBM paying Empire's reasonable expenses.
7.10 Audit of IBM (and deNovis).
(a) Audit. 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 periodic on-site
audits of IBM (annually, or more often if required by law), for the
purposes set forth below. Empire shall also have the right to
perform periodic on-site audits of deNovis (annually, or more often
if required by law), for the specific purposes set forth below where
deNovis is identified; (provided, however that notwithstanding that
an audit right is identified as "IBM only", such designation does
not relieve IBM of the obligation to pass-through such audit
requirements to deNovis). The applicable entity subject to audit
hereunder (IBM or deNovis) is referred to as the "Applicable
Auditee"). The Applicable Auditee shall provide to Empire and 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) (i)
to
-20-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
any facility or part of a facility at which the Applicable Auditee
is performing the development effort or maintenance and support
services pursuant to this Agreement'; (ii) to the Applicable
Auditee's personnel; (iii) and to data and records relating to same
and to data and records relating to product and services (including
contracts between IBM and IBM's Subsidiaries, Resellers or
Customers, and contracts between IBM's Subsidiaries and Resellers or
Customers (and related thereto records, provided that access to
Reseller and Customer contracts shall only be provided to
third-party Empire Auditors)) which generates Gross Revenue, for the
purpose of performing audits and inspections of the Applicable
Auditee or any of its Subsidiaries, during the Term and for the
period the Applicable Auditee is required to maintain records
hereunder as follows.
With respect to IBM only:
(i) To verify compliance with Section 13; and
(ii) To examine IBM's performance of its obligations under this
Agreement with respect to development of the Licensed Works,
including performing audits: (A) of practices and procedures;
(B) of general controls and security practices and procedures;
and (C) as necessary to enable Empire to meet, or to confirm
that IBM is meeting, applicable regulatory and other legal
requirements.
With respect to both IBM and deNovis:
(iii) To verify the performance of the development effort for the
Licensed Works;
(iv) To verify the amount of Gross Revenues Earned by the
Applicable Auditee and its Subsidiaries; and
(v) To verify supporting information and calculations by the
Applicable Auditee regarding the Gross Revenue and Revenue
Sharing.
(b) Assistance by the Applicable Auditee. The Applicable Auditee shall
provide to such Empire Auditors such assistance as they require. The
Applicable Auditee shall cooperate fully with Empire Auditors in
connection with audit functions and with regard to examinations by
regulatory authorities. In all cases, Empire Auditors shall commit
to maintain the confidentiality of the Applicable Auditee's
information obtained from such audit, except as necessary to enforce
Empire's rights under this Agreement. Empire Auditors (i) shall
comply with the Applicable Auditee's reasonable security
requirements; and (ii) if Empire external auditors, shall not, in
IBM's reasonable judgment, be a competitor of IBM (as reasonably
determined by IBM). The Parties agree that (i) KPMG; (ii) Ernst and
Young; and (iii) any auditor engaged by regulatory agencies to
perform an audit hereunder shall not be deemed to be competitors of
IBM for purposes of this Section 7.10(b).
(c) Cost of Audit. Audits under this Section 7.10 shall be at Empire's
cost and expense, unless the audit reveals, with respect to Gross
Revenues and Revenue Sharing, that the Applicable Auditee underpaid
the amount of Revenue Sharing actually owing by five percent (5%) or
more (but at least $75,000), in which case the Applicable Auditee
shall pay the costs and expenses of such Audit. If Empire elects to
conduct a follow-up audit to assure that deficiencies revealed by
the audit have been remedied, the Applicable Auditee shall pay for
the costs of such subsequent audit related to the components the
prior audit revealed to be not in compliance, but not more than
twenty-five thousand dollars ($25,000) for each such subsequent
audit.
-21-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(d) Audit Follow-up. If (i) an audit and/or (ii) the Applicable
Auditee's review of the records provided by the Applicable Auditee
pursuant to Section 16.11(g), reveal that the Applicable Auditee
underpaid the amount of Revenue Sharing actually owing, the
Applicable Auditee shall pay Empire such underpaid Revenue Sharing
within five (5) business days plus interest at the rate described in
Section 16.11(e).
(i) Following an audit or examination, Empire shall conduct, or
request Empire Auditors to conduct, an exit conference with
the Applicable Auditee to obtain factual concurrence with
issues identified in the review. The Applicable Auditee shall
promptly brief Empire on the results of any review or audit
conducted by the Applicable Auditee 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 the Applicable
Auditee's operating practices and procedures to the extent
relevant to the Applicable Auditee's obligations pursuant to
this Agreement.
(ii) The Applicable Auditee 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 the Applicable Auditee agree to meet and to develop
action plans to address (A) the audit; and (B) regulatory
findings and reports related to the Applicable Auditee's
operating practices and procedures related to the performance
of the Applicable Auditee's obligations hereunder.
(e) Records Retention. Until the later of (a) seven (7) years after
expiration or termination of this Agreement; (b) all pending matters
relating to this Agreement (e.g., disputes) are closed; or (c) the
information is no longer required to meet Empire's records retention
policy as disclosed by Empire to the Applicable Auditee and as such
policy may be adjusted from time to time by Empire to the Applicable
Auditee, the Applicable Auditee 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.
8. NO OTHER SERVICES
Except as specifically set forth in this Agreement or the Master Services
Agreement, IBM shall have no obligation to provide configuration, installation,
implementation, training and other services relating to the Licensed Software.
To the extent that a Modification to the Licensed Software is made for Empire by
IBM and Empire does not receive a copy of the source code for such Modification,
such Modification will be deemed to be part of the Licensed Software and be
covered by the maintenance and support services hereunder at no additional
charge, unless otherwise agreed by the Parties.
9. ESCROW OF SOURCE CODE
IBM, Empire and deNovis shall execute concurrently with this Agreement a
"preferred beneficiary" source code escrow agreement with DSI Technology Escrow
Services (the "Escrow Agent"), and such escrow agreement is attached hereto as
Attachment D (the "Escrow Agreement"), for the deposit of the Source Code Form
of the Licensed Software (excluding the Third Party Products) into escrow on or
before the Acceptance Date. The Parties shall promptly confirm Escrow Agent's
acceptance of such Escrow Agreement (and make any mutually agreed and reasonable
changes proposed by the Escrow Agent) and such Escrow Agreement shall be
submitted to the Escrow Agent for execution by the
-22-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
Escrow Agent at least thirty (30) days prior to the scheduled Acceptance Date
(as set forth in the Overall Project Plan). Upon the Acceptance Date IBM shall
be deemed to have granted to Empire a worldwide, perpetual, royalty-free,
paid-up right and license, to (a) use, execute, load, copy, modify, prepare
derivative works, display and perform all or a portion of the Source Code Form
of the Licensed Software solely to support, correct and enhance the Licensed
Software for Empire's Processing; and (b) compile such Source Code Form
(including modifications thereto and derivative works thereof) into Object Code
Form. As specified in the Escrow Agreement, only upon the occurrence of one or
more events triggering release of the Source Code Form of the Licensed Software
shall Empire be entitled to access the Source Code Form of the Licensed
Software.
10. LIMITED WARRANTIES AND DISCLAIMERS
10.1 IBM represents and warrants to Empire that:
(a) IBM has all right and authority necessary to grant Empire the
licenses and rights granted herein (including the rights granted in
and to the Licensed Software with respect to the Third Party
Products), and that such licenses and rights (taken as a whole) are
not within the public domain or subject to any encumbrances or
restrictions including but not limited to the assertion of moral
rights and IBM has disclosed to Empire (in Attachment E hereto) all
Third Party Products embedded in or included with the Licensed
Works.
(b) The Licensed Works provided by IBM hereunder are not subject to any
liens or encumbrances which would impair Empire's use of the
Licensed Works in accordance with the terms hereof.
(c) IBM has all requisite power and authority to execute and deliver
this Agreement (including all Attachments) and to perform its
obligations under the Agreement.
(d) The Licensed Works (excluding the Third Party Products) as delivered
to Empire do not infringe and that IBM shall perform its
responsibilities under this Agreement in a manner that does not
infringe any patent, copyright, trademark or other intellectual
property right of any third party, nor constitute a misappropriation
of any trade secret; and no claim has been brought against IBM or
its suppliers alleging any of the foregoing.
(e) IBM will use Commercially Reasonable Efforts so that the Licensed
Software, including any additional elements delivered to Empire
during the Term (and any Modifications thereto) as delivered to
Empire does not contain any Harmful Code.
(f) During the Warranty Period (defined below), the Licensed Works
(including any Modifications thereto) will conform with Attachment A
and the Software Specifications (including Empire's scalability
requirements as described in Attachment A). IBM shall correct any
deviations of the Licensed Works from Attachment A or the Software
Specifications ("Errors") arising during such Warranty Period in
accordance with Sections 2 and 3 of Attachment B; provided that
during the first year after the Acceptance Date of the Licensed
Works (the "Warranty Period"), if IBM is unable to correct such
Errors after a reasonable number of repeated attempts, Empire's sole
remedy under this Agreement (in addition to Empire's termination
rights hereunder; Empire's rights to receive service level credits
under the Master Services Agreement; and Empire's right to obtain
the release of the Source Code Form of the Licensed Software, if
applicable) will be for Empire (at Empire's option): (i) to receive
a equitable adjustment in the Development and License Fee for the
Licensed Works (up to the total amount of such Development and
License Fees under this Agreement) to reflect any reduction in the
value of the Licensed Works as a result of the uncorrected Error; or
(ii) to return the Licensed Software to IBM and receive a refund of
all Fees paid by Empire under this
-23-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
Agreement in which case any and all rights and the License under
this Agreement, the Source Code Escrow Agreement and IBM's
obligation to perform the Systems Integration Effort related to the
Licensed Software under the Master Services Agreement shall
terminate.
(g) IBM will perform all obligations under this Agreement with
promptness, efficiency and diligence and IBM's obligations shall be
executed in a workmanlike, professional and cost-effective manner,
in accordance with the practices and high professional standards
used in well-managed operations performing services similar to the
services provided hereunder. IBM represents and warrants that it
shall use adequate numbers of qualified individuals with suitable
training, education, experience and skill to perform the maintenance
and support services hereunder.
(h) IBM will not insert (or permit deNovis to insert) into the Licensed
Software provided to Empire hereunder any Disabling Code without the
prior written consent of Empire.
10.2 DISCLAIMER OF WARRANTIES.
(a) EXCEPT AS STATED IN THIS AGREEMENT, EACH PARTY DISCLAIMS ALL
WARRANTIES, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED
WORKS, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY,
NONINFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE, OR ARISING
FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE.
(b) 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.
(c) IBM SPECIFICALLY DISCLAIMS ANY WARRANTY THAT THE OPERATION OF THE
LICENSED SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE OR THAT IBM
WILL FIND OR CORRECT ALL DEFECTS.
11. LIABILITY
11.1 General Intent.
Subject to the specific provisions of this Section 11 and Section 3.8(c),
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.
11.2 Liability Restrictions.
(a) SUBJECT TO SECTION 11.2(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.
-24-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(b) Subject to Section 11.2(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 as follows:
(i) Prior to the Acceptance Date, Section 3.8(c) states the
complete liability of the Parties under this Agreement. For
the avoidance of doubt, prior to the Acceptance Date, except
as provided in Section 3.8(c), neither Party shall have any
liability to the other Party;
(ii) After the Acceptance Date through the expiration of the
Warranty Period, each Party's liability shall be limited to
the total Development and License Fees paid or payable by
Empire to IBM under this Agreement; and
(iii) After the expiration of the Warranty Period, each Party's
liability will be limited to an amount equal to the
Maintenance Fees paid or payable to IBM by Empire pursuant to
this Agreement for the twelve (12) months prior to the month
in which the first event giving rise to the liability
occurred; provided that if the first event giving rise to
liability occurs during the first twelve (12) months after the
expiration of the Warranty Period, 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 of
the maintenance and support services during such twelve (12)
month period.
Notwithstanding the foregoing, the applicable amount set forth above
shall be increased to two times (2x) the applicable amount, if and
to the extent that either Party suffers damages occasioned by the
tortious willful misconduct or tortious gross negligence of the
other Party.
(c) The limitations set forth in Section 11.2(a) shall not apply to
damages occasioned by
(i) a Party's breach of its obligations with respect to
Confidential Information;
(ii) any and all Losses to be paid pursuant to Section 12.5;
(iii) fines, penalties, interest and similar financial obligations
levied as a result of a Party's breach of Section 16.7 of this
Agreement; or
(iv) either party's obligation to pay amounts due and payable or
IBM's obligation to pay or provide credits (as applicable)
Revenue Sharing to Empire under this Agreement.
(d) The limitations set forth in Sections 11.2(b) shall not apply with
respect to:
(i) any and all Losses to be paid pursuant to Section 12.5;
(ii) damages occasioned by a Party's breach of its obligations with
respect to Confidential Information;
(iii) fines, penalties, interest and similar financial obligations
levied as a result of a Party's breach of Section 16.7 of this
Agreement; and
(iv) either party's obligation to pay amounts due and payable or
IBM's obligation to pay or provide credits (as applicable)
Revenue Sharing to Empire under this Agreement.
(e) Each Party shall have a duty to mitigate damages for which the other
Party is responsible.
-25-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
12. INDEMNIFICATION
12.1 Intellectual Property Indemnification.
(a) IBM shall defend at its expense, Empire and its respective
Affiliates and their respective officers, directors, employees,
agents, successors and assigns, against any and all non-Affiliated
third party claims' arising from a claim that the Licensed Works,
including Empire's use of the Licensed Works as authorized under
this Agreement, infringes, misappropriates or violates any patent,
copyright, trademark, trade secret or other proprietary right of any
third party.
(b) IBM shall have no obligation to defend Empire pursuant to Section
12.1(a) if and only to the extent that a Loss arises out of:
(i) Empire's or Empire's agents modification of the Licensed Works
or use by Empire of the Licensed Work 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 (or its
suppliers);
(ii) Empire's or Empire's agents combination of the Licensed Works
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 (or its suppliers); and
(iii) any portion of such Licensed Works that are designed in
accordance with written, detailed Software Specifications
provided by Empire, to the extent that infringement
necessarily arises from such Software Specifications.
12.2 Subcontractor Indemnity.
IBM shall defend, at its expense, Empire and its respective Affiliates and
their respective officers, directors, employees, agents, successors and
assigns, against any and all non-Affiliated third party claims arising
from any claim or action by IBM's subcontractors arising out of IBM's
breach or violation of IBM's subcontracting arrangements.
12.3 Additional Indemnities.
IBM and Empire each agree to defend, at the indemnitor's expense, 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, 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.
12.4 Infringement: Injunctive Relief.
In the event that an injunctive restraint is threatened or obtained
against Empire's, its Affiliates or its permitted users' (or others
authorized to access the Licensed Works) (the "Permitted Users") use of
any of the Licensed Works by reason of infringement or violation of any
patent, copyright, trademark or trade secret, or if in IBM's opinion any
of the Licensed Works is likely to become the subject of such an
injunction, IBM shall, in addition to indemnifying Empire and Empire's
-26-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
other rights under this Agreement, promptly take the following actions, at
no additional charge to Empire in the listed order of priority: (a) at
IBM's expense promptly procure for Empire or such Permitted Users the
right to continue to use the Licensed Works as provided in this Agreement,
or (b) if such procurement cannot be accomplished with Commercially
Reasonable Efforts, promptly modify at IBM's expense the Licensed Software
so that it becomes non-infringing (so long as the functionality, features
and performance of the Licensed Software are not impaired in all but
insubstantial respects), or (c) if neither of the preceding clauses (a)
and (b) can be accomplished by IBM with Commercially Reasonable Efforts,
and only in such event, then remove the infringing item from the Licensed
Software, in which case IBM's Fees hereunder shall be equitably adjusted
to reflect the diminished value to Empire of such removal, or if in
Empire's reasonable opinion such removal is material to all or any portion
of the Licensed Works, the maintenance and support services hereunder or
the entire Agreement, as the case may be, then Empire may terminate this
Agreement in whole or in part, as the case may be and/or the license with
respect to such infringing Licensed Software and IBM shall promptly refund
to Empire the Fees paid (pursuant to Section 7 hereof) to IBM by Empire in
respect of such Licensed Software, less an adjustment for depreciation
(unless such infringement by IBM (or deNovis) was intentional or willful)
on a straight-line basis over eight (8) years, starting on the Acceptance
Date.
12.5 Procedures With Respect to Indemnities.
If IBM or Empire is obligated to provide the defense, as provided in
Section 12.1, 12.2 or 12.3, then subject to the procedures provided in
Section 12.6, 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 11.2(a).
12.6 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 12.1 through 12.3 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 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 12.6(a), the
indemnitor shall not be liable to the indemnitee for any legal
-27-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
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.
12.7 Subrogation.
In the event that an indemnitor shall be obligated to indemnify an
indemnitee pursuant to this Section 12, 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.
13. SAFEGUARDING OF DATA; CONFIDENTIALITY
The Parties agree that for purposes of this Section 13, references to
"IBM" shall also be deemed to include deNovis and references to the
"Parties" shall also be deemed to include deNovis.
13.1 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
perform its obligations hereunder, Empire Information (including
copies thereof) (i) shall be promptly returned to Empire by IBM in a
form 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.
(c) Subject to Section 5.4, Empire Information shall not be utilized by
IBM for any purpose other than that of performing its obligations
under this Agreement, the Master Services Agreement, or the
Licensing and Joint Development Agreement.
-28-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
13.2 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 Contract 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 13.2(a):
(i) IBM Personnel shall not attempt to access, or allow 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 Empire Data.
(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 perform its
obligations 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.
13.3 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 other Party (or its subcontractors)
which such Party considers to be confidential, a trade secret or
otherwise restricted. 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 proprietary and 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. In the case of Empire, 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 provided by Empire to IBM hereunder; and (iii) all
information concerning the operations, affairs and businesses of
Empire, the financial affairs of Empire, and the relations of Empire
with its customers, employees, providers, subscribers, business
partners, vendors, consultants, brokers and service providers
(including customer lists, customer information, account information
and consumer markets); (collectively, the "Empire Confidential
Information"). In the case of IBM, Confidential Information
-29-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
also shall include, whether or not designated "Confidential
Information," the Licensed Works, including notes, analyses,
compilations, studies, interpretations, memoranda or other documents
provided by IBM (or its subcontractors) to Empire which contain,
reflect or are based upon, in whole or in part, the Licensed Works.
(b) Obligations. Subject to Section 13.4:
(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 its obligations hereunder, 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 13.3. 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 Empire
Confidential Information, and retain no copies (except for an
archival copy retained for purposes of interpreting and
enforcing its rights under this Agreement).
(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.
(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, (B) as otherwise provided by law; and (C) with
respect to the Source Code Form of the Licensed Software.
(c) Exclusions. Section 13.3(b) shall not apply to any particular
information which IBM or Empire can demonstrate: (i) was, at the
time of disclosure to it, in the public domain; (ii) after
disclosure to it, is published or otherwise becomes part of the
public domain through
-30-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
no fault of the receiving Party; (iii) was in the possession of the
receiving Party at the time of disclosure to it without obligation
of confidentiality; (iv) 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 (v) 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. Further, a Party shall not be
considered to have breached its obligations under this Section 13.3
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 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
13.3 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.
13.4 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. To receive the
maintenance and support services under this Agreement, 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
-31-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
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 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 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
13.4, 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 not 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 but not limited to, 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
-32-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
supporting the Empire environment or any IBM personnel
providing services to Empire receives, directly or
indirectly, a request from an individual requesting
modification of 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 not
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
disclosures of PHI directly from IBM, IBM shall not provided
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 an
accounting of disclosures of 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 not 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 7.10 to the contrary, if Empire, in good faith, believes
that IBM has breached any provision of this Section 13.4 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 13.4(d)(ii), Empire may terminate this
Agreement, in accordance with Section 14.2, if IBM has
violated a material term of this Section 13.4. 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.
-33-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(ii) Cure. With respect to any IBM violation of a material term of
Section 13.4(d)(ii), IBM shall have the opportunity to cure
such violation, as set forth in Section 14.2(a)(i). If such
violation is not cured within the time period set forth in
Section 14.2(a)(i), Empire may declare a material breach of
the Agreement in accordance with Section 14.2(a)(i) 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).
(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.
(f) Interpretation of this Agreement. Any ambiguity in the terms set
forth in this Section 13.4 shall be construed to permit Empire's
full compliance with the Privacy Rule.
13.5 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.
13.6 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.
13.7 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.
14. TERM AND TERMINATION
14.1 Term.
This Agreement shall commence on the Effective Date and continue in effect
until terminated as provided below (the "Term"). For the avoidance of
doubt, unless this Agreement is terminated pursuant Section 14.4 or Empire
terminates the License pursuant to Section 14.2, the License granted to
Empire hereunder is irrevocable and will survive any termination of this
Agreement.
14.2 Termination For Cause by Empire.
(a) In the event:
(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;
(ii) IBM commits numerous breaches over a period of one (1) year,
of its duties or obligations which breaches do not arise out
of a single event or series of closely
-34-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
related events, and such breaches collectively constitute a
material breach of this Agreement; or
(iii) Empire terminates the Master Services Agreement for cause,
then Empire may terminate this Agreement and/or the License, for
cause and at no-cost, subject to Sections 14.11 and 14.12, upon
written notice of such termination.
(b) Savings Clause. Subject to Section 14.4, 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 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 suspends performance pursuant to Section 16.5. 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.
14.3 Additional Termination Rights.
Empire may terminate this Agreement and/or the License, for no-cost, by
giving written notice to IBM within six (6) months after Empire receives
notice of the 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.
14.4 Termination Prior To The Acceptance Date.
Subject to Section 3.8(c), IBM may terminate this License Agreement for
convenience at any time prior to the Acceptance Date, upon thirty (30)
days prior written notice.
14.5 Termination of Maintenance and Support Services by Empire.
Empire may terminate the maintenance and support services provided by IBM
hereunder for convenience at any time, upon thirty (30) days prior written
notice.
14.6 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
-35-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
reasonable concern with such other entity, including such instances
in which: (A) the entity is a competitor of Empire, which
competitors are listed in Attachment N as such Attachment N may be
reasonably updated by Empire from time to time, (B) the entity has a
poor relationship with Empire, or (C) 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 and/or the
License 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 and/or the License by giving IBM at least ninety (90)
days' prior written notice and designating a date upon which such
termination shall be effective, and (B) paying to IBM on the
effective date of termination. For purposes of this Section 14.6(b),
an initial public offering shall not be deemed to be a change of
Control of Empire.
14.7 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 and/or the License and at no cost.
14.8 Termination by Empire Due To Force Majeure Event.
Empire may terminate this Agreement and/or the License upon thirty (30)
days' prior written notice, in the event that a force majeure event set
forth in Section 16.10 prevents a IBM from properly performing its
obligations hereunder in excess of thirty (30) days and prior to the
Acceptance Days, in excess of sixty (60) days.
14.9 Termination by Empire for Convenience.
If deNovis is bought by a competitor of Empire, which competitors are
listed in Attachment N as such Attachment N may be reasonably updated by
Empire from time to time, or enters into the health insurance business as
described in Section 3.12(b), Empire may terminate this Agreement for
convenience at any time and at no cost to either Party, upon thirty (30)
days prior written notice.
14.10 Termination related to Staten Island Sublease.
In the event that the Parties fail to execute the Staten Island Data
Center Sublease (as defined in the Master Services Agreement) within
thirty (30) days of the Effective Date of the Master Services Agreement
and the Master Services Agreement is terminated pursuant to Section 8.2
thereof, then upon written notice from Empire to IBM, this Agreement shall
be terminated, at no cost to Empire, and the Parties shall take such
actions as are necessary to return both Parties to equivalent positions as
such Parties were immediately prior to the Effective Date.
-36-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
14.11 Effect of Termination.
(a) If this Agreement is terminated prior to the Acceptance Date, Empire
shall promptly return or destroy all copies of the Licensed Works
(except for an archival copy retained for purposes of interpreting
and enforcing its rights under this Agreement).
(b) If, following the Acceptance Date, Empire terminates this Agreement,
then, subject to Section 7.6, Empire's obligation to pay the
Development and License Fee hereunder shall not terminate, except in
the event Empire exercises its rights under Section 10.1(f)(ii).
(c) If this Agreement is terminated for any reason, each Party shall
promptly return to the other Party the Confidential Information of
such other Party (except for an archival copy retained for purposes
of interpreting and enforcing such Party's rights under this
Agreement).
14.12 Survival.
The Parties' rights and obligations under Sections 2, 3.8(c), 3.12(c), 5,
7.9, 7.10, 11, 12, 13, 14.11, 14.12, 15 and 16, the License granted to
Empire hereunder (except as such License may be expressly terminated by
Empire pursuant to this Section 14) as well as, subject to Section
14.11(b), any obligations to make payments of the Development and License
Fees and other amounts accrued prior to termination, shall survive any
termination of this Agreement.
15. 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 15.
15.1 Informal Dispute Resolution.
(a) Subject to Section 15.1(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:
-37-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(i) the designated representatives conclude in good faith that
amicable resolution through continued negotiation of the
matter does not appear likely;
(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 15.1 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.
15.2 Litigation.
For all litigation that may arise with respect this Agreement, the Parties
irrevocably and unconditionally submit (i) 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 (ii) 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.
15.3 Continued Performance.
Except as provided in Section 16.5, 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 Empire's right to terminate this Agreement as provided in
Section 14.
15.4 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.
16. GENERAL PROVISIONS
16.1 Governing Law; Jurisdiction.
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.
16.2 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
-38-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
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 16.2(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.
16.3 Amendments; Waivers.
(a) 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.
(b) 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.
(c) 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.
16.4 Complete Agreement.
This Agreement, including any Attachment 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.
16.5 Suspension of Performance.
If, at any time, Empire has not paid all amounts due hereunder in an
amount equal to at least $100,000, other than amounts disputed by Empire
in good faith pursuant to Section 7.7, then IBM shall have the right, in
addition to all other remedies hereunder and at law and equity, to suspend
its performance of maintenance and support services hereunder, within
fifteen (15) days of Empire's receipt of written notice 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, until such time as payment is made.
-39-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
16.6 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 (i) when delivered by hand, (ii) on the
designated day of delivery after being timely given to an express
overnight courier with a reliable system for tracking delivery, or (iii)
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: with a copy of legal notices to:
------------------------------------------------------------------------------------------------
Empire Blue Cross Blue Shield Empire Blue Cross Blue Shield
00 X. 00/xx/ Xxxxxx 00 X. 00/xx/ Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxx Attention: General Counsel
And
Xxxx Xxxxxxx
0000 X Xxxxxx, XX
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
------------------------------------------------------------------------------------------------
In the case of IBM: With a copy of legal notices to:
------------------------------------------------------------------------------------------------
IBM Contract Executive IBM Global Services
x/x Xxxxxx Xxxx Xxxxx Xxxx Xxxxxx Xxxxx 000
00 X. 00/xx/ Xxxxxx Xxxxxx, Xxx Xxxx 00000
Xxx Xxxx, Xxx Xxxx 00000 Attention: General Counsel
------------------------------------------------------------------------------------------------
In the case of deNovis: With a copy of legal notices to:
------------------------------------------------------------------------------------------------
deNovis, Incorporated deNovis, Incorporated
One Cranberry Hill Xxx Xxxxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000 Xxxxxxxxx, Xxxxxxxxxxxxx 00000
Attention: President Attention: General Counsel
And
Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
------------------------------------------------------------------------------------------------
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 by IBM pursuant
to Section 16.5 and termination by IBM for convenience shall be sent by
certified mail.
16.7 Compliance with Laws.
(a) Compliance with Laws and Regulations Generally. The Licensed Works
shall comply with and each Party shall perform its obligations in
a manner that complies with the applicable federal, state and
local laws, regulations, ordinances and codes (including
-40-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
identifying and procuring required permits, certificates,
approvals and inspections). If a charge occurs of non-compliance
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) Export Laws. Each Party shall comply with all applicable United
States laws and regulations which may govern the use of software
by entities or persons located abroad, including without
limitation the Export Administration Act of 1979, as amended (the
"Export Act"), any successor legislation and the Export
Administration Regulations issued by the Department of Commerce
under the Export Act
(c) HIPAA, Xxxxx-Xxxxx-Xxxxxx Act and Similar Laws. The Licensed Works
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 the
federal Health Insurance Portability and Accountability Act of
1996 (HIPAA), 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.).
16.8 No Third Party Beneficiaries.
There are no intended third party beneficiaries to this Agreement.
Without limiting the generality of the foregoing, it is expressly agreed
and intended that any Affiliate of Empire or IBM shall not be a third
party beneficiary of this Agreement.
16.9 Counterpart and Facsimile Signatures.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, and each of which together shall
constitute a single instrument.
16.10 Force Majeure.
(a) Neither Party will be liable for any failure or delay in its
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; (ii) provided the non-performing Party is without fault in
causing such failure or delay, and such failure 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.
-41-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
16.11 Revenue Sharing for Sales of the Licensed Software.
The terms "IBM Subsidiaries", "Resellers" and "Customers" shall have the
meanings for such terms set forth in the Licensing and Joint Development
Agreement.
(a) Scope of Revenue Sharing. With respect to the Licensed Software
and during the Revenue Sharing Period, IBM shall pay to Empire two
percent (2%) of Gross Revenue (the "Revenue Sharing"). "Revenue
Sharing Period" means the period beginning on the Effective Date
and ending on the effective date of the termination or expiration
of the Master Services Agreement as such Master Services Agreement
may be extended, amended or replaced (with IBM).
(b) Definition of Gross Revenue. "Gross Revenue" means the U.S. Dollar
value of all revenue Earned (or other consideration Earned in lieu
of revenue) by IBM or IBM Subsidiaries, derived in any way from
the Licensed Software (including any modifications, extensions,
combinations and derivative works of and to the Licensed
Software). "Gross Revenue" includes fees (or other consideration
in lieu of fees) Earned by IBM or by IBM Subsidiaries, from
licensing (or providing on an application services provider basis,
subject to the following sentence) of the Licensed Software and
providing related customization, maintenance, integration,
implementation services and other professional services related to
such licensing (or providing on an application services provider
basis, subject to the following sentence) of the Licensed
Software, but specifically excludes feasibility study and product
evaluation services related to the Licensed Software. "Gross
Revenue" also includes an equitable portion of application service
provider fees (to determine that portion of such application
service provider fees related to the Licensed Software versus
related infrastructure charges) if the Licensed Software is
provided on an application service provider basis. "Gross Revenue"
does not include any sums paid by Empire to IBM derived from the
Licensed Software.
(c) Bundling.
(i) In the course of marketing the Licensed Software, the
Parties acknowledge that IBM may offer products or services
for which Revenue Sharing must be paid under this Section
16.11 together in a single offering with and other products
and services that are not subject to Revenue Sharing under
this Section 16.11. IBM agrees that it shall, unless and
only to the extent required for a specific opportunity,
refrain from significantly discounting or offering for free
those products and services that are subject to Revenue
Sharing under this Section 16.11 as compared to other
products and services that are not subject to Revenue
Sharing under this Section 16.11.
(ii) If and to the extent that IBM is required (for a specific
opportunity) to significantly discount (or offer for free)
the products or services that are subject to Revenue
Sharing under this Section 16.11, the amount of Gross
Revenues Earned shall be equitably adjusted with respect to
such opportunity to increase the amount of Revenue Sharing
payable to Empire to account for the disproportionate
discount on that portion of the products or services that
are subject to Revenue Sharing under this Section 16.11.
Such equitable adjustment shall include (as baseline data
for comparison) prior sales of products or services for
which Revenue Sharing must be paid under this Section 16.11
on a stand-alone (unbundled) basis.
(d) Payment Terms.
-42-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(i) Revenue Sharing Payments. Revenue Sharing on Gross Revenues
shall be due and payable by IBM to Empire on a monthly
basis within thirty (30) days after the end of each
calendar month in which such Gross Revenues are Earned
(defined below). Notwithstanding the foregoing and so long
as the Master Services Agreement has not been terminated or
has expired, Revenue Sharing on Gross Revenues under this
Section 16.11 shall be included in the calculation of
Revenue Sharing Credits (as defined in the Licensing and
Joint Development Agreement) provided by IBM to Empire
under Section 4.3(b) of the Licensing and Joint Development
Agreement for the first ten million U.S. dollars
($10,000,000) per year of Revenue Sharing. Such section
4.3(b) of the Licensing and Joint Development Agreement
shall survive (for purposes of this Section 16.11(d)(i))
any termination of the Licensing and Joint Development
Agreement.
(ii) DeNovis Revenue Sharing Credits. IBM acknowledges that
Empire and deNovis may enter into a transaction relating to
revenue sharing based on deNovis' sales of the Licensed
Software. If and to the extent that deNovis provides to IBM
credits on Empire's behalf for maintenance and support
services hereunder (the "deNovis Revenue Sharing Credits"),
IBM shall apply such deNovis Revenue Sharing Credits as
same are provided to IBM to the next monthly Maintenance
Fees hereunder and any remaining deNovis Revenue Sharing
Credits will be carried forward to future months'
Maintenance Fees hereunder.
(iii) Definition of Earned. "Earned" shall mean that IBM (or the
applicable IBM Subsidiary) has the right under the contract
with the applicable IBM Subsidiary, Reseller or Customer,
to either receive payment or other consideration (including
termination for convenience fees or other liquidated
damages) from, or invoice the applicable IBM Subsidiary,
Reseller or Customer, for amounts which would constitute
Gross Revenue. For clarity, Empire, IBM intends that
Revenue Sharing shall be due and payable with respect to
sums or other consideration that constitute Gross Revenue
even if IBM (or the applicable IBM Subsidiary) has not yet
collected such sums or other consideration from the
applicable IBM Subsidiary, Reseller or Customer so long as
such sums are Earned. For clarity, IBM shall bear the risk
that the IBM Subsidiary, Reseller or Customer fails to pay
sums Earned.
(iv) Counting of Earned Amounts as Gross Revenues. If an IBM
Subsidiary Earned an amount from a Customer which would be
considered Gross Revenues, only the original amount first
Earned from the Customer will be included for purposes of
calculating Gross Revenues, and amounts paid thereon to IBM
by such IBM Subsidiary shall not be included for purposes
of calculating Gross Revenues. If an IBM Subsidiary Earned
an amount from a Reseller which would be considered Gross
Revenues, only the original amount first Earned from the
Reseller will be included for purposes of calculating Gross
Revenues, and amounts paid thereon to IBM by such IBM
Subsidiary shall not be included for purposes of
calculating Gross Revenues.
(v) Returns. If IBM (or their respective Subsidiaries or
Resellers) is required to return to a Customer a sum or
other consideration on which IBM has paid Revenue Sharing
to Empire (for instance, IBM must return a sum for failing
to meet a contractually required implementation date), but
excluding returns caused by software defects, IBM shall
give notice to Empire of such event and the Parties shall
make such equitable adjustments as are necessary to reflect
that Revenue Sharing should not be paid on such amount
returned to the Customer.
-43-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
(e) Late Payment Interest. In the event that any undisputed Revenue
Sharing payments (including Revenue Sharing Credits) are not
received by Empire within five (5) days after IBM's receipt of
written notice from Empire indicating that such payment is due and
owing and unpaid, then IBM 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 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.
(f) Disputed Payments.
(i) Payment of Undisputed Revenue Sharing; Good Faith Revenue
Sharing Disputes. IBM shall pay undisputed Revenue Sharing
when such Revenue Sharing are due under this Section 16.11.
IBM may withhold payment of particular Revenue Sharing that
IBM disputes in good faith, subject to Section
16.11(f)(ii).
(ii) Disputed Revenue Sharing. With respect to particular
amounts that IBM does not believe in good faith are
included within Gross Revenues, are Earned or are subject
to Revenue Sharing or are otherwise in dispute under this
Agreement, the provisions of this Section 16.11(f)(ii)
shall apply. Subject to the remainder of this Section
16.11(f)(ii), IBM may withhold payment of disputed Revenue
Sharing. IBM shall notify Empire in writing on or before
the date that any amount is so withheld and describe, in
reasonable detail, the reason for such withholding and
provide Empire with all documentation supporting its
position. Empire and IBM shall diligently pursue an
expedited resolution of such dispute. If the aggregate
amount of all Revenue Sharing then under dispute pursuant
to this Section 16.11(f) exceeds the greater of (i) one
hundred thousand dollars ($100,000) of Revenue Sharing or
(2) one-twelfth (1/12th) of the prior year's Revenue
Sharing (the "Revenue Sharing Escrow Threshold"), then for
any amounts in dispute in excess of the Revenue Sharing
Escrow Threshold, IBM shall deposit such amount into an
escrow account. IBM shall promptly furnish evidence of any
escrow deposit to Empire. The Parties agree that such
escrow account shall be mutually established by the Parties
at a federally chartered bank and the costs of such escrow
shall be borne by the Party which is not 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 Section 15 or by mutual agreement of
the Parties.
(g) Reports and Payments; Records.
(i) Reports and Payments. While Revenue Sharing is in effect
hereunder, within fifteen (15) days after the end of each
calendar month, IBM shall submit a report listing (A) any
contract entered into during such calendar month by IBM for
the distribution of the Licensed Software to an IBM
Subsidiary or a Reseller; (B) any contract entered into
during such calendar month by IBM or an IBM Subsidiary for
any distribution of the Licensed Software to a Customer by
IBM, an IBM Subsidiary or a Reseller; (C) any contract
entered into during such calendar month by IBM or an IBM
Subsidiary for any services which will generate Gross
Revenue; (D) the amount of Gross Revenue Earned by IBM or
IBM Subsidiaries during such calendar month, and the
Reseller or Customer which is obligated to
-44-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
pay such Gross Revenue; (E) any credits against Revenue
Sharing pursuant to Section 16.11(d)(v) that have accrued
during such calendar month; and (F) any other details
requested by Empire. Empire understands and agrees that
IBM's contracts with its Resellers and Customers are
confidential and will treat any information received or
reviewed as IBM Confidential Information. Empire
understands and agrees that in order to protect IBM's
confidentiality obligations, IBM shall prepare such reports
hereunder by providing only that information required for
Empire to exercise its rights under this Agreement.
(ii) Records. IBM shall maintain, subject to Section 7.10(e),
complete and accurate records, audit trail and supporting
documentation, in accordance with generally accepted
accounting principles applied on an consistent basis,
relating to (A) the amount of Gross Revenue Earned by IBM
and IBM Subsidiaries; (B) IBM's distribution and licensing
of Licensed Software to IBM Subsidiaries, Resellers and
Customers (and IBM will impose the same requirement on IBM
Subsidiaries); and (C) other information related to IBM's
obligations under this Agreement.
16.12 Most Favored Customer.
If IBM provides to another (non-U.S. government agency) customer a
license to the Licensed Software and/or maintenance and support services
that are similar to the license and/or maintenance and support services
under this Agreement, and the prices charged to such customer are lower
than the prices charged to Empire under this Agreement, the prices
charged to Empire shall be equitably adjusted to provide to Empire the
benefit of such lower prices. IBM shall, in good faith, compare charges
for such new customer's license to the charges under this Agreement
normalized on a "per member, per month" basis. Such adjustment shall be
retroactive to the first date on which the lower charges to such other
customer became effective. Within thirty (30) days after each anniversary
of the Effective Date during the Term thereafter, IBM's Contract
Executive shall certify in writing to Empire that IBM is in compliance
with this Section 16.12, and shall provide the information reasonably
requested by Empire to verify such compliance.
16.13 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 (and IBM may permit deNovis to) list Empire as a
customer and describe in general terms the services provided by IBM under
this Agreement in proposals and other marketing materials.
16.14 Service Marks.
Neither Party shall not, without the other Party's prior written consent,
use the name, service marks or trademarks of the other Party or, with
respect to IBM, the Blue Cross and Blue Shield Association, an
association of independent Blue Cross and Blue Shield Plans.
-45-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
16.15 Nonsolicitation of Employees.
During the Term of the Master Services Agreement: (a) Empire shall
neither solicit, directly or indirectly, nor hire IBM's employees engaged
in the performance of IBM's obligations under this Agreement, 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. The Parties acknowledge that
the restrictions provided in Sections 16.15(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.
16.16 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.
16.17 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 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.
16.18 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.
16.19 Relationship of the Parties.
IBM, in performing its obligations under this Agreement and furnishing
the maintenance and support 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.
-46-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
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.
16.20 Mutually Negotiated.
The Parties agree 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.
16.21 Effect of 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.
[Remainder of This Page Intentionally Left Blank.]
-47-
EMPIRE/IBM CONFIDENTIAL FINAL Version 13
IN WITNESS WHEREOF, Empire and IBM have caused this Software License
and Support Agreement to be executed by their duly authorized
representatives as of the Effective Date.
Empire HealthChoice, Inc. International Business Machines Corporation
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Xxxxxx
------------------------------ ------------------------------------
(Sign) (Sign)
Name: Xxxxxxx X. Xxxxxxx Name: Xxxxxx X. Xxxxxx
---------------------------- ------------------------------------
(Print) (Print)
Title: Chief Executive Officer Title: Vice President IBM Global Services
--------------------------- -----------------------------------
Executed solely to acknowledge its
agreement with respect to with
respect to Sections 3.2(e), 3.11(b),
4.7, 7.10, 13, 16.6 and Attachments
L and M: deNovis, Incorporated
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------
(Sign)
Name: Xxxxxxx X. Xxxxxx
----------------------------
(Print)
Title: Acting Chief Executive Officer
-------------------------------
-48-
