UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Twenty-Six Weeks Ended August 1, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-4844
ECKERD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0378122
(State of incorporation) (I.R.S. Employer Identification No.)
8333 Bryan Dairy Road
Largo, Florida 33777
(Address and zip code of principal executive offices)
(727) 395-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of August 31, 1998 the registrant had 100 shares of common stock outstanding.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT PROVIDED FOR IN GENERAL INSTRUCTION H TO FORM 10-Q.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ECKERD CORPORATION AND SUBSIDIARIES
(A wholly-owned subsidiary of J. C. Penney Company, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Unaudited Audited
8/1/98 1/31/98
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash (including short-term investments of $12,000 and $0) $ 54,254 24,883
Receivables 141,091 141,954
Merchandise inventories 1,234,502 1,290,708
Prepaid expenses and other current assets 5,820 4,995
--------- ---------
Total current assets 1,435,667 1,462,540
--------- ---------
Property and equipment, at cost 1,032,531 951,597
Less accumulated depreciation 415,973 384,630
--------- ---------
Net property and equipment 616,558 566,967
--------- ---------
Excess of cost over net assets acquired, less
accumulated amortization 132,616 123,962
Favorable lease interests, less accumulated amortization 71,804 82,918
Deferred income taxes 34,119 34,119
Due from affiliates 520,082 292,162
Other assets 70,488 57,412
--------- ---------
$2,881,334 2,620,080
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank debit balances $ 26,528 53,580
Current installments of long-term debt 16,898 16,898
Accounts payable 319,230 393,195
Accrued expenses 374,339 367,965
--------- ---------
Total current liabilities 736,995 831,638
--------- ---------
Other noncurrent liabilities 144,524 141,895
Long-term debt, excluding current installments 222,859 223,931
Intercompany loan payable to J. C. Penney Company, Inc. 1,440,000 1,155,000
Stockholder's equity:
Voting common stock of $.01 par value.
Authorized 1,000 shares; issued 100 - -
Capital in excess of par value 321,254 321,254
Retained equity (deficit) 15,702 (53,638)
--------- ---------
Total stockholder's equity 336,956 267,616
--------- ---------
$2,881,334 2,620,080
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
ECKERD CORPORATION AND SUBSIDIARIES
(A wholly-owned subsidiary of J. C. Penney Company, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Twenty-Six Twenty-Five
Thirteen Weeks Ended Weeks Ended Weeks Ended
------------------------- --------- ---------
8/1/98 7/26/97 8/1/98 7/26/97
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales and other operating revenue $1,638,594 1,427,782 3,375,440 2,809,420
--------- --------- --------- ---------
Costs and expenses:
Cost of sales, including store
occupancy, warehousing and
delivery expense 1,275,244 1,111,794 2,616,409 2,181,902
Operating and administrative expenses 299,965 250,100 602,359 480,199
--------- --------- --------- ---------
Earnings before interest expense 63,385 65,888 156,672 147,319
Interest expense:
Interest expense on intercompany loan
with J. C. Penney Company, Inc. 17,418 11,035 35,018 18,587
Interest expense, net 4,633 5,223 9,553 9,447
Amortization of original issue discount
and deferred debt expenses 132 134 263 269
--------- --------- --------- ---------
Total interest expense 22,183 16,392 44,834 28,303
--------- --------- --------- ---------
Earnings before income taxes 41,202 49,496 111,838 119,016
Income tax expense 15,657 14,849 42,499 36,116
--------- --------- --------- ---------
Net earnings $ 25,545 34,647 69,339 82,900
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
ECKERD CORPORATION AND SUBSIDIARIES
(A wholly-owned subsidiary of J. C. Penney Company, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Twenty-Six Weeks Twenty-Five Weeks
Ended 8/1/98 Ended 7/26/97
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 69,339 82,900
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 54,454 48,905
Amortization of original issue discount
and deferred debt expenses 263 269
Decrease (increase) in receivables, merchandise
inventories and prepaid expenses 60,821 (36,930)
(Decrease) increase in accounts payable and accrued expenses (62,729) 41,572
Increase in due from affiliate (227,919) (135,457)
-------- --------
Net cash provided by (used in) operating activities (105,771) 1,259
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (97,510) (66,503)
Sale of property, plant and equipment 7,816 2,712
Acquisition of certain drugstore assets (16,037) (78,050)
Other (16,003) 8,165
-------- --------
Net cash used in investing activities (121,734) (133,676)
-------- --------
Cash flows from financing activities:
(Decrease) increase in bank debit balances (27,052) 13,034
Additions to long-term debt - 22
Reductions of long-term debt (1,072) (32,854)
Net additions under intercompany note to J. C. Penney Company, Inc. 285,000 180,000
Redemption of 9.25% Senior Subordinated Notes - (1,327)
-------- --------
Net cash provided by financing activities 256,876 158,875
-------- --------
Net increase in cash and short-term investments 29,371 26,458
Cash and short-term investments at beginning of period 24,883 71,874
-------- --------
Cash and short-term investments at end of period $ 54,254 98,332
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
ECKERD CORPORATION AND SUBSIDIARIES
(A wholly-owned subsidiary of J. C. Penney Company, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
Note 1.
- -------
On November 2, 1996, the predecessor Eckerd Corporation ("Old Company") entered
into a definitive agreement to be acquired by Omega Acquisition Corporation
("Omega"), a wholly-owned subsidiary of J. C. Penney Company, Inc. ("JCPenney").
The aggregate transaction value, including the assumption of Old Company debt
and the cash out of certain outstanding Old Company employee stock options, was
approximately $3.3 billion. The transaction was effected through a two-step
process consisting of (i) a cash tender offer at $35.00 per share for 50.1% of
the outstanding common stock of the Old Company, which was completed in December
1996, and (ii) the February 27, 1997 exchange in which Old Company stockholders
received 0.6604 of a share of JCPenney common stock for each share of Old
Company common stock. After completing the acquisition of Old Company on
February 27, 1997, Omega changed its name to Eckerd Corporation (the "Company").
References to the Company regarding time periods prior to February 27, 1997 are
to the Old Company.
Note 2.
- -------
The interim condensed consolidated financial information is unaudited but, in
the opinion of the Company, includes all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation. The condensed
consolidated financial information should be read in conjunction with the
audited consolidated financial statements included in the Company's Annual
Report on Form 10-K405 for the 52 weeks ended January 31, 1998. The results of
operations of the periods indicated should not be considered as necessarily
indicative of operations for the full year. The Company also manages
approximately 850 drugstores which are indirectly wholly-owned by JCPenney and
operated under the Eckerd name. A management fee which is netted against
operating and administrative expenses totaling $20,372 and $18,873 for the
twenty-six and twenty-five week periods ended August 1, 1998 and July 26, 1997,
respectively, has been charged to affiliates. In addition, for the twenty-five
week period ended July 26, 1997, $19,586 of certain business integration
expenses were charged to affiliates. The results of the managed stores are not
included in the financial results of the Company. Prior to the acquisition, Old
Company's fiscal year ended the Saturday closest to January 31st each year. In
order to make its fiscal year end conform to that of JCPenney, the Company
changed its fiscal year end to the last Saturday in January of each year.
Accordingly, to conform to the JCPenney fiscal calendar, the first quarter of
fiscal year 1997 consisted of twelve weeks ended April 26, 1997 and the second
quarter consisted of thirteen weeks ended July 26, 1997 with a year-to-date
total of twenty-five weeks ended July 26, 1997.
Note 3.
- -------
Substantially all inventories are determined on a last-in, first-out (LIFO) cost
basis. At August 1, 1998 and January 31, 1998, inventories would have been
greater by approximately $140,400 and $128,900, respectively, if inventories
were valued on a first-in, first-out (FIFO) cost basis. Since LIFO inventory
costs can only be determined at the end of each fiscal year when inflation rates
and inventory levels are finalized, estimates of LIFO inventory costs are used
for interim financial statements. The cost of merchandise sold is calculated on
an estimated basis and adjusted based on inventories taken during the fiscal
year.
5
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
The following narrative analysis of the Company's results of operations is
presented pursuant to the reduced disclosure format provided for in General
Instruction H to Form 10-Q.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------------- ----------------------------
8/1/98 7/26/97 8/1/98 7/26/97
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales and other operating revenue $1,638,594 1,427,782 3,375,440 2,917,086
Costs of sales 1,275,244 1,111,794 2,616,409 2,266,143
Operating and administrative expenses 299,965 250,100 602,359 498,546
--------- --------- --------- ---------
Operating earnings 63,385 65,888 156,672 152,397
Total interest expense 22,183 16,392 44,834 29,311
--------- --------- --------- ---------
Earnings before income taxes 41,202 49,496 111,838 123,086
Income tax expense 15,657 14,849 42,499 36,922
--------- --------- --------- ---------
Net earnings $ 25,545 34,647 69,339 86,164
========= ========= ========= =========
</TABLE>
For comparative purposes only, the above Condensed Consolidated Statements of
Earnings and the following analysis of results of operations compares the
thirteen and twenty-six weeks ended August 1, 1998 to the thirteen and
twenty-six weeks ended July 26, 1997. As noted previously, as a result of the
change by the Company of its fiscal year, Item 1 Financial Information for 1997
is presented for the thirteen and twenty-five weeks ended July 26, 1997.
Sales and other operating revenue for the second quarter and twenty-six weeks
ended August 1, 1998 increased 14.8% and 15.7% over the 1997 comparable period
to $1.639 billion and $3.375 billion. Sales benefited from significant increases
in drugstore prescription sales as well as from increases in non-prescription
(front end) sales, increases from acquired Virginia drugstores, and increased
sales in relocated freestanding stores. Comparable drugstore sales (stores open
one year or more) increased 10.5% and 9.9% for the second quarter and twenty-six
week periods compared to a 9.3% and 8.6% increase in the respective 1997
periods. The increases in comparable drugstore sales were primarily attributable
to the increase in sales of prescription drugs as well as increased sales of
non-prescription items in the photo/electronics and health categories.
Prescription sales as a percentage of drugstore sales were 62.1% and 61.0%
compared to 57.8% and 57.6% for the comparable second quarter and twenty-six
week 1997 periods. The growth in prescription sales was primarily the result of
increased managed care prescription sales and prescription sales from the
acquired Virginia drugstores. Managed care prescription sales increased to 82.8%
and 82.4% of prescription sales compared to 78.7% and 78.5% in 1997. Managed
care payors typically negotiate lower prescription prices than those on
non-managed care prescriptions, resulting in decreasing gross profit margins on
prescription sales. However, contracts with managed care payors generally
6
increase the volume of prescription sales and gross profit dollars.
As a percentage of sales, cost of sales and related expenses were 77.8% and
77.5% for the second quarter and twenty-six weeks ended August 1, 1998 compared
to 77.9% and 77.7% for the 1997 comparable periods. During the second quarter,
the Company recorded charges to cost of sales of $26.1 million which were
incurred related to higher than expected shrinkage rates during the integration
process with JCPenney drugstores. Offsetting these losses, the Company received
$26.0 million from prescription price litigation settlements in the second
quarter. Cost of sales and related expenses are currently benefiting from a
slowing in the decline in prescription gross profit margins as well as
improvement in front end gross profit margins. The LIFO charge for twenty-six
weeks for 1998 was $11.4 million compared to $10.1 million for 1997.
Operating and administrative expenses for the second quarter (net of $11.7
million and $10.6 million of management fees in 1998 and 1997, respectively, and
$9.9 million of business integration costs in 1997 charged to affiliates), as a
percentage of sales was 18.3% compared to 17.5% in 1997. Operating and
administrative expenses for twenty-six weeks (net of $20.4 million of management
fees in both 1998 and 1997, respectively, and $19.6 million of business
integration costs in 1997 charged to affiliates), as a percentage of sales was
17.8% compared to 17.1% in 1997. The increase for both the second quarter and
twenty-six weeks as a percentage of sales resulted primarily from increased
costs as a percentage of sales in such expense categories as information
technology, including Year 2000 costs, depreciation, insurance and advertising
expenses.
Total interest expense for the 1998 second quarter and twenty-six weeks
increased 35.3% and 53.0% over 1997 to $22.2 million and $44.8 million,
including $17.4 million and $35.0 million of interest expense from intercompany
loans with JCPenney. The increase was due to higher average borrowings during
the twenty-six weeks and higher interest rates in the first quarter compared to
1997.
Operating earnings for the second quarter decreased to $63.4 million from $65.9
million in 1997 and for twenty-six weeks increased to $156.7 million from $152.4
million for the comparable period in 1997. Earnings before income taxes for the
second quarter and twenty-six weeks decreased to $41.2 million and $111.8
million from $49.5 million and $123.1 million for the comparable periods last
year.
Income tax expense for the 1998 second quarter and twenty-six weeks were $15.7
million and $42.5 million (38%) compared to $14.8 million and $36.9 million
(30%) in 1997. Income tax expense in both periods represent federal and state
income taxes. In addition, the 1997 periods included the use of alternative
minimum tax credits and other tax credit carryforwards.
Year 2000
The Year 2000 issue exists because many computer systems store and process dates
using only the last two digits of the year. Such systems, if not changed, may
interpret "00" as "1900" instead of the year "2000". The Company has been
7
working to identify and address Year 2000 issues since the later part of 1996.
The scope of this effort includes internally developed information technology
systems, purchased and leased software, embedded systems, and electronic data
interchange transaction processing.
During the first quarter of 1997, the Company formed a Year 2000 task force to
provide guidance to the Company's operating and support departments and to
monitor the progress of efforts to address Year 2000 issues.The Company has also
consulted with various third parties, including, but not limited to, outside
consultants, outside service providers, infrastructure suppliers, industry
groups, and other retail companies and associations to develop industrywide
approaches to the Year 2000 issue, to gain insights to problems, and to provide
additional perspectives on solutions. It is expected that compliance work will
be substantially completed by the end of 1998. Beginning in January 1999, all
systems critical to the Company's business will be retested. The Company has
also focused on the Year 2000 compliance status of its suppliers, and is
participating in a National Retail Federation survey of suppliers and service
providers to determine their Year 2000 readiness.
Despite the significant efforts to address Year 2000 concerns, the Company could
potentially experience disruptions to some of its operations, including those
resulting from noncompliant systems used by third party business and
governmental entities. The Company has developed contingency plans to address
potential Year 2000 disruptions. These plans include business continuity plans
that address accessibility and functionality of Company facilities as well as
steps to be taken if an event causes failure of a system critical to the
Company's core business activities.
Through August 1, 1998, the Company has incurred approximately $8 million to
achieve Year 2000 compliance. The Company's projected cost for Year 2000
remediation including capital expenditures is currently estimated to be $17.5
million. Total costs have not had, and are not expected to have, a material
impact on the Company's financial results.
New Accounting Rules
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which is effective for quarters beginning after June 15, 1999. The
Company has no derivative products.
The American Institute of Certified Public Accountants has issued Statements of
Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" and No. 98-5, "Reporting on the Costs of
Start-up Activities." The new accounting rules, which have been adopted, do not
have a material impact on the Company.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Company's independent public accountants have made a limited review of the
financial information furnished herein in accordance with standards established
by the American Institute of Certified Public Accountants. The Independent
Auditors' Review Report is presented on page 9 of this report.
8
Independent Auditors' Review Report
-----------------------------------
The Board of Directors
Eckerd Corporation:
We have reviewed the condensed consolidated balance sheet of Eckerd Corporation
and subsidiaries (a wholly-owned subsidiary of J. C. Penney Company, Inc.) as of
August 1, 1998, and the related condensed consolidated statements of earnings
and cash flows for the thirteen and twenty-six weeks ended August 1, 1998 and
the thirteen and twenty-five weeks ended July 26, 1997. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Eckerd Corporation and subsidiaries
(a wholly-owned subsidiary of J. C. Penney Company, Inc.) as of January 31,
1998, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the year then ended (not presented herein); and in our report
dated February 26, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of January 31, 1998, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ KPMG PEAT MARWICK LLP
September 15, 1998
9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Systems Operations Services Agreement dated as of
March 23, 1998 between the Company and IBM Global Services US Division
of International Business Machines Corporation.
15.1 Letter re unaudited interim financial information.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the thirteen weeks
ended August 1, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECKERD CORPORATION
(Registrant)
September 15, 1998
/s/ Samuel G. Wright
---------------------
Samuel G. Wright
Executive Vice President/
Chief Financial Officer
(Principal Accounting Officer)
10
Exhibit Index
Eckerd Corporation
Form 10-Q
Exhibit No. Description of Exhibit
- ----------- ----------------------
10.1 Amended and Restated Systems Operations Services
Agreement dated as of March 23, 1998 between the Company
and IBM Global Services US Division of International
Business Machines Corporation.
15.1 Letter re unaudited interim financial information
27 Financial Data Schedule
11
EXHIBIT 10.1
Amended and Restated Systems Operations
Services Agreement
Between
Eckerd Corporation
and
IBM Global Services US Division of
International Business Machines Corporation
Dated as of March 23, 1998
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS..................................................6
ARTICLE 2 TERM.........................................................10
ARTICLE 3 PROVISION OF THE DESIGNATED SERVICES.........................10
3.01 Designated Services...............................................10
3.02 Service Locations.................................................10
3.03 Security and Related Procedures...................................11
3.04 Migration Services................................................11
3.05 Client/Server Environment.........................................12
3.06 Machines..........................................................12
3.07 Replacements......................................................13
3.08 Machine Maintenance...............................................13
3.09 New Releases and Versions of the Software.........................13
3.10 Software Maintenance..............................................14
3.11 Consolidation, Installation and Relocation........................15
3.12 Systems Management................................................15
3.13 Help Desk.........................................................15
3.14 VSAT Data Network.................................................16
3.15 Data Services.....................................................17
3.16 Field Support Services............................................18
3.17 Office Automation.................................................18
3.18 New, Replacement or Eliminated Software...........................19
3.19 Consultation Services.............................................19
ARTICLE 4 APPLICATION DEVELOPMENT......................................19
4.01 Application Development...........................................19
4.02 Provision of AD FTEs..............................................19
4.03 AD FTE Consumption................................................20
4.04 Additional Application Development................................20
4.05 Reduction to AD FTE Baseline......................................20
ARTICLE 5 PROJECTS.....................................................21
5.01 Project Management................................................21
5.02 Project Implementation............................................21
5.03 Technology Refresh................................................21
ARTICLE 6 NEW SERVICES.................................................21
6.01 New Services......................................................21
6.02 Third Party Services..............................................22
ARTICLE 7 PERFORMANCE STANDARDS........................................22
7.01 Designated Performance Standards..................................22
7.02 New Performance Standards.........................................22
7.03 Adjustment of Performance.........................................23
7.04 Root-Cause Analysis...............................................23
ARTICLE 8 PROJECT TEAM.................................................23
8.01 Joint Advisory Committee..........................................23
8.02 IBMGS-US Project Executive........................................23
8.03 Key Employees.....................................................24
8.04 IBMGS-US Project Executive Staff..................................24
8.05 Project Staff.....................................................24
8.06 Subcontractors....................................................24
8.07 Managerial Control................................................25
8.08 Non-Competition...................................................25
ARTICLE 9 MANAGEMENT AND CONTROL.......................................25
9.01 Procedures Manual.................................................25
9.02 Change Control Procedures.........................................25
ARTICLE 10 ECKERD RESOURCES.............................................26
10.01 Eckerd Resources..................................................26
10.02 Eckerd Leased Assets and Eckerd Services Contracts................26
10.03 Eckerd Third Party Software.......................................26
10.04 Eckerd Data Network...............................................27
10.05 Moves, Adds and Changes...........................................27
10.06 Modification, Extension and Termination of Third Party Agreements.28
10.07 Failure to Obtain Consents or to Provide Resources................28
10.08 Appointment of Agent..............................................28
10.09 Additional Agreements.............................................28
10.10 Eckerd Help Desk..................................................28
10.11 Additional Equipment..............................................29
ARTICLE 11 ECKERD OBLIGATIONS...........................................29
11.01 Eckerd IS Executive...............................................29
11.02 Eckerd Facilities and Related Services............................29
11.03 Eckerd Machines...................................................30
11.04 Application Information Requirements..............................30
11.05 Voice Communication Services......................................30
11.06 Retained Resources................................................30
ARTICLE 12 SOFTWARE AND PROPRIETARY RIGHTS..............................31
12.01 Eckerd Software...................................................31
12.02 Developed Software................................................31
12.03 IBMGS-US Software.................................................32
12.04 IBMGS-US License..................................................32
12.05 Changes and Upgrades to Software..................................32
12.06 Access to AD/M Tools and Methodologies............................33
ARTICLE 13 CONSENTS....................................................33
ARTICLE 14 DATA AND REPORTS............................................33
14.01 Ownership of Eckerd Data..........................................33
14.02 Correction of Errors..............................................33
14.03 Return of Data....................................................34
14.04 Reports...........................................................34
ARTICLE 15 DATA AND SOURCE CODE TAPES..................................34
ARTICLE 16 CONTINUED PROVISION OF SERVICES.............................34
16.01 Disaster Recovery Plan............................................34
16.02 Force Majeure.....................................................35
ARTICLE 17 PAYMENTS TO IBMGS-US........................................36
17.01 Annual Services Charges...........................................36
17.02 New Services Fees.................................................36
17.03 Additional Resource Charges and Reduced Resource Charges..........36
17.04 Cost of Living Adjustment.........................................36
17.05 Significant Business Changes and New Entities.....................38
17.06 Extraordinary Decrease in Eckerd Work.............................38
17.07 Payment Schedule..................................................39
17.08 Taxes.............................................................39
17.09 Expenses..........................................................40
17.10 Proration.........................................................40
17.11 Rights of Set-Off.................................................40
17.12 Refundable Items..................................................40
17.13 Purchasing-Consideration..........................................41
17.14 Lexington Baseline Adjustment.....................................41
17.15 IBM Help Desk Baseline Adjustment.................................42
17.16 Field Services Baseline Adjustment................................42
17.17 Technology Improvements...........................................43
ARTICLE 18 AUDITS......................................................43
18.01 Audit of Processing...............................................43
18.02 Audit of Charges..................................................43
18.03 IBMGS-US Audit....................................................44
ARTICLE 19 CONFIDENTIALITY.............................................44
19.01 Confidential Information..........................................44
19.02 Unauthorized Acts.................................................45
19.03 Action by IBMGS-US................................................45
ARTICLE 20 REPRESENTATIONS AND WARRANTIES..............................45
20.01 By Eckerd.........................................................45
20.02 By IBMGS-US.......................................................46
20.03 Disclaimer........................................................46
ARTICLE 21 JOINT ADVISORY COMMITTEE AND DISPUTE RESOLUTION.............46
21.01 Joint Advisory Committee..........................................46
21.02 Dispute Resolution................................................47
21.03 Continued Performance.............................................47
ARTICLE 22 TERMINATION.................................................47
22.01 Termination for Convenience.......................................47
22.02 Termination for Cause.............................................47
22.03 Termination for Failure to Provide the Services...................48
22.04 Other Terminations................................................48
22.05 Effect of Expiration or Terminations..............................48
22.06 Client/Server.....................................................49
22.07 Termination for Change of Control.................................49
ARTICLE 23 TERMINATION FEE.............................................50
23.01 Termination for Convenience.......................................50
23.02 Technology Improvements...........................................50
23.03 No Additional Fees................................................50
23.04 Termination for Change of Control.................................51
23.05 Proration.........................................................51
ARTICLE 24 TERMINATION ASSISTANCE......................................51
ARTICLE 25 INDEMNITIES.................................................52
25.01 Indemnity by Eckerd...............................................52
25.02 Indemnity by IBMGS-US.............................................52
25.03 Indemnity and Contribution........................................53
25.04 Indemnification Procedures........................................53
ARTICLE 26 DAMAGES.....................................................54
26.01 Consequential Damages.............................................54
26.02 Credits...........................................................54
26.03 Limitation of Direct Damages......................................54
26.04 Exclusion.........................................................54
26.05 Remedies..........................................................55
ARTICLE 27 MISCELLANEOUS...............................................55
27.01 Assignment........................................................55
27.02 Notices...........................................................55
27.03 Counterparts......................................................56
27.04 Headings..........................................................56
27.05 Relationship......................................................56
27.06 Consents, Approvals and Requests..................................56
27.07 Severability......................................................57
27.08 Waiver............................................................57
27.09 Publicity.........................................................57
27.10 Entire Agreement..................................................57
27.11 Amendments........................................................57
27.12 Governing Law.....................................................57
27.13 Survival..........................................................57
27.14 Third Party Beneficiaries.........................................58
27.15 Insurance.........................................................58
27.16 Covenant of Further Assurances....................................58
27.17 Hiring of Employees...............................................58
27.18 EDI...............................................................59
27.19 Construction......................................................59
27.20 Interpretation of Documents.......................................59
THIS AMENDED AND RESTATED SYSTEMS OPERATIONS SERVICES
AGREEMENT (this "Agreement"), dated as of March 23, 1998 (the "Agreement
Date"), by and between ECKERD CORPORATION, a Delaware corporation, with an
office at 8333 Bryan Dairy Road, Largo, Florida 33777 ("Eckerd") and IBM
Global Services US Division of International Business Machines Corporation,
with an office at Route 100, Somers, NY 10589 ("IBMGS-US") amends and restates
in its entirety that certain Systems Operations Services Agreement between
Jack Eckerd Corporation and Integrated Systems Solutions Corporation, dated as
of July 1, 1993 (the "Original Agreement"). Eckerd is the
successor-in-interest to Jack Eckerd Corporation and IBMGS-US is the
successor-in-interest to Integrated Systems Solutions Corporation.
W I T N E S S E T H:
WHEREAS, pursuant to the Original Agreement Eckerd has been
obtaining from IBMGS-US, and IBMGS-US has been providing to Eckerd, the
systems operations and related services described in the Original Agreement on
the terms and conditions set forth in the Original Agreement,
WHEREAS, Eckerd and IBMGS-US now desire to amend and restate
the Original Agreement in its entirety to reflect certain agreements between
Eckerd and IBMGS-US in respect of such services and such terms and conditions-
and
WHEREAS, IBMGS-US intends to perform the services described in
this Agreement so as to meet the ongoing needs and requirements of Eckerd as
described in this Agreement and to reflect appropriate new technologies for
providing such services.
NOW, THEREFORE, for and in consideration of the agreements of
the parties set forth below, Eckerd and IBMGS-US (collectively, the "Parties";
each, a "Party") agree as follows:
ARTICLE 1 DEFINITIONS.
The following defined terms shall have the meanings specified in the portion of
the Agreement indicated below:
TERM DEFINED IN
Actual Inflation Section 17.4
AD FTE ARC Rate Schedule J
AD FTE Base Rate Section 4.03
AD FTE Baseline Section 4.02
AD FTE RRC Rate Schedule J
AD FTEs Section 4.01
AD Services Section 4.01
ADIM Services Section 4.01
Affiliate Section 3.04
Agreement Heading
Agreement Date Heading
AM FTE ARC Rate Schedule J
AM FTE Baseline Section 3.10
AM FTE RRC Rate Schedule J
AM FTEs Schedule J
AM Services Section 3.10
Annual Services Charges Section 17.01
Applicable CPI-U Section 17.04
Application(s) Section 3.09
Application Development Services Section 4.01
Application Maintenance Services Section 3.10
ARCs Section 17.03
Change Control Procedures Section 9.02
Change In Control Section 22.07
Change(s) Section 9.02
Claim Section 25.04
Client/Server Environment Section 3.05
COLA Section 17.04
Commencement Date Article 2
Confidential Information Section 19.01
Consents Article 13
Contract Year Article 2
Corporate Campus Section 3.17
CPI-U Section 17.04
Credit(s) Section 26.02
Critical Applications Section 16.01
DASD Section 17.04
Data Center(s) Section 3.02
Data Tapes Article 15
Data Transmission Equipment Section 10.04
Depot Services Section 3.16
Designated Performance Standard(s) Section 7.01
Designated Services Section 3.01
Developed Software Section 12.02
Direct Damages Cap Section 26.03
Disaster Section 16.01
Disaster Recovery Plan Article 16.01
Distribution Centers Section 3.02
Eckerd Heading
Eckerd Consents Article 13
Eckerd Data Section 14.01
Eckerd Data Network Section 10.04
Eckerd Help Desk Section 10.10
Eckerd IS Executive Section 11.01
Eckerd Leased Assets Section 10.02
Eckerd Machines Section 3.06
Eckerd Proprietary Software Section 12.01
Eckerd Resource(s) Section 10.01
Eckerd Service Locations Section 3.02
Eckerd Services Contracts Section 10.02
Eckerd Software Section 12.01
Eckerd Third Party Software Section 12.01
Eckerd Third Party Software Licenses Section 10.03
End-User Machines Section 11.06
End-User Software Section 11.06
End-Users Section 11.06
Extension Period Article 2
Fees Section 17.07
Field Support Services Section 3.16
Force Majeure Event Section 16.02
FTE Schedule J
Help Desk Adjusted Baseline Section 17.15
Help Desk Services Section 3.13
Indemnified Party Section 25.04
Indemnifying Party Section 25.04
Inflation Sensitivity Section 17.04
Initial Term Article 2
IBMGS-US Heading
IBMGS-US Consents Article 13
IBMGS-US Help Desk Section 3.13
IBMGS-US Machines Section 3.06
IBMGS-US Project Executive Section 8.02
IBMGS-US Proprietary Software Section 12.03
IBMGS-US Service Locations Section 3.02
IBMGS-US Software Section 12.03
IBMGS-US Third Party Software Section 12.03
IVO Section 17.13
Joint Advisory Committee Section 8.01
Key Employee(s) Section 8.03
Largo Data Center Section 10.11
Largo Data Center Resource Baseline Schedule J
Lexington Adjusted Baseline Section 17.14
Lexington Data Center Section 3.04
Lexington Y2K Resources Section 17.14
Level 2 Support Schedule E
Machines Section 3.06
Migration Plan Section 3.04
New Application(s) Section 6.01
New Performance Standards Section 7.02
New Service(s) Section 6.01
New Services Fees Section 6.01
New Services Work Order Section 6.01
OA Schedule E
OA End User Blocks Schedule J
OA Services Section 3.17
Original Agreement Heading
Party(ies) Recitals
Performance Standards Section 7.02
Planned Store Activity Section 17.05
Procedures Manual Section 9.01
Project Executives Section 8.01
Project Staff Section 8.05
Protected Inflation Section 17.04
Protection Index Section 17.04
Ramp Down Period Section 10.10
Reassignment Waiver(s) Section 8.02
Refresh Buyout Section 5.03
Report(s) Section 14.04
Resource Baseline(s) Section 17.03
Retail Consultant Section 3.19
Retained Resources Section 11.06
RRCs Section 17.03
Service Locations Section 3.02
Services Section 6.01
Software Section 12.05
Source Code Tapes Article 15
SSR Section 3.16
Standard Desktop Configuration Section 3.17
Standard Desktop Software Section 3.09
Store(s) Section 3.02
Store System Support Services Section 3.16
Systems Section 3.12
Systems Software Section 3.09
Tape Mount Schedule J
Technology Review Section 17.17
Term Article 2
Termination Assistance Period Article 24
Termination Assistance Services Article 24
Termination Fee Section 23.01
VSAT Data Network Section 3.14
VSAT Per Store Termination Charges Section 3.14
VSAT Termination Fee Section 23.1
ARTICLE 2 TERM.
The initial term of this Agreement shall commence on January 1, 1998 (the
"Commencement Date") and shall continue until 12:00 midnight EST on June 30,
2003, unless terminated earlier pursuant to Article 22 (the "Initial Term").
IBMGS-US shall notify Eckerd pursuant to this Article 2 on or before December
31, 2001 as to whether IBMGS-US desires to renew this Agreement. If IBMGS-US
provides Eckerd with notice pursuant to this Article 2 of its desire not to
renew this Agreement, this Agreement shall expire at the end of the Initial
Term. If IBMGS-US provides Eckerd with notice pursuant to this Article 2 of its
desire to renew this Agreement, Eckerd shall provide IBMGS-US with notice on or
before June 30, 2002 as to whether Eckerd desires to renew this Agreement. If
Eckerd provides IBMGS-US notice pursuant to this Article 2 of its desire not to
renew this Agreement, this Agreement shall expire at the end of the Initial
Term. If (1) Eckerd provides IBMGS-US with notice pursuant to this Article 2
that Eckerd desires to renew this Agreement and (2) Eckerd and IBMGS-US have not
agreed on the applicable terms and conditions in respect of the renewal of this
Agreement on or before December 31, 2002, this Agreement shall automatically
renew for up to one additional year (as may be specified by Eckerd upon at least
60 days' notice to IBMGS-US) (the "Extension Period") on the terms and
conditions set forth in this Agreement; provided, however, that the Fees in
effect during the Extension Period shall be the Fees in effect during the last
Contract Year of the Initial Term (including COLA as described in Section 17.04)
and as may be adjusted pursuant to Section 17.03. Subject to a Reassignment
Waiver, IBMGS-US shall use its best efforts during the Extension Period to
maintain the composition and levels of the Project Staff with the composition
and levels of the Project Staff in effect during the last Contract Year of the
Initial Term. If during the Extension Period, Eckerd and IBMGS-US are unable to
reach agreement on the terms and conditions that will apply during the renewal
period, this Agreement shall expire at the end of the Extension Period. (The
Initial Term and the Extension Period collectively, the "Term".) (The 12-month
period commencing on the Commencement Date or on any anniversary of the
Commencement Date during the Term and the final six-month period of the Initial
Term, each, a "Contract Year".) As of the Commencement Date, the Original
Agreement shall be amended and restated in its entirety by this Agreement.
ARTICLE 3 PROVISION OF THE DESIGNATED SERVICES.
3.01 Designated Services.
Commencing on the Commencement Date and continuing throughout the Term, IBMGS-US
shall provide to Eckerd the systems operations and related services (1)
described in Schedule E and (2) otherwise identified in this Agreement as being
part of the Designated Services ((1) and (2) collectively, the "Designated
Services"). Subject to Section 17.03, IBMGS-US shall increase or decrease the
amount of the Designated Services according to Eckerd's demand for the
Designated Services.
3.02 Service Locations.
The Designated Services shall be provided from (1) the IBMGS-US data centers and
locations described in Schedule I (the "IBMGS-US Service Locations"), (2) the
data centers and locations of Eckerd and its Affiliates described in Schedule I
(the "Eckerd Service Locations"), including (a) the retail locations owned or
operated by Eckerd or its Affiliates as an "Eckerd" store (each, a "Store";
collectively, the "Stores") and (b) the warehouses and distribution centers
supporting or servicing the Stores (collectively, the "Distribution Centers")
and (3) any other data center or location designated by IBMGS-US or Eckerd upon
notice to the other Party; provided, however, that any other such data center or
location must be approved by Eckerd if the migration of any of the Services to
such other data center or location would result in incremental costs to Eckerd
or have an adverse impact on Eckerd's operations ((1), (2) and (3) collectively,
the "Service Locations"). (The IBMGS-US data centers and the Eckerd data centers
described in this Section 3.02 collectively, the "Data Centers"; each, a "Data
Center".) Notwithstanding the foregoing, IBMGS-US may not relocate the Largo
Data Center without Eckerd's prior consent.
3.03 Security and Related Procedures.
Each of the Parties shall perform its security obligations as set forth in
Schedule L. As part of the Designated Services, IBMGS-US shall maintain and
enforce at the IBMGS-US Service Locations (1) operational environmental, safety
and facility security procedures with respect to IBMGS-US's employees,
subcontractors and agents that are at least as rigorous as those procedures in
effect at the IBMGS-US Service Locations as of the Commencement Date and (2)
data security procedures that are at least as rigorous as those data security
procedures in effect at the IBMGS-US Service Locations as of the Commencement
Date.
3.04 Migration Services.
(1) Subject to Section 3.04(2), in the event Eckerd wishes IBMGS-US to
perform data center migration services, such services will be
considered New Services.
(2) Eckerd may, at any time after the Commencement Date, elect to migrate
the mainframe processing then being provided by IBMGS-US from
IBMGS-US's Lexington, Kentucky data center (the "Lexington Data
Center") or any other Service Location from which the mainframe
processing is then being provided to an Eckerd or Eckerd Affiliate data
center designated by Eckerd. If Eckerd desires to exercise such
election, Eckerd shall give IBMGS-US notice thereof. Upon receipt of
such notice and subject to Section 6.01, IBMGS-US shall develop and
provide to Eckerd for its approval a migration plan (the "Migration
Plan") no later than three (3) months after such notice in respect of
such migration. The Migration Plan will identify each Party's
respective responsibilities, timeframes and schedules. Upon Eckerd's
approval of the Migration Plan, IBMGS-US will provide a proposed New
Services Work Order which incorporates the approved Migration Plan in
respect of IBMGS-US's execution of the Migration Plan . Upon execution
of such New Services Work Order by the Parties each of the Parties
shall perform its responsibilities as set forth in the New Services
Work Order. In the case of a migration which will mirror the Lexington
Data Center environment, IBMGS-US shall complete such migration within
one year of notice by Eckerd of its desire to migrate pursuant to this
Section 3.04(2). In case the desired migration will not mirror the
Lexington Data Center environment, IBMGS-US shall use best commercial
efforts to complete such migration within such one year period.
Commencing on the date that the migration from the Lexington Data
Center to the designated Eckerd or Eckerd Affiliate data center is
complete, IBMGS-US shall reduce the Annual Services Charge by an amount
equal to 90 percent of the then current Lexington Data Center Base
Charges for each Contract Year, or portion thereof, during the
remainder of the Term.
(3) If as a result of any migration described in Section 3.04(2) or Section
17.14(3), the number of IBMGS-US FTEs at the Corporate Campus required
by IBMGS-US to perform the Services is reduced, IBMGS-US will, at
Eckerd's option, either (a) provide to Eckerd an additional number of
AM FTEs with salaries and benefits equivalent to the cost of the
salaries and benefits of the FTEs so reduced and apply such additional
AM FTEs against the AM FTE Baseline or (b) provide to Eckerd an RRC for
such reduced FTEs equal to the cost of such salaries and benefits and
Eckerd shall be responsible for any reasonable out of pocket expenses
actually incurred by IBMGS-US in connection with the transfer or
relocation of any full time employees for which such RRC is provided;
provided, however, that such actual expenses for all such full time
employees reduced in connection with any single event giving rise to
reduction in the number of such full time employees shall not exceed,
on the average, $36,000 per full time employee.
(4) "Affiliate" means, with respect to a Party, any entity at a time
controlling, controlled by or under common control with, such Party.
3.05 Client/Server Environment.
As part of the Designated Services, IBMGS-US shall maintain and document
enterprise wide hardware, software, application and data architectures for
Eckerd's client/server environment (the "Client/Server Environment"). IBMGS-US
shall, subject to the Performance Standards, provide the Services to Eckerd at a
technological level that will maintain the integrity of the Client/Server
Environment. The Joint Advisory Committee shall meet at least once every
Contract Year to assess the continued integrity of the Client/Server
Environment. If the Joint Advisory Committee determines that there is a concern
regarding the continued integrity of the Client/Server Environment, the Joint
Advisory Committee shall direct IBMGS-US to modify the Client/Server Environment
in a manner specified by the Joint Advisory Committee.
3.06 Machines.
IBMGS-US shall provide the Designated Services using those machines which are
(1) located at the Service Locations or are otherwise part of the VSAT Data
Network, (2) part of the Client/Server Environment and (3) either (a) provided
by IBMGS-US, or for which IBMGS-US assumes financial and administrative
responsibility, on or after the Commencement Date, such machines as of the
Commencement Date being set forth in Schedule D (the "IBMGS-US Machines") or (b)
owned or leased by Eckerd on or after, or for which Eckerd retains financial and
administrative responsibility on or after, the Commencement Date, such machines
as of the Commencement Date being set forth in Schedule C (together with the
End-User Machines as set forth in Schedule S, the "Eckerd Machines"). (The
IBMGS-US Machines and the Eckerd Machines collectively the "Machines".)
3.07 Replacements.
As part of the Designated Services, IBMGS-US shall, upon notice to Eckerd,
replace and provide additional Machines as may be necessary for IBMGS-US to
perform the Services in accordance with the Performance Standards. IBMGS-US
shall (a) be financially responsible for those replacements of IBMGS-US Machines
required for IBMGS-US to provide the Largo Data Center CPU Resource Baseline as
set forth in the Supplement as such Baseline may be adjusted from time to time
pursuant to this Agreement and (b) retain all title and interest in such
replacements, which shall be considered IBMGS-US Machines for purposes of this
Agreement. Eckerd shall (i) have the right to approve the replacement of any
Eckerd Machines, (ii) be financially responsible for such approved replacements,
and (iii) retain all title and interest in such approved replacements, which
shall be considered Eckerd Machines for purposes of this Agreement. In the event
that Eckerd does not approve the replacement of any Eckerd Machine, then
IBMGS-US shall be excused from any failure to meet the applicable Performance
Standards occurring after Eckerd's disapproval to the extent such failure is
caused by such Eckerd Machine not being replaced as requested by IBMGS-US.
3.08 Machine Maintenance.
As part of the Designated Services, IBMGS-US shall provide to Eckerd (1)
maintenance and support services, including upgrades (which upgrades in respect
of Eckerd Machines will be at Eckerd's expense), as necessary for IBMGS-US to
perform the Services in accordance with the Performance Standards for the
Machines (except for the End-User Machines and the Data Transmission Equipment),
(2) maintenance and support services as necessary for IBMGS-US to perform the
Services in accordance with the Performance Standards for the End-User Machines
listed in Schedule S in accordance with the procedures set forth in Schedule P,
and (3) support services for the VSAT Data Network by operating a network
control center which (a) provides alarm monitoring, trouble analysis and problem
recording, (b) places service calls to perform corrective maintenance, (c)
provides vendor performance analysis and (d) manages trouble reports to
resolution.
3.09 New Releases and Versions of the Software.
(1) As part of the Designated Services, IBMGS-US shall, after sufficient
testing, install on the Machines and maintain new releases of the
operating systems software set forth in Schedule B (the "Systems
Software") after such release is commercially available according to a
schedule to be agreed upon by Eckerd and IBMGS-US, but in no event
later than one year from the date such release is commercially
available. IBMGS-US shall (a) not install any new release or version of
the Systems Software that is a first installation or beta release
without Eckerd's consent and (b) install any new release or version of
the Systems Software within the time period specified by any regulatory
agency for the installation of such new release or version. In the
event either Party requests the other Party to delay upgrading specific
Systems Software beyond such one-year period or to operate or maintain
multiple versions of Systems Software, the other Party shall do so,
provided, that if such Party (i) is prevented from taking economic or
performance advantage of technological advancements in the industry, or
(ii) incurs additional costs (e.g., Software-support costs due to
withdrawal of maintenance by the licensor, multiple-version charges,
etc.), then the requesting Party will either update the Systems
Software to the current level or reimburse the other Party for any
increased costs incurred as a result thereof. If IBMGS-US is the Party
requesting such delay, then IBMGS-US shall continue to perform the
Services in accordance with the applicable Performance Standards. If
Eckerd is the Party requesting such delay, IBMGS-US shall be excused
from any failure to meet the applicable Performance Standards occurring
after such one-year period and until such upgrade is so installed to
the extent such failure is caused by such upgrade not being installed
within such one-year period.
(2) IBMGS-US shall not be obligated to make available to Eckerd any new
releases or versions of the End-User Software. IBMGS-US shall not be
obligated to make available to Eckerd (a) any new releases or versions
of the standard desktop configuration software set forth in Schedule
K(the "Standard Desktop Software") (unless such new release or version
is provided as part of the maintenance support included in the
applicable vendor's charges) or (b) new versions of the applications
software included within the Software, (collectively, the
"Applications"; each, an "Application"). Applications identified by the
Parties as being supported by IBMGS-US as of the Commencement Date are
set forth in Schedule A. Prior to January 1, 1999, the Parties shall
jointly verify and update Schedule A to accurately reflect all
Applications supported by IBMGS-US as of the Commencement Date.
3.10 Software Maintenance.
(1) As part of the Designated Services, IBMGS-US shall provide Eckerd with
(1) Systems Software maintenance and Systems production support
services as described in Schedule E and (2) Applications maintenance
and Applications production support services (except for the End-User
Applications described in Schedule A) at the staffing levels specified
in Schedule J in respect of such Applications maintenance and
Applications production support services (the "Application Maintenance
Services" or "AM Services"). IBMGS-US shall achieve the staffing levels
specified in the Supplement for AM FTEs (the "AM FTE Baseline") no
later than March 1, 1998. The Applications Maintenance Services shall
include (a) minor changes and enhancements to the Software not to
exceed 176 hours of work per such change or enhancement, (b) immediate
preventive and corrective maintenance to correct defects and failures
in the Software, (c) changes to support the day-to-day operations of
Eckerd's business as may be agreed to by Eckerd and IBMGS-US, (d)
replacements of the Software or additional Software, as IBMGS-US deems
necessary in order to perform the Services in accordance with the
Performance Standards, (e) handling all requests and inquiries with
respect to the Software, (f) maintaining all Application package
software (except for the End-User Software unless installed by
IBMGS-US) at a level supported by the vendor of such Application
package software, (g) changes to the Applications necessary to comply
with any rule, regulation or law of any Federal, state or local agency,
(h) installation of new releases and/or versions of Applications, and
(i) necessary application-related inquiries. The Application
Maintenance Services shall not be credited towards or attributed to any
AD FTE calculations or AD FTE Baselines.
(2) After the Commencement Date and upon agreement of the Parties,
Application Maintenance Services for software packages which either are
or become Applications will be provided by the IBMGS-US AM staff and
applied against the AM FTE Baseline.
(3) In the event that maintenance support for Software is provided by the
vendor of such Software and Eckerd desires to terminate such vendor
support, IBMGS-US will provide to Eckerd a credit in the amount equal
to the amounts paid by IBMGS-US for such vendor maintenance support.
(4) During the Term and by giving IBMGS-US six months prior notice, Eckerd
may, at its option, from time to time, decrease the Application
Maintenance FTE Baseline to no less than 31 AM FTES. Each time Eckerd
elects to exercise this option (i) the Parties shall review such
reduction and identify the areas to be affected, (ii) IBMGS-US will
identify the level of impact in each of the affected areas, (iii)
IBMGS-US shall be excused from any failure to meet the applicable
Performance Standards occurring after such decrease is implemented and
until the Parties revise such Performance Standards to reflect such
reduction to the extent such failure is caused by such reduction, and
(iv) IBMGS-US shall provide to Eckerd an RRC in an amount equal to the
AM FTE ARC Rate multiplied by the number of AM FTEs reduced.
3.11 Consolidation, Installation and Relocation.
Subject to Section 3.02, upon reasonable notice to Eckerd, IBMGS-US may
consolidate, install and/or relocate equipment in the Eckerd Service Locations
as IBMGS-US deems necessary in order to perform the Services in accordance with
the Performance Standards; provided, however, that (1) any such consolidation,
installation and relocation shall not (a) cause a disruption of Eckerd's
information technology operations and capabilities, or business or (b) degrade
the Performance Standards or the integrity of the Client/Server Environment for
which IBMGS-US is responsible and (2) IBMGS-US abides by the security, safety
and facility rules and regulations, or obligations in effect at such Eckerd
Service Locations at the time of any such consolidation, installation and/or
relocation.
3.12 Systems Management.
As part of the Designated Services, IBMGS-US shall be responsible for (1) the
management services described in Schedule E in respect of the Software and the
Machines (collectively, the "Systems") and (2) creating and maintaining an
inventory and configuration diagram of the VSAT Data Network equipment,
including satellite dishes, communications controllers, and multiplexors.
IBMGS-US shall provide to Eckerd (a) once every three-month period during the
Term and (b) upon revision of such diagram a copy of the inventory and
configuration diagram of the VSAT Data Network.
3.13 Help Desk.
As part of the Designated Services, IBMGS-US shall staff and maintain at the
Corporate Campus a help desk dedicated to Eckerd to provide store technical
support of a "non-procedural" nature (e.g., Level 2 Support as described in
Schedule E) to all End-Users in accordance with Schedule E (the "IBMGS-US Help
Desk") and to assist all End-Users in determining, tracking and resolving
questions regarding the Systems, Systems status and changes to the Systems (the
"Help Desk Services"). In the event Eckerd requests IBMGS-US to relocate the
IBMGS-US Help Desk, the costs associated with such relocation shall be the
responsibility of Eckerd, unless otherwise agreed by the Parties. In the event
IBMGS-US, upon Eckerd's prior approval, decides to relocate the IBMGS-US Help
Desk, the costs associated with such relocation shall be the responsibility of
IBMGS-US, unless otherwise agreed by the Parties. IBMGS-US shall provide to
Eckerd, once every 30 days after the Commencement Date, a report of all Help
Desk Services provided during the preceding 30-day period.
3.14 VSAT Data Network.
(1) As part of the Designated Services and in accordance with Exhibit 1 to
Schedule E, IBMGS-US shall design, implement, manage, and maintain all
the Machines, associated attachments, features and accessories,
Software, lines and cabling, including (i) lines, (ii) interface and
transmission equipment, and (iii) satellite or circuit capacity used to
connect and transmit data between the Lexington Data Center and the
Service Locations listed in Schedule I which are identified as
requiring VSAT Data Network connectivity (the "VSAT Data Network").
(2) Upon Eckerd's approval, IBMGS-US shall arrange for or obtain
replacements, upgrades or additions for the VSAT Data Network. All such
replacements, upgrades or additions (other than those replacements,
upgrades or additions resulting from maintenance by IBMGS-US in the
course of normal operations pursuant to this Agreement), together with
any other changes to the VSAT Data Network requested by Eckerd, shall
be deemed New Services in accordance with Section 6.01. In the event
that (i) IBMGS-US makes such a request in order to continue to provide
the Services in accordance with the Performance Standards, (ii) such
request is the result of a change in the amount or method of delivery
of the Services, and (iii) Eckerd withholds its approval, IBMGS-US
shall be excused from any failure to meet the applicable Performance
Standards occurring after Eckerd's disapproval to the extent such
failure is caused by such replacement, upgrade or addition not being
implemented as requested by IBMGS-US.
(3) Consents with respect to any facilities owned or leased by Eckerd
necessary to install the VSAT Data Network equipment required to effect
connectivity shall be Eckerd Consents and shall be obtained by Eckerd.
(4) As part of the Designated Services, IBMGS-US shall provide to Eckerd
the network control services described in Schedule E for the Machines
attached to the host environment and the VSAT Data Network.
(5) Eckerd may, at any time after the Commencement Date and from time to
time, elect to assume responsibility for a task provided or supported
by the VSAT Data Network. If as a result of the assumption of such task
the number of IBMGS-US FTEs at the Corporate Campus required by
IBMGS-US to perform the Services is reduced, IBMGS-US will, at Eckerd's
option, either (a) provide to Eckerd an additional number of AM FTEs
with salaries and benefits equivalent to the cost of the salaries and
benefits of the FTEs so reduced and apply such additional AM FTEs
against the Application Maintenance FTE Baseline or (b) provide to
Eckerd an RRC for such reduced FTEs equal to the cost of such salaries
and benefits and Eckerd shall be responsible for any reasonable
out-of-pocket expenses actually incurred by IBMGS-US in connection with
the transfer or relocation of any full time employees for which such
RRC is provided; provided, however, that such actual expenses for all
such full time employees reduced in connection with any single event
giving rise to a reduction in the number of such full time employees
shall not exceed, on average, $36,000 per full time employee.
(6) Eckerd may, at any time after the Commencement Date, notify IBMGS-US of
its desire to terminate VSAT Data Network connectivity to any Store. In
such an event, and upon the effective date of such termination:
(a) IBMGS-US shall discontinue VSAT Data Network services in
respect of such Store;
(b) Eckerd shall receive all right, title and interest in the
satellite dish (and related equipment) at such Store on an
"As-Is", "Where-Is" basis, after which Eckerd may, at its
option, deinstall or relocate any such satellite dish (and
related equipment);
(c) Eckerd, as prepayment against the VSAT Termination Fee, shall
pay to IBMGS-US the amount set forth in the Supplement for the
month during which the termination of VSAT Data Network
connectivity for the Store is effective (the "VSAT Per Store
Termination Charge");
(d) IBMGS-US shall adjust the monthly prorata portion of the
Annual Services Charges by $370 for such Store; and
(e) Eckerd assumes responsibility for dial backup capability at
such Store.
IBMGS-US shall not deinstall or relocate any satellite dish (and related
equipment) installed at a Store which is part of the VSAT Data Network at
Eckerd's expense unless and until Eckerd requests IBMGS-US to do so in
accordance with this Section 3.14(6). In the event that Eckerd desires IBMGS-US
to deinstall any satellite dish (and related equipment) pursuant to this Section
3.14(6) (i) Eckerd shall provide IBMGS-US with a minimum of 90 days prior
notice, and (ii) IBMGS-US shall invoice Eckerd in the amount of $3,600.00 for
each such satellite dish (and related equipment) deinstalled.
3.15 Data Services.
As part of the Designated Services, IBMGS-US shall (1) provide printed output or
electronic print files to (a) the local Eckerd distribution systems and (b)
remote sites in accordance with Schedule E and (2) store, maintain and provide
security for all storage media, including tapes and disk packs, provided by
Eckerd to IBMGS-US in accordance with the Procedures Manual.
3.16 Field Support Services.
(1) IBMGS-US will provide Field Support Services in accordance with
Schedule E and Schedule J. Field Support Services consist of (a)
maintenance and support services for Stores as described in Schedule E
("Store System Support Services") and (b) repair and exchange
maintenance services as described in Schedule E ("Depot Services") ((a)
and (b) collectively, "Field Support Services"). Each Store Service
Representative ("SSR") assigned to the Eckerd account will be dedicated
solely to providing Services to Eckerd under this Agreement. Store
System Support Services include Store opening, renovation, relocating,
and closing activities, to the extent such activities are performed
Monday through Friday between the hours of 8:00 AM and 5:00 PM (local
time). Severity one problems which occur outside such normal working
hours will be handled in accordance with the Procedures Manual by
on-call personnel without need for Eckerd's prior approval. IBMGS-US
will resolve all other problems between the hours of 8:00 AM and 5:00
PM (local time). In the event that Eckerd requests IBMGS-US to provide
Store System Support Services at other than these normal working hours,
such activities will be charged in accordance with Schedule J.
Reasonable travel expenses incurred outside of the SSR's normal service
area at Eckerd's request will be invoiced to Eckerd. Such expenses will
comply with Eckerd's expense guidelines or be previously approved by
Eckerd. In the event Eckerd elects to use SSRs in the performance of
project-related tasks, the statement of work for such project will
identify the impact to SSR-related Performance Standards and any
corresponding relief to be provided to IBMGS-US.
(2) Depot Services will be performed Monday through Friday between the
hours of 8:00 A.M. and 5:00 P.M. (local time). The depot will repair or
exchange defective parts for all Eckerd Stores. The charges for all
such parts repaired or exchanged by the depot will be invoiced to
Eckerd.
3.17 Office Automation.
IBMGS-US will provide support of the Standard Desktop Software for End Users in
accordance with Schedule E and Schedule J. Such support shall consist of (a)
desktop support for End Users at the following Eckerd Service Locations in
Largo, Florida: (i) Bryan Dairy Road, (ii) Starkey Road, and (iii) Martin
Marietta ((i), (ii) and (iii) the "Corporate Campus"); including problem
determination assistance, problem resolution, and deskside assistance as
required; and (b) remote support for mobile remote End Users which consists of
problem determination assistance, problem resolution, and depot services ((a)
and (b) the "OA Services"). IBMGS-US will provide OA Services for the
configurations of equipment as set forth in Schedule K (the "Standard Desktop
Configurations"). Any changes to the number or complexity of the Standard
Desktop Configurations must be agreed to by the Parties. OA Services will be
available from 7 A.M. to 7 P.M., Monday through Friday, and 8:00 A.M. to 3:00
P.M., Saturday. OA Services will not be available on Sundays or Eckerd holidays
except as otherwise agreed to by the Parties. Deskside assistance is available
only for the Corporate Campus. Eckerd shall be financially responsible for all
parts required to effect repairs, support for office automation software which
is not Standard Desktop Software, and any IBMGS-US travel in support of mobile
remote End Users. IBMGS-US travel in support of mobile remote End Users will be
in accordance with Eckerd expense guidelines or be previously approved by Eckerd
and shall be invoiced to Eckerd monthly.
3.18 New, Replacement or Eliminated Software.
(1) In the event Eckerd wishes to add a new application, such addition
shall be considered a New Service and the Parties shall agree on the
financial responsibilities related to the purchase of such new
application.
(2) In the event that Eckerd wishes to replace an existing Application at
any time during the Term, IBMGS-US shall perform the replacement of the
Application. Upon agreement of the Parties, the replacement may be
considered a New Service. Also in such event, the Parties shall adjust
the Annual Services Charges to reflect the net difference in costs to
IBMGS-US (such as changes in license fees and software maintenance
fees) between providing AM Services in respect of the replacement
Application and providing such Services in respect of the replaced
Application.
(3) In the event that Eckerd wishes to eliminate an Application at any time
during the Term, IBMGS-US shall eliminate the Application. In such
event, the Parties shall adjust the Annual Services Charges to reflect
the reduction in costs to IBMGS-US as a result of the elimination of
such Application (such as recurring vendor charges and reductions in AM
FTE Resources).
3.19 Consultation Services.
As part of the Designated Services, IBMGS-US shall make available to Eckerd a
consultant from the IBM Retail Consulting Group (a "Retail Consultant") who
shall participate in Eckerd's quarterly business reviews. IBMGS-US's appointment
of any Retail Consultant shall be subject to Eckerd's consent. Subject to a
Reassignment Waiver, the same Retail Consultant shall be assigned to Eckerd's
account during the first Contract Year and as is practicable after the first
Contract Year.
ARTICLE 4 APPLICATION DEVELOPMENT.
4.01 Application Development.
IBMGS-US shall provide Application Development Services (i) as described in
Schedule E through the programming of new applications, and additional features
or functionality to existing Applications for which the work effort exceeds the
equivalent of 176 hours of effort for projects ("Application Development
Services" or "AD Services") (the AD Services and AM Services collectively, the
"AD/M Services"), (ii) through the use of the FTEs designated to perform the AD
Services (the "AD FTEs") in accordance with Schedule J.
4.02 Provision of AD FTEs.
As part of the Designated Services, IBMGS-US shall provide to Eckerd the number
of AD FTEs for each Contract Year set forth in the Supplement (the "AD FTE
Baseline") and as described in Schedule J and Schedule E. On or before the tenth
business day after the end of each 90-day period during the Term, IBMGS-US shall
provide to Eckerd a report of the quantity of AD FTEs delivered by IBMGS-US to
Eckerd during the preceding 90-day period, in addition to the reports described
in Schedule E.
4.03 AD FTE Consumption.
In the event that the total number of AD FTEs delivered by IBMGS-US for a
Contract Year varies from the AD FTE Baseline set forth in the Supplement on the
Commencement Date for that Contract Year, (1) that portion of such variance
which is no more than +/-10 percent from the AD FTE Baseline shall be added to
or subtracted from the AD FTE Baseline for the subsequent Contract Year, as
appropriate, and the Parties shall update the Supplement to reflect such
adjustment, and (2) for that portion of such variance which exceeds +/-10
percent from the AD FTE Baseline, if any, the Parties shall make a financial
adjustment based on the ARC or the RRC in respect of AD FTEs, as appropriate, in
effect for such Contract Year, provided, however, that the RRC for any variance
exceeding 10 percent below the AD FTE Baseline shall be calculated at the base
rate for AD FTEs set forth in the Supplement (the "AD FTE Base Rate"). In the
event the number of AD FTEs that IBMGS-US estimates will be necessary to
complete an Eckerd project which is the subject of a New Services Work Order
increases by more than 10 percent between the completion of the internal design
and implementation phases, except as attributable to approved changes or other
actions of Eckerd, any AD FTEs over 110 percent of such estimate shall not be
charged to the AD FTE Baseline for the Contract Year in which such AD FTEs were
provided.
4.04 Additional Application Development.
In the event Eckerd requests that IBMGS-US provide Application Development
Services in addition to those included in the AD FTE Baseline, such Application
Development Services shall be subject to and shall be charged to Eckerd at the
ARC in respect of AD FTEs in accordance with Schedule J or as otherwise agreed
to by the Parties.
4.05 Reduction to AD FTE Baseline.
No more than twice during the Term, Eckerd may notify IBMGS-US that it foresees
a reduction in its requirements for Application Development Services. Upon at
least 180 days' notice, IBMGS-US shall in each case effect the reduction
requested by Eckerd for the next Eckerd fiscal year to the AD FTE Baseline
applicable to such fiscal year. Upon the implementation of any such reduction to
the AD FTE Baseline, IBMGS-US shall credit Eckerd in its invoices for the Annual
Services Charges at 75 percent of the ARC rate for additional AD FTEs. Upon
expiration of such Eckerd fiscal year, the AD FTE Baseline shall be returned to
the AD FTE Baseline specified in the Supplement for the Contract Year in which
the fiscal year expires at no additional expense to Eckerd and shall be adjusted
proportionally to reflect the amount of time left in such Contract Year.
ARTICLE 5 PROJECTS.
5.01 Project Management.
As part of the Designated Services, IBMGS-US shall provide to Eckerd project
management and support services in connection with those projects for which
IBMGS-US is responsible.
5.02 Project Implementation.
In the event that Eckerd desires IBMGS-US to implement projects which are not
part of the Designated Services, such projects will be considered as New
Services.
5.03 Technology Refresh.
As part of the Designated Services, IBMGS-US shall provide to Eckerd a
technology refresh in respect of (i) 2,167 point-of-sale controllers, (ii) 1,305
ValuePoint PCs, and (iii) 549 NCR "3355Rx" PCs. Such technology refresh shall
consist of the provision and installation of then current versions, unless
otherwise agreed by the Parties, of the above hardware and operating System
Software. Such technology refresh does not include Applications. Eckerd shall be
responsible for any additional associated costs. The technology refresh will be
performed during the years 1998 through 2000. Eckerd shall give IBMGS-US at
least six months prior notice of its decision to begin such technology refresh
and IBMGS-US shall complete such technology refresh no later than 12 months
after such notice; provided, however, that Eckerd shall provide such notice no
later than January 1, 2000 and such technology refresh shall begin no later than
July 1, 2000 . Eckerd may, with notice to IBMGS-US prior to January 1, 2000 and
in lieu of such technology refresh, elect to receive for itself or its
Affiliate(s) (i) other IBM hardware and software products, or (ii) other IBM
services except for year 2000 related services, the aggregate amount of (i) and
(ii) not to exceed $4,500,000.00 (the "Refresh Buyout"). If Eckerd elects the
Refresh Buyout it may use the total amount identified for IBM hardware in a
single Contract Year; however, no more than one-third of the amount identified
for IBM software and/or services may be used in a single Contract Year.
ARTICLE 6 NEW SERVICES.
6.01 New Services.
Eckerd may from time to time request that IBMGS-US perform services (1) outside
the scope of the Designated Services or (2) which require resources not covered
by the Annual Services Charges or require additional start-up expenses (the "New
Service(s)"). Upon receipt of such a request from Eckerd, IBMGS-US shall inform
Eckerd as soon as practicable after receipt of Eckerd's request as to whether
IBMGS-US desires to perform such New Service and, if so, IBMGS-US shall provide
Eckerd with (a) a written description of the work IBMGS-US anticipates
performing in connection with such New Service, (b) a schedule for commencing
and completing the New Service, (c) IBMGS-US's prospective charges for such New
Service (the "New Services Fees"), (d) when appropriate, a description of any
Software to be developed or modified by IBMGS-US (each, a "New Application";
collectively, the "New Applications") or hardware to be provided by IBMGS-US in
connection with such New Service, (e) when appropriate, the Software and
hardware resources and run-time requirements necessary to develop and operate
any New Applications, (f) the human resources necessary to develop and operate
the product or provide the services, (g) when appropriate, a list of any
existing Applications or hardware included in or to be used in connection with
such New Service, (h) when appropriate, acceptance test criteria and procedures
in respect of any New Applications or any products or services, (i) AD FTE
estimate, if applicable, and (j) revised hardware, software, data and
application architectures reflecting integration within the Client/Server
Environment. In the event Eckerd elects to have IBMGS-US perform the New
Service, Eckerd and IBMGS-US shall execute a work order to this Agreement in
substantially the form set forth in Schedule T (each, a "New Services Work
Order"). IBMGS-US shall not begin performing any New Service until a New
Services Work Order in respect of such New Service has been executed on behalf
of Eckerd. (the New Services and the Designated Services collectively, the
"Services".)
6.02 Third Party Services.
Notwithstanding any request made to IBMGS-US by Eckerd pursuant to Section 6.01,
Eckerd shall have the right to contract with a third party to perform any New
Services including systems operations and related services to augment or
supplement the Designated Services or to interface with the Systems. In the
event Eckerd contracts with a third party to perform any New Service, IBMGS-US
shall cooperate with Eckerd and any such third party to the extent reasonably
required by Eckerd, including by providing: (1) written requirements, standards
and policies for systems operations so that the enhancements or developments of
such third party may be operated by IBMGS-US, (2) assistance and support
services to such third party at market prices and (3) such third party access to
the Systems and open architecture configurations as may be reasonably required
by the third party in connection with such New Service. Eckerd shall require any
such third party to comply with IBMGS-US's reasonable requirements regarding
operations, Data Center standards, confidentiality and security.
ARTICLE 7 PERFORMANCE STANDARDS.
7.01 Designated Performance Standards.
IBMGS-US shall provide the Designated Services at the performance standards
described in Schedule E (collectively, the "Designated Performance Standards";
each, a "Designated Performance Standard"); provided, however, that IBMGS-US
shall seek to provide the Services during each Contract Year at performance
standards which reflect an improvement over the Performance Standards for the
preceding Contract Year.
7.02 New Performance Standards.
IBMGS-US shall provide the New Services at the performance standards (1)
specified in the New Services Work Order or (2) otherwise established by Eckerd
and IBMGS-US ((1) and (2) collectively, the "New Performance Standards"). (The
Designated Performance Standards and the New Performance Standards collectively,
the "Performance Standards".)
7.03 Adjustment of Performance.
The Joint Advisory Committee (1) shall review the Performance Standards during
the last quarter of every Contract Year, (2) in respect of any Performance
Standards that require periodic adjustment or are no longer appropriate because
of an increase, decrease or change to the Services, shall adjust the Performance
Standards for the subsequent Contract Year, and (3) in respect of all other
Performance Standards, may adjust the Performance Standards for the subsequent
Contract Year. In addition, either Eckerd or IBMGS-US may, at any time upon
notice to the other Party, initiate negotiations to review and, upon agreement
by the Joint Advisory Committee, adjust any Performance Standard which such
Party in good faith believes is inappropriate at the time.
7.04 Root-Cause Analysis.
In addition to the remedies set forth in Section 26.02 in respect of IBMGS-US's
failure to provide the Services in accordance with the Performance Standards and
as part of the Designated Services, IBMGS-US shall, at no cost to Eckerd, after
receipt of notice from Eckerd in respect of IBMGS-US's material failure to
provide the services in accordance with the Performance Standards (1) perform a
root-cause analysis to identify the cause of such failure, (2) correct such
failure, (3) provide Eckerd with a written report detailing the cause of, and
procedure for correcting, such failure, and (4) provide Eckerd with reasonable
evidence that such failure will not reoccur.
ARTICLE 8 PROJECT TEAM.
8.01 Joint Advisory Committee.
Eckerd and IBMGS-US shall each appoint up to four members of its management
staff, including the IBMGS-US Project Executive and the Eckerd IS Executive
(collectively, the "Project Executives") to serve on a joint advisory committee
(the "Joint Advisory Committee"). Eckerd shall designate one of its four members
on the Joint Advisory Committee to act as the chairman of the Joint Advisory
Committee. The Joint Advisory Committee shall be authorized and responsible for
(1) generally overseeing the performance of this Agreement, (2) making strategic
and tactical decisions for Eckerd in respect of the establishment, budgeting and
implementation of Eckerd's priorities and plans for information and
communications technology, (3) making strategic and tactical decisions for
Eckerd in respect of Eckerd's technology direction, (4) conducting quarterly
reviews of the progress of the Projects, (5) conducting annual reviews of (a)
the operating and strategic plans prepared by the Project Executives and (b)
performance objectives and measurements for the subsequent Contract Year and (6)
resolving disputes between Eckerd and IBMGS-US.
8.02 IBMGS-US Project Executive.
IBMGS-US shall (1) appoint an individual who from the Commencement Date shall be
in charge of implementing the Services on a full-time basis and (2) replace this
individual when required or permitted by this Section 8.02 (each such
individual, an "IBMGS-US Project Executive"). IBMGS-US's appointment of any
IBMGS-US Project Executive shall be subject to Eckerd's consent. IBMGS-US shall
not reassign or replace an IBMGS-US Project Executive during the first three
years of his or her assignment as the IBMGS-US Project Executive unless (a)
Eckerd consents to such reassignment or replacement or (b) he or she (i)
voluntarily resigns from IBMGS-US, (ii) is dismissed by IBMGS-US for (x)
misconduct or (y) unsatisfactory performance in respect of his or her duties and
responsibilities to Eckerd or IBMGS-US pursuant to this Agreement or (iii) is
unable to work due to his or her death or disability ((a) and (b) collectively,
the "Reassignment Waivers"; each a "Reassignment Waiver"). Except as may result
from death or disability or as may be agreed to by Eckerd, no more than two
individuals, including the Project Executive as of the Commencement Date, shall
serve as the IBMGS-US Project Executive during the Initial Term.
8.03 Key Employees.
The Project Staff members who are assigned to the key positions identified in
Schedule U are designated by Eckerd and IBMGS-US as key employees and shall be
dedicated to the Eckerd account full-time (collectively, the "Key Employees";
each, a "Key Employee"). IBMGS-US's appointment of any Key Employee shall be
subject to Eckerd's consent. IBMGS-US shall deliver to Eckerd an updated list of
Key Employees upon the replacement or reassignment of any Key Employee. Except
for a replacement or reassignment of a Key Employee due to the occurrence of a
Reassignment Waiver, IBMGS-US shall (1) not reassign or replace any Key Employee
for three years after his or her designation as a Key Employee, (2) not reassign
or replace any Key Employee if such reassignment or replacement would materially
disrupt Eckerd's operations and (3) only replace or reassign a Key Employee upon
such notice to Eckerd as may be practicable under the circumstances. Except as
may result from death or disability or may be agreed to by Eckerd, no more than
two individuals, including the Key Employee in such position as of the
Commencement Date, shall serve in any position identified in Schedule U during
the Initial Term.
8.04 IBMGS-US Project Executive Staff.
IBMGS-US shall maintain the organizational structure in respect of the IBMGS-US
Project Executive staff described in Schedule U. Subject to Section 8.02 and
Section 8.03, IBMGS-US shall provide Eckerd with notice of any changes to such
staff.
8.05 Project Staff.
IBMGS-US shall appoint sufficient staff of suitable training and skills to
provide the Services (the "Project Staff").
8.06 Subcontractors.
IBMGS-US may subcontract any of the Services without Eckerd's consent to the
subcontractor firms retained by IBMGS-US as of the Commencement Date of which
IBMGS-US has given notice to Eckerd and Eckerd hereby consents to IBMGS-US's use
of such contractors and subcontractors. IBMGS-US shall not use any other
subcontractor firms or individuals for performance of the Services at Eckerd
Service Locations after the Commencement Date without Eckerd's prior approval.
8.07 Managerial Control.
Subject to the other provisions of this Article 8 IBMGS-US (1) shall have
complete managerial control over its employees and (2) may, in its sole
judgment, dismiss, replace or reassign a member of the Project Staff.
8.08 Non-Competition.
Except as approved by Eckerd, IBMGS-US shall not assign an IBMGS-US Project
Executive or the Key Employees identified in Schedule U as two-year employees,
for two years from the date such IBMGS-US Project Executive or such Key Employee
was removed from the Project Staff to the account of any other company or
organization that through the operation of any of the following types of
business operations:
(1) retail drug chains similar to those operated by Eckerd;
(2) "deep discount" drug chains;
(3) "food/drug" combination retail chains;
(4) Walmart or any similar type of discount chain stores of a regional
nature which are predominantly operating in the same states in which
the Stores are located;
(5) any other chain retail organization whose sales are comprised of 15
percent or more of prescription drug sales; or
(6) mail order retail outlets of prescription drugs is engaged in the sale
of prescription drugs in any state in which the Stores of Eckerd are
located.
ARTICLE 9 MANAGEMENT AND CONTROL.
9.01 Procedures Manual.
By September 1, 1998 and as part of the Designated Services, IBMGS-US shall, in
the form and scope agreed upon by Eckerd and IBMGS-US, deliver to Eckerd, for
Eckerd's approval as to scope, a management procedures manual substantially in
the form set forth in Schedule W (the "Procedures Manual"). IBMGS-US shall
periodically update in accordance with Schedule E and provide to Eckerd the
Procedures Manual to reflect any changes in the operations or procedures
described therein within a reasonable time after such changes were made.
9.02 Change Control Procedures.
As part of the Designated Services, IBMGS-US shall deliver to Eckerd, for
Eckerd's approval, a written description of the change control procedures
substantially in the form set forth in Schedule W (the "Change Control
Procedures"). All changes to the Systems that would materially alter the
functionality or technical environment of the Systems and all material changes
to any projects for which IBMGS-US is responsible (each, a "Change";
collectively, "Changes"), shall be made pursuant to the Change Control
Procedures. No Change shall be implemented without Eckerd's approval except as
may be necessary on a temporary basis to maintain the continuity of the
Services. IBMGS-US shall (1) schedule all projects and Changes so as not to
unreasonably interrupt Eckerd business operations, (2) prepare and deliver to
Eckerd each month a rolling schedule for ongoing and planned Changes for the
next three-month period, (3) monitor the status of Changes against the
applicable schedule and (4) document and provide to Eckerd notice (which may be
given orally provided that such oral notice is confirmed in writing to Eckerd
within five days) of all Changes performed on a temporary basis to maintain the
continuity of the Services no later than the next business day after the Change
was made. The Change Control Procedures shall be included in the Procedures
Manual.
ARTICLE 10 ECKERD RESOURCES.
10.01 Eckerd Resources.
As of the Commencement Date and as part of the Designated Services, IBMGS-US
shall assume responsibility, including financial responsibility, upon IBMGS-US's
receipt of the applicable Consents, for managing, administering, operating and
maintaining all resources in respect of the provision of the Designated
Services, except for (1) the Retained Resources defined in Section 11.06 and (2)
such other resources to be made available to IBMGS-US by Eckerd pursuant to this
Agreement for which IBMGS-US is not identified as having such responsibilities
(the "Eckerd Resource(s)").
10.02 Eckerd Leased Assets and Eckerd Services Contracts.
Upon receipt of the applicable Consents, IBMGS-US shall have financial and
operational responsibility during the Term for (1) the leased assets listed in
Schedule F, if any, and such other leased assets that Eckerd and IBMGS-US may
agree upon during the Term (the "Eckerd Leased Assets") and (2) the third party
services contracts listed in Schedule F and such other services contracts that
Eckerd and IBMGS-US may agree upon during the Term (collectively, the "Eckerd
Services Contracts"; each, an "Eckerd Services Contract"). All amounts due in
respect of the Eckerd Leased Assets or under the Eckerd Services Contracts that
are attributable to the period during which IBMGS-US has financial and
operational responsibility for such lease and contract shall be payable by
IBMGS-US. The failure to make such payments shall be deemed a breach of this
Agreement, unless such failure results from a good faith dispute (whereupon
IBMGS-US shall indemnify Eckerd in accordance with Section 25.02(9)).
10.03 Eckerd Third Party Software.
As of the Commencement Date and subject to obtaining the applicable Consents,
Eckerd shall make the Eckerd Third Party Software available to IBMGS-US solely
for the purpose of providing the Services. IBMGS-US shall be responsible for (1)
managing the licenses for the Eckerd Third Party Software (a) listed In Schedule
A and Schedule B and (b) such other licenses that Eckerd and IBMGS-US may agree
upon during the Term ((a) and (b) collectively the "Eckerd Third Party Software
Licenses"; each, an "Eckerd Third Party Software License") and (2) paying all
related expenses, including maintenance fees as set forth in Schedule A and
Schedule B for which IBMGS-US is identified as having financial responsibility,
that are attributable to periods after the Commencement Date during the Term.
IBMGS-US shall comply with all obligations of Eckerd, including those of
nondisclosure, under any such Eckerd Third Party Software Licenses and any
failure to do so shall be deemed a breach of this Agreement, unless such failure
results from a good faith dispute (whereupon IBMGS-US shall indemnify Eckerd in
accordance with Section 25.02(9)).
10.04 Eckerd Data Network.
Eckerd shall design, implement, manage and maintain (including in respect of
Store moves, relocations and closings) all the necessary Machines, associated
attachments, features and accessories, Software, lines and cabling up to and
including the wall jack, including communication controllers, multiplexers,
lines and modems/DSUs in respect of network(s) which are required to connect and
transmit data between the IBMGS-US Data Center(s) and Service Locations listed
in Schedule I as requiring such connectivity, including the LANs and WANs for
all Eckerd locations, but not including the VSAT Data Network (the "Eckerd Data
Network"). Eckerd shall make the Eckerd Data Network available to IBMGS-US as
required solely for the purpose of enabling IBMGS-US to fulfill its obligations
under this Agreement. Consents with respect to any facilities owned or leased by
Eckerd necessary to install the Eckerd Data Network equipment required to effect
connectivity shall be Eckerd Consents and shall be obtained by Eckerd. Upon
IBMGS-US's request, solely as required to enable IBMGS-US to meet the applicable
Performance Standards, Eckerd shall arrange for or obtain replacements, upgrades
or additions, for the Eckerd Data Network. In the event that Eckerd does not
replace any Eckerd Data Network equipment used to provide connectivity between
the Service Locations and the Data Network, including interface and transmission
equipment, line, satellite or circuit capacity for the Data Network ("Data
Transmission Equipment"), IBMGS-US shall be excused from any failure to meet the
applicable Performance Standards occurring after Eckerd's failure to replace
such Data Transmission Equipment to the extent such failure is caused by such
replacement, upgrade or addition not being implemented as requested by IBMGS-US.
All such replacements, upgrades and additions, together with any other changes
to the Eckerd Data Network, shall be the responsibility of Eckerd.
10.05 Moves, Adds and Changes.
Eckerd shall manage all moves, adds and changes in respect of Eckerd's voice and
data communications systems. IBMGS-US shall manage all moves, adds and changes
in respect of the VSAT Data Network. Eckerd shall have financial and management
responsibility for Eckerd's agreements with such telecommunications providers.
In the event Eckerd requests IBMGS-US to relocate a satellite dish which is part
of the VSAT Data Network, IBMGS-US shall do so and IBMGS-US will invoice Eckerd
as a New Service for the charges for such relocation.
10.06 Modification, Extension and Termination of Third Party Agreements.
To the extent permitted by the agreements in respect of the Eckerd Resources and
the Retained Resources (to the extent any such agreements exist) and as may be
requested by IBMGS-US, Eckerd shall modify, extend or terminate any such
agreements. Any fees or charges imposed upon Eckerd in connection with any such
modification, extension or termination shall be paid by IBMGS-US. Each of Eckerd
and IBMGS-US shall promptly inform the other Party of any breach of, or misuse
or fraud in connection with, any such agreement and shall cooperate with the
other Party to prevent or stay any such breach, misuse or fraud. IBMGS-US shall
pay all amounts due for any penalties, charges or damages (including amounts due
to a third Party as a result of IBMGS-US's failure to promptly notify Eckerd
pursuant to the preceding sentence, associated taxes, legal expenses and other
incidental expenses) incurred by Eckerd as a result of IBMGS-US's performance or
non-performance of its obligations under this Agreement with respect to such
agreements.
10.07 Failure to Obtain Consents or to Provide Resources.
In the event that any Consent is not obtained with respect to any Eckerd
Resources, then, unless and until such Consent is obtained in respect of any
such Eckerd Resources, Eckerd and IBMGS-US shall use their best efforts to
implement a suitable workaround to such Eckerd Resources.
10.08 Appointment of Agent.
To the extent permitted by the applicable agreements, Eckerd hereby appoints
IBMGS-US as its sole agent for all matters pertaining to the Eckerd Resources
and, upon IBMGS-US's request, shall promptly notify all appropriate third
parties of such appointment. Eckerd may revoke such agency, in whole or in part,
upon notice to IBMGS-US at any time during the Term.
10.09 Additional Agreements.
After the Commencement Date, Eckerd shall not enter into any new or amend any
existing agreements or arrangements, written or oral, affecting or impacting
upon the Eckerd Leased Assets, if any, the Eckerd Services Contracts and the
Eckerd Third Party Software Licenses without IBMGS-US's consent.
10.10 Eckerd Help Desk.
No later than March 1, 1998 Eckerd will establish a help desk to provide initial
problem determination and assistance as described in Schedule E (the "Eckerd
Help Desk") which will be fully operational by no later than July 1, 1998. The
Eckerd Help Desk will answer End User procedural questions and forward
unresolved Store technical problems to the IBMGS-US Help Desk for follow-up and
closure as further described in Schedule E. From March 1, 1998 to July 1, 1998
(the "Ramp Down Period") the IBMGS-US Help Desk Baseline shall decrease as set
forth in the Supplement.
10.11 Additional Equipment.
Eckerd retains the financial responsibility for additional machines and
equipment (except for the Lexington Data Center) which are not specifically
identified herein as being the financial responsibility of IBMGS-US. This
includes the Hewlett Packard, Xerox and Delphax printers which are located in
the Data Center at 8333 Bryan Dairy Road, Largo, Florida 33777 (the "Largo Data
Center"). Eckerd shall also be financially responsible in the event additional
equipment or upgrades are necessary in order to increase the Largo Data Center
Resource Baseline set forth in the Supplement, such additional equipment or
upgrades to be approved by Eckerd.
ARTICLE 11 ECKERD OBLIGATIONS.
11.01 Eckerd IS Executive.
During the Term, Eckerd shall maintain a designated representative (the "Eckerd
IS Executive") who shall be authorized to (1) act as the primary point of
contact for IBMGS-US in dealing with Eckerd with respect to each Party's
obligations under this Agreement and (2) issue all consents or approvals and
make all requests on behalf of Eckerd, or appoint a designee to act in his or
her place.
11.02 Eckerd Facilities and Related Services.
To the extent IBMGS-US personnel are required by this Agreement to be on Eckerd
Service Locations, Eckerd shall provide to IBMGS-US, at no cost to IBMGS-US,
such office space (and access thereto), parking, office furnishings, janitorial
service, utilities, office-related equipment other than hardware and software
and access to duplicating machines (1) as is provided to similarly situated
Eckerd employees at such Eckerd Service Location and (2) as may reasonably be
required by IBMGS-US in connection with its performance of the Services. If
Eckerd relocates its current Data Center at 8333 Bryan Dairy Road, Largo,
Florida, Eckerd shall provide comparable space, facilities and resources in a
new location under the terms and conditions of this Agreement. In the event of
an Eckerd requested relocation, Eckerd will reimburse IBMGS-US for (i) the costs
associated with any relocation, and (ii) any costs which are in addition to
those currently the responsibility of IBMGS-US, including employee additional
commutation expenses if distance traveled is greater than two (2) miles from
Eckerd's Bryan Dairy Road facility, which are associated with the provision of
the Services from such location. If IBMGS-US requires additional facility space
as a result of New Services, the requirements and responsibility for such space
will be part of the consideration of the New Services. IBMGS-US's use of the
Eckerd Service Locations does not constitute or create a leasehold interest.
Eckerd's obligations set forth in this Section 11.02 with respect to the Eckerd
Service Locations shall cease as of the date the Eckerd Service Locations are no
longer being used by IBMGS-US to perform the Services.
11.03 Eckerd Machines.
Eckerd shall make available to IBMGS-US the Eckerd Machines for use in
connection with the Services at no charge to IBMGS-US. In the event that Eckerd
Machines through no fault of IBMGS-US are either not available to IBMGS-US or do
not perform according to the manufacturer's specifications, IBMGS-US shall be
excused from any failure to meet the applicable Performance Standards to the
extent such failure is caused by such unavailability or failure of the Eckerd
Machines to perform.
11.04 Application Information Requirements.
Subject to the procedures to be agreed to by Eckerd and IBMGS-US, Eckerd shall
designate, and provide to IBMGS-US, systems projects and priorities in respect
of the Services.
11.05 Voice Communication Services.
Eckerd shall be responsible for providing all voice communications services at
all Eckerd Service Locations, including voice network analysts and telephone
operators. To the extent that IBMGS-US employees reside at an Eckerd Service
Location Eckerd shall provide voice communication services similar to those
provided to Eckerd employees at such Eckerd Service Locations. In addition,
Eckerd shall provide, maintain and update the telephony equipment and Software
in use by the IBMGS-US Help Desk and identified on Schedule C and Schedule A in
such a manner as required to permit IBMGS-US to perform in accordance with the
applicable Performance Standards. Charges for all voice communications,
including those of IBMGS-US personnel at Eckerd Service Locations in connection
with providing the Services hereunder, will be the financial responsibility of
Eckerd.
11.06 Retained Resources.
Eckerd shall be responsible for (1) providing additions, upgrades and
replacements for all (a) personal computers, desk top terminals and printers
(the "End-User Machines") used by Eckerd's end users (the "End-Users"), (b)
Standard Desktop Hardware and Standard Desktop Software and (c) office
automation software which is not Standard Desktop Software (the "End-User
Software"), (2) maintaining and supporting the End-User Machines other than
those End-User Machines listed in Schedule S (3) providing personnel and
equipment to ensure the physical security of Eckerd Service Locations to the
same extent provided as of the Commencement Date, (4) administering user access,
password authorization and software security procedures, (5) providing all paper
forms and supplies required by End-Users' work station printers as of the
Commencement Date, (6) payment of all common carrier charges for voice services
and local, long distance and WATS (in and out) telecommunications services
incurred by Eckerd other than with respect to Section 3.14, (7) payment of all
usage fees for disaster recovery services which Eckerd requests in addition to
those disaster recovery services which IBMGS-US is obligated to provide as set
forth in Schedule G, (8) payment of all reasonable, out-of-pocket costs for
mail, messenger, postal courier and print distribution services, (9) payment of
all reasonable, out-of-pocket costs associated with off-site data storage that
are not provided out of the Lexington Data Center or such other Data Center
specified by IBMGS-US, (10) such other Eckerd activities and functions as are
described in this Agreement, (11) providing hardware maintenance for AS/400
computers and other machines (but not End-User Machines listed in Schedule S)
located at the respective Eckerd Distribution Centers, (12) providing and
maintaining the glue machines and bursters at the Largo Data Center which are
required by IBMGS-US in order to perform the Services, (13) providing data
warehouse applications, software and hardware, and disaster recovery, (14) EDI
transaction charges, (15) data entry, (16) Largo Data Center print supplies,
(17) all operations, maintenance and support for Eckerd distribution centers
(except the Dallas Warehouse Management System software, the RISC Machines and
any replacement IBMGS-US Machines), and (18) all cash registers currently under
ICL maintenance contracts ((1) through (18) collectively, the "Retained
Resources").
ARTICLE 12 SOFTWARE AND PROPRIETARY RIGHTS.
12.01 Eckerd Software.
Subject to Section 10.06 Eckerd hereby grants to IBMGS-US a non-exclusive,
non-transferable right to use (1) the Eckerd proprietary software either listed
in Schedule A and Schedule B or otherwise provided to IBMGS-US by Eckerd (the
"Eckerd Proprietary Software"), (2) the software licensed or leased by Eckerd
from a third party which is listed in Schedule A or Schedule B or otherwise
provided to IBMGS-US by Eckerd (the "Eckerd Third Party Software") and (3) any
related documentation in Eckerd's possession on or after the Commencement Date
((1), (2) and (3) collectively, the "Eckerd Software") solely to provide the
Services. Upon expiration of this Agreement or termination of this Agreement for
any reason, (a) the rights granted to IBMGS-US in this Section 12.01 shall
immediately revert to Eckerd and (b) IBMGS-US shall (i) deliver to Eckerd, at no
cost to Eckerd except for the reimbursement to IBMGS-US of the cost of the media
containing the Eckerd Software, a current copy of all of the Eckerd Software in
the form in use as of the date of such expiration or termination and (ii)
destroy or erase all other copies of the Eckerd Software in IBMGS-US's
possession.
12.02 Developed Software.
Any (1) enhancement modifications to the Eckerd Software or (2) other software
developed by IBMGS-US upon request of Eckerd pursuant to Article 4 ((1) and (2)
collectively, the "Developed Software") shall be and will remain the exclusive
property of Eckerd or its third party licensor. In consideration of the payments
made pursuant to Section 17.01, IBMGS-US hereby assigns to Eckerd all of
IBMGS-US's rights in and interests to the Developed Software. Eckerd hereby
grants to IBMGS-US a non-exclusive, non-transferable right to use the Developed
Software solely to provide the Services. Upon expiration of this Agreement or
termination of this Agreement for any reason, the rights granted to IBMGS-US in
this Section 12.02 shall immediately revert to Eckerd, and IBMGS-US shall (a)
deliver to Eckerd, at no cost to Eckerd except for the reimbursement to IBMGS-US
of the cost of the media containing such Developed Software, a current copy of
all such Developed Software in the form in use as of the date of such expiration
or termination and (b) destroy or erase all other copies of the Developed
Software in IBMGS-US's possession.
12.03 IBMGS-US Software.
All software and related documentation (1) (a) owned by IBMGS-US or its
Affiliates prior to the Commencement Date, including the POS Chain Drug
Applications, or of which IBMGS-US or its Affiliates acquire ownership after the
Commencement Date, which is used in connection with the Services and (b)
developed by IBMGS-US after the Commencement Date which is not Developed
Software ((a) and (b), the "IBMGS-US Proprietary Software") and (2) licensed or
leased from a third party by IBMGS-US prior to or after the Commencement Date
which will be used in connection with the Services (the "IBMGS-US Third Party
Software") ((1) and (2) collectively, the "IBMGS-US Software") is, or will be,
and shall remain, the exclusive property of IBMGS-US or its third-party licensor
and Eckerd shall have no rights or interests to the IBMGS-US Software except as
described in this Section 12.03 and Section 22.05. IBMGS-US shall make the
IBMGS-US Software available to Eckerd during the Term for use in connection with
the Services at no additional cost to Eckerd other than as expressly provided in
this Agreement. Subject to Section 22.05 with respect to IBMGS-US Third Party
Software, IBMGS-US shall deliver to Eckerd a copy of, and hereby grants, or
shall cause to be granted, to Eckerd a perpetual (or, if perpetual is not
commercially available, a commercially reasonable term), non-exclusive,
non-transferable license to use, and to permit a third party to use solely in
connection with providing services to Eckerd the IBMGS-US Third Party Software
upon the expiration or termination of this Agreement. Further, upon expiration
or termination, in respect of the IBMGS-US Proprietary Software, IBMGS-US will
cause such IBMGS-US Proprietary Software and related documentation to be
licensed to be licensed to Eckerd, its Affiliates or a third party to use solely
in connection with providing services to Eckerd at the terms, conditions and
prices (excluding any initial license fee or any transfer or assignment fees)
generally available to licensees comparable to Eckerd or its Affiliates
consistent with Section 17.13, unless Eckerd fails to pay monies owed to
IBMGS-US pursuant to this Agreement except as set forth in Section 21.03.
12.04 IBMGS-US License.
Eckerd may, in Eckerd's sole discretion and upon such terms and at such prices
as Eckerd and IBMGS-US may agree, grant IBMGS-US a license to use and sublicense
the Developed Software.
12.05 Changes and Upgrades to Software.
Except as may be approved by Eckerd, IBMGS-US shall not make any changes or
modifications to the Eckerd Software, the IBMGS-US Software and the Developed
Software (collectively, the "Software") that would alter the functionality or
materially degrade the performance of the Software. In addition, IBMGS-US shall
pay the cost of any modification or enhancement to, or substitution for, the
Eckerd Software, the Developed Software and any other equipment or software used
in connection with the Services necessitated by (1) unauthorized changes to the
Eckerd Software or the Developed Software or (2) changes to the IBMGS-US
Software (except as Eckerd may request or as may result from the provision of
the Services or the implementation of a New Service) or the operating
environment of the IBMGS-US Software.
12.06 Access to AD/M Tools and Methodologies.
As part of the Designated Services, IBMGS-US shall provide to the business
analysts retained by Eckerd during the Term access to the Software, including
AD/M Services tools and methodologies.
ARTICLE 13 CONSENTS.
All consents or approvals necessary to allow IBMGS-US to use (1) the Eckerd
Leased Assets, if any (2) the services provided under the Eckerd Services
Contracts, (3) the Eckerd Third Party Software to provide the Services to Eckerd
during the Term and the Termination Assistance Period and (4) any other consent
or approval specifically identified in this Agreement as being the
responsibility of Eckerd (the "Eckerd Consents") shall be obtained by IBMGS-US
and Eckerd. Eckerd shall pay any costs of obtaining the Eckerd Consents, except
as may relate to any costs imposed by IBM or an Affiliate or subsidiary of IBM.
All consents or approvals necessary to allow (a) IBMGS-US to use (i) and assign
to Eckerd the Developed Software, (ii) the IBMGS-US Software, (iii) any assets
leased or owned by IBMGS-US, including the IBMGS-US Machines, that are used by
IBMGS-US to provide the Services and (iv) any third-party services retained by
IBMGS-US to provide the Services during the Term and the Termination Assistance
Period and (b) Eckerd to continue to use (w) the Developed Software, (x) the
IBMGS-US Software, (y) any assets leased or owned by IBMGS-US, including the
IBMGS-US Machines, that are used by IBMGS-US to provide the Services and (z) any
third-party services retained by IBMGS-US to provide the Services upon the
expiration or termination of this Agreement shall be obtained by IBMGS-US and
Eckerd (the "IBMGS-US Consents"). IBMGS-US shall pay any costs of obtaining the
IBMGS-US Consents except as described in Section 22.05(5) and Section 22.05(6).
(The Eckerd Consents and the IBMGS-US Consents collectively, the "Consents").
ARTICLE 14 DATA AND REPORTS.
14.01 Ownership of Eckerd Data.
All data and information submitted to IBMGS-US by Eckerd in connection with the
Services (the "Eckerd Data") is and shall remain the property of Eckerd. The
Eckerd Data shall not be (1) used by IBMGS-US other than in connection with
providing the Services, (2) disclosed, sold, assigned, leased or otherwise
provided to third parties by IBMGS-US or (3) commercially exploited by or on
behalf of IBMGS-US, its employees or agents.
14.02 Correction of Errors.
At its own expense, IBMGS-US shall promptly correct any errors or inaccuracies
in the Eckerd Data caused by IBMGS-US. At Eckerd's expense, IBMGS-US shall
promptly correct any other errors or inaccuracies in the Eckerd Data. Eckerd is
responsible for (1) the accuracy and completeness of the Eckerd Data submitted
by Eckerd to IBMGS-US and (2) any errors in and with respect to data obtained
from IBMGS-US because of any inaccurate or incomplete Eckerd Data.
14.03 Return of Data.
Upon request by Eckerd at any time, IBMGS-US shall (1) at Eckerd's expense,
promptly return to Eckerd, in the format and on the media requested by Eckerd,
all Eckerd Data and (2) erase or destroy all Eckerd Data in IBMGS-US's
possession. Any archival tapes containing Eckerd Data shall be used solely for
backup purposes.
14.04 Reports.
Commencing on the Commencement Date and as part of the Designated Services,
IBMGS-US shall provide to Eckerd those reports (1) prepared by IBMGS-US as of
the Commencement Date and the Agreement Date or as reasonably directed by
Eckerd, (2) described in Schedule E and (3), as otherwise agreed to by the
Parties during the Term ((1) through (3) collectively, the "Reports", each a
"Report"). At a minimum, the Reports shall include: (a) a monthly performance
report documenting IBMGS-US's performance with respect to the Performance
Standards, (b) a monthly project schedule report, (c) a monthly change control
report setting forth a record of all Changes performed, (d) a monthly report
describing Eckerd's utilization of resources and comparing such utilization to
the then-applicable resource baseline for each resource and (e) at the end of
every six month period, a report as to the current status of the Client/Server
Environment architecture, including architectures for hardware, software,
applications and data. IBMGS-US shall provide Eckerd with such documentation and
information as may be requested by Eckerd from time to time in order to verify
the accuracy of the Reports.
ARTICLE 15 DATA AND SOURCE CODE TAPES.
As part of the Designated Services, IBMGS-US shall make and maintain tapes in
accordance with the procedures set forth in Schedule E containing copies of (1)
any Eckerd Data then residing on the Systems (the "Data Tapes") and (2) all of
the source code and related documentation in respect of the Eckerd software and
the Developed Software as may be necessary to recreate the functionality of, and
operate, the Eckerd Software and the Developed Software at any time during the
term (the "Source Code Tapes"). Upon request, authorized personnel of Eckerd
shall be permitted access to any facilities used to store the Data Tapes or
Source Code Tapes during normal business hours and subject to any reasonable
security procedures or other restrictions in effect at such facilities. IBMGS-US
shall maintain copies of the Data Tapes for at least 90 days from the date each
such Data Tape was made.
ARTICLE 16 CONTINUED PROVISION OF SERVICES.
16.01 Disaster Recovery Plan.
As part of the Designated Services, IBMGS-US shall, in respect of the Lexington
Data Center and the Largo Data Center (except for data warehouse functions, End
User Machines and office automation servers) (1) implement IBMGS-US's standard
business recovery services (the "Disaster Recovery Plan") as described in
Schedule G, (2) periodically update and test the operability of the Disaster
Recovery Plan in effect at that time, (3) upon Eckerd's request, certify to
Eckerd that the Disaster Recovery Plan is fully operational at least once every
Contract Year, (4) immediately provide Eckerd with notice of a disaster declared
by IBMGS-US and implement the Disaster Recovery Plan upon the occurrence of a
disaster at a Service Location or otherwise affecting the provisions or receipt
of the Services (a "Disaster"), (5) implement the Disaster Recovery Plan upon
receipt of a notice from Eckerd declaring that a Disaster has or is about to
occur, (6) consult with Eckerd regarding the priority to be given to the
Services during the pendency of a Disaster and (7) not be excused from
implementing the Disaster Recovery Plan as a result of a Force Majeure Event.
IBMGS-US may, upon notice to Eckerd, modify or change the Disaster Recovery Plan
at any time- provided, however, that such change or modification shall not
materially adversely affect IBMGS-US's ability to restore the Services. IBMGS-US
shall restore all critical services as described in Schedule G (the "Critical
Applications") within the period specified in the Disaster Recovery Plan of the
occurrence of a Disaster. In the event the Disaster Recovery Plan is implemented
by (a) IBMGS-US pursuant to Section 16.01(4) or (b) Eckerd pursuant to Section
16.01(5) and a Disaster did occur, IBMGS-US shall not increase its charges under
this Agreement or charge Eckerd usage fees in addition to the Annual Services
Charges or ARCs other than incurred as a result of a Disaster. In the event (i)
the Disaster Recovery Plan is implemented by Eckerd pursuant to Section 16.01(5)
despite a written objection from IBMGS-US and (ii) a Disaster did not occur,
Eckerd shall pay any direct costs incurred by IBMGS-US in connection with such
implementation of the Disaster Recovery Plan.
16.02 Force Majeure.
Neither Party shall be liable for any default or delay in the performance of its
obligations under this Agreement (1) provided such default or delay (a) could
not have been prevented by reasonable precautions and (b) cannot reasonably be
circumvented by the non-performing Party through the use of alternate sources,
work-around plans or other means and (2) if and to the extent such default or
delay is caused, directly or indirectly, by fire, flood, earthquake, elements of
nature or acts of God, acts of war, terrorism, riots, civil disorders,
rebellions or revolutions in the United States, strikes, lockouts or labor
difficulties not relating to IBMGS-US's employees, subcontractors or agents, or
any other similar cause beyond the reasonable control of such Party (each, a
"Force Majeure Event"). The occurrence of a Force Majeure Event in respect of
another customer of IBMGS-US shall not constitute a Force Majeure Event under
this Agreement. Upon the occurrence of a Force Majeure Event, the non-performing
Party shall be excused from any further performance of those of its obligations
pursuant to this Agreement affected by the Force Majeure Event for as long as
(a) such Force Majeure Event continues and (b) such Party continues to use best
efforts to recommence performance whenever and to whatever extent possible
without delay. A Party so delayed in its performance shall (i) immediately
notify the other by telephone (to be confirmed in writing within five days of
the inception of such delay) and (ii) describe at a reasonable level of detail
the circumstances causing such delay. If any Force Majeure Event substantially
prevents, hinders or delays performance of the Services or prevents, hinders or
delays the performance of the Critical Services for more than 24 hours, Eckerd
may cease payment of the Annual Services Charges and procure such Services from
an alternate source, and IBMGS-US shall be liable for payment for such Services
in excess of IBMGS-US's charges under this Agreement for up to 180 days. If
Eckerd is unable to procure the Services from an alternate source or IBMGS-US is
unable to resume the provision of the Services within 180 days of the occurrence
of a Force Majeure Event, Eckerd or IBMGS-US may terminate this Agreement
without regard to Section 22.02 as of a date specified by Eckerd in a notice of
termination to IBMGS-US. This Section 16.02 does not limit or otherwise affect
IBMGS-US's obligation to provide disaster recovery services in accordance with
Section 16.01. In the event of a Force Majeure Event, IBMGS-US shall not
increase its charges under this Agreement or charge Eckerd usage fees in
addition to the Annual Services Charges or ARCs other than incurred as a result
of a Force Majeure Event.
ARTICLE 17 PAYMENTS TO IBMGS-US.
17.01 Annual Services Charges.
In consideration of IBMGS-US providing the Designated Services, Eckerd shall pay
to IBMGS-US the fees set forth in the Supplement (the "Annual Services
Charges").
17.02 New Services Fees.
In consideration of IBMGS-US providing the New Services, Eckerd shall pay the
New Services Fees in the manner agreed upon by Eckerd and IBMGS-US in accordance
with Section 6.01.
17.03 Additional Resource Charges and Reduced Resource Charges.
At the end of every six month period during the Term IBMGS-US shall review the
amount of Designated Services used by Eckerd during the preceding six months in
connection with the Services described in Schedule J. In the event Eckerd's
average monthly use of such Services during such six month period (1) increased
pursuant to Section 3.01 above the amount which is included in the Annual
Services Charge for such resource set forth in the Supplement ( the "Resource
Baseline"), Eckerd shall pay to IBMGS-US, in addition to the Annual Services
Charges, the resource charges in the amounts specified in the Supplement (the
"ARCs") in connection with the services set forth in Schedule J or (2) decreased
below the Resource Baselines set forth in the Supplement, IBMGS-US shall credit
Eckerd the reduced resource credits in the amounts specified in the Supplement
in connection with the Services set forth in Schedule J (the "RRCs") except as
provided in Section 4.04. IBMGS-US will invoice or credit Eckerd, as the case
may be, semiannually for the ARCs and RRCS, if any, so calculated.
17.04 Cost of Living Adjustment.
The Annual Services Charges, ARCS, and RRCs payable by Eckerd under this
Agreement include protection against inflation at a rate of 2.0 percent per year
compounded annually (the "Protection Index"). In the event the Actual Inflation
(as described in the formula set forth below) for any calendar year exceeds the
Protected Inflation (as described in the formula set forth below), IBMGS-US may,
once every calendar year after 1998, increase the Annual Services Charges, ARCs
and all other charges payable by Eckerd under this Agreement (i) by 100 percent
of the cost of living adjustment calculated as set forth below ("COLA") which
results from the portion of Actual Inflation which exceeds 2.0 percent and is
not more than 3.5 percent, and (ii) by 75 percent of COLA calculation set forth
below for the portion of Actual Inflation which exceeds 3.5 percent. In the
event IBMGS-US increases the ARC rate pursuant to this Section 17.04, the RRC
rate shall be increased by the same percentage. Eckerd and IBMGS-US shall use
the Consumer Price Index, as published by the Bureau of Labor Statistics, U.S.
Department of Labor, For All Urban Consumers, U.S. City Average, All Items,
1982-84=100 ("CPI-U") for purposes of calculating the Actual Inflation. COLA is
payable on a prospective basis, i.e., IBMGS-US may increase the Annual Services
Charges, ARCS, RRCs and all other charges payable by Eckerd under this Agreement
for the subsequent calendar year by COLA, if such COLA is in excess of the
Protection Index. COLA shall be determined as soon as practicable after the end
of each calendar year. COLA shall be determined using the following formula:
COLA Factor = ((Actual Inflation - Protected Inflation)/ Protected Inflation x
Inflation Sensitivity)
where:
Actual Inflation = CPI-U for the December preceding Contract Year for which COLA
is being calculated;
Protected Inflation = the Protection Index for the year preceding the Contract
Year for which COLA is being calculated;
Inflation Sensitivity = 85 percent, which is the portion of the Annual Services
Charges, ARCS, and RRCs that are inflation sensitive; and
Applicable CPI-U = CPI-U for December of the Contract Year previous to the
Commencement Date.
For example:
To determine the COLA monies due, in addition to the other charges, where the
prorated portion of the $100,000,000 ASC for the applicable period is
$8,333,333, and there are CPU ARCs of $80,000 due for that period and DASD RRCs
of $30,000 due for that same period, and the Actual Inflation for the applicable
Contract Year is 2.5 percent, the calculation will be as follows-.
COLA (ASC + ARCs - RRCS) x.85 x.005
COLA ($8,333,333 + $80,000 - $30, 000 ) x .85 x .005
COLA $8,383,333 x .85 x .005
COLA $7,125,833 x .005
COLA $35,629.17
In the event the Bureau of Labor Statistics ceases publishing the CPI-U or
substantially changes its content and format, Eckerd and IBMGS-US shall
substitute another comparable index published at least annually. If the Bureau
of Labor Statistics redefines the base year for the CPI-U from 1982-84 to
another year, Eckerd and IBMGS-US shall continue to use such CPI-U, but shall
convert the Protection Index to reflect the new base year by using an
appropriate conversion formula.
17.05 Significant Business Changes and New Entities.
If, during the Term, the number of the Stores increases by more than 25 percent
(not including (i) store openings, (ii) store relocations, and (iii) store
closings as set forth in the Supplement ((i), (ii) and (iii) collectively
"Planned Store Activity") due to an acquisition by Eckerd or its Affiliates and
such acquisition is expected to cause a sustained increase in computing
resources required by Eckerd, any increase in computing resources shall be
governed by this Section 17.05. Eckerd shall notify IBMGS-US of any event or set
of events which shall increase the number of the Stores. Eckerd shall share
information with IBMGS-US to allow IBMGS-US to determine which resources will be
required to meet Eckerd's needs, IBMGS-US shall (1) formulate a plan to
accommodate Eckerd's needs, without a disruption in service to Eckerd, in a cost
effective manner and (2) submit such plan, including any adjustments to the
Annual Services Charges, Resource Baselines, ARCs and RRCs to Eckerd for review.
Upon Eckerd's acceptance of such plan, IBMGS-US may adjust the Annual Services
Charges, Resource Baselines, ARCs and RRCS. In the event that Eckerd does not
accept IBMGS-US's plan and the Parties are unable to agree on the amount of the
increase required by this Section 17.05, such disagreement shall be submitted to
the Joint Advisory Committee. Eckerd shall not be obligated to obtain the
Services from IBMGS-US with respect to any acquisition.
17.06 Extraordinary Decrease in Eckerd Work.
If, during the Term, the scope and nature of Eckerd's business change
significantly, including (1) changes to the Eckerd Service Locations, (2)
changes to Eckerd's products or markets, (3) mergers, acquisitions or
divestitures, (4) changes in the method of service delivery (other than use of
another vendor, Eckerd or its Affiliates) or (5) changes in market priorities,
and Eckerd expects such changes to result in a decrease of computing resources
by more than 25 percent of the computing Resource Baselines in effect on the
Commencement Date, such changes in the Services shall be governed by this
Section 17.06. Eckerd shall provide IBMGS-US with a report of any new
acquisitions or divestitures, which shall identify the changes that need to be
made to accommodate the extraordinary decrease of resource requirements.
IBMGS-US shall reduce the Annual Services Charges by the amount by which
IBMGS-US's actual and direct expenses for performing the Services are decreased
as a result of such change. IBMGS-US shall make the applicable adjustments to
the Annual Services Charges, resource baselines and RRCs pursuant to the
Supplement to reflect the decrease. Upon request by Eckerd, IBMGS-US shall
provide to Eckerd a written certificate, signed by an officer of IBMGS-US,
certifying that the methodology for calculating the adjustments to the Annual
Services Charges referenced in this Section 17.06 conform to accepted accounting
practices and reflect IBMGS-US's actual changes in the operating environment. If
after receipt of such certification, Eckerd in good faith believes that such
certification is inaccurate, Eckerd may, at its option and expense, employ an
accredited and independent auditor to determine whether IBMGS-US's certification
is accurate.
17.07 Payment Schedule.
The Annual Services Charges and the New Service Fees (together with the ARCs,
collectively, the "Fees") and any other fees or charges owed by Eckerd shall be
due and payable within 10 days of the end of the calendar month during which the
Services relating to such charges were performed; provided that ARCs and RRCs
will be calculated and billed semiannually in accordance with Section 17.03 and
shall be due and payable within 10 days after the end of the calendar month
during which the invoice was received. Each invoice shall include one or more
reports describing (1) Eckerd's use of IBMGS-US resources in the units of
measurement and the dollar amounts used to calculate the invoice amount and (2)
such other information as may be reasonably necessary to ascertain IBMGS-US's
compliance with the Performance Standards as applicable. Eckerd shall pay each
invoice by check to IBMGS-US, Southern Area Customer Support Office, P.O. Box
105063, Atlanta, Georgia 30348. Any Fees not paid when due shall bear interest
at the rate of one percent per month, but in no event to exceed the highest
lawful rate of interest, calculated from the date such amount was due until the
date payment is received by IBMGS-US.
17.08 Taxes.
(1) IBMGS-US is responsible for paying any applicable sales, use, personal
property or other taxes based upon or measured by IBMGS-US's cost in acquiring
or providing equipment, materials, supplies services furnished or used by
IBMGS-US in performing or furnishing the Services, including all personal
property, use and sales taxes, if any, due on IBMGS-US Machines and IBMGS-US
Software. (2) Except as provided in this Section 17.08(3), Eckerd shall pay the
amount of any sales, excise or use tax that is levied or assessed on the
provision of the Services by IBMGS-US to Eckerd or on IBMGS-US's charges to
Eckerd under this Agreement, however levied or assessed. (3) In the event a
sales, excise or services tax is levied or assessed on the provision of the
Services by IBMGS-US to Eckerd in Florida as a result of tax legislation not in
effect on the Commencement Date, IBMGS-US and Eckerd shall each pay 50 percent
of such tax. (4) Eckerd shall pay all personal property or use taxes in respect
of the Eckerd Machines, the End-User Machines and for the payment of any excise
taxes for Eckerd Data Network lines and circuits. (5) Each Party shall bear sole
responsibility for all taxes, assessments and other real property-related claims
on its owned or leased real property. (6) Eckerd and IBMGS-US shall cooperate
with each other to more accurately determine each Party's tax liability and to
minimize such liability to the extent legally permissible. (7) Eckerd and
IBMGS-US shall provide and make available to the other any resale certificates,
information regarding out-of-state sales or use of equipment, materials or
services, and other exemption certificates or information reasonably requested
by either Party. (8) Eckerd and IBMGS-US shall work together to segregate the
Fees into separate payment streams for (a) taxable Services, (b) nontaxable
Services, (c) which a sales, use or similar tax has already been paid by
IBMGS-US and (d) which IBMGS-US functions merely as a paying agent for Eckerd in
receiving goods, supplies or services (including leasing and licensing
arrangements) that otherwise are nontaxable or have previously been subject to
tax.
17.09 Expenses.
Except as specifically set forth in this Agreement, any expenses related to the
Designated Services are included in the Annual Services Charges and shall not be
reimbursed by Eckerd unless agreed to by Eckerd. If agreed upon pursuant to
Section 6.01, Eckerd shall pay or reimburse IBMGS-US for the reasonable and
actual documented expenses, including travel and travel-related expenses,
incurred by IBMGS-US in connection with its performance of the New Services;
provided, however, that such expenses are incurred in accordance with Eckerd's
then-current policy for such expenses.
17.10 Proration.
All periodic fees or charges under this Agreement are to be computed on a
calendar month basis and will be prorated for any partial month.
17.11 Rights of Set-Off.
With respect to any amount which Eckerd and IBMGS-US in good faith determine (1)
should be reimbursed to Eckerd or (2) is otherwise payable to Eckerd by IBMGS-US
pursuant to this Agreement, Eckerd may upon notice to IBMGS-US deduct the entire
amount owed against the charges otherwise payable or expenses owed to IBMGS-US
under this Agreement until such time as the entire amount determined to be owed
to Eckerd has been paid. Eckerd shall be relieved of its obligation to make any
payments to IBMGS-US until such time as all such amounts have been credited to
Eckerd (unless Eckerd has requested that the credit be issued in more than one
invoice and IBMGS-US is issuing such credits according to Eckerd's request).
17.12 Refundable Items.
In the event Eckerd has prepaid amounts under a lease governing the Eckerd
Leased Assets, Eckerd Services Contract or an Eckerd Third Party Software
License, IBMGS-US shall refund to Eckerd, upon notice from Eckerd, that portion
of such prepaid expense which is attributable to periods on and after the
Commencement Date. In the event IBMGS-US receives during the Term any refund,
credit or other rebate in respect of a lease governing an Eckerd Leased Asset,
an Eckerd Services Contract or an Eckerd Third Party Software License which is
attributable to a period prior to the Commencement Date (including deposits
under leases governing the Eckerd Leased Assets), IBMGS-US will promptly notify
Eckerd of such refund, credit or rebate and shall promptly pay to Eckerd the
full amount of such refund, credit or rebate. In the event Eckerd receives
during the Term any refund, credit or other rebate in respect of a lease
governing an Eckerd Leased Asset, Eckerd Services Contract or Eckerd Third Party
Software License which is attributable to a period after the Commencement Date,
Eckerd shall promptly notify IBMGS-US of such refund, credit or rebate and shall
promptly pay to IBMGS-US the full amount of such refund, credit or rebate.
17.13 Purchasing-Consideration.
(1) In the event that Eckerd desires to purchase IBM products Eckerd may do
so to the extent and level at which Eckerd is eligible in accordance
with the IBM Volume Offering ("IVO") in effect at the time of such
purchase.
(2) IBMGS-US's charges to Eckerd for any project which is the subject of a
New Services Work Order delivered by IBMGS-US, which is the sole
Services provider for International Business Machines Corporation,
shall be at least as low as the lowest charges by IBMGS-US or its
Affiliates for like or similar services to any of Eckerd's competitors
(as described in Section 8.08 of this Agreement) receiving like or
similar services at similar volumes of service during similar
timeframes.
17.14 Lexington Baseline Adjustment.
(1) In the event that Eckerd in good faith believes from time to time that
the actual amount of Resource Units for the Lexington Data Center
mainframe Services (CPU Application Hours, DASD, and Tape Mounts) will
vary from the Baseline(s), Eckerd may elect to adjust the Baseline(s)
for the remainder of the Term to reflect such variance. The Parties
shall meet at least once each Contract Year to determine whether Eckerd
will make any such election. In the event that Eckerd shall make any
such election, (a) Eckerd shall provide notice of such election
(including the level to which the subject Baseline(s) are to be
adjusted (each a "Lexington Adjusted Baseline")) to IBMGS-US, (b)
IBMGS-US will calculate the adjustment to the Annual Services Charges,
ARC Rate and RRC Rate affected by such adjustment to the Baseline(s),
and notify Eckerd of such adjustments and (c) upon Eckerd's approval
IBMGS-US shall amend the Supplement to reflect the Lexington Adjusted
Baselines and adjustment to the applicable Fees. Lexington Data Center
Baselines may not be adjusted to a level which is lower than 80
percent, in each case, of the Baselines in effect on the Commencement
Date pursuant to this Section 17.14(1). Any adjustment to Baselines and
the Fees pursuant to this Section 17.14 shall be effective on the
anniversary of the Commencement Date and shall remain in effect for a
minimum of twelve (12) months.
(2) During the period between January 1, 1998 and June 30, 1999 and in
respect of IBMGS-US's performance of Year 2000 work, if any, whether or
not performed under this Agreement (a) IBMGS-US will track the Resource
Units for the Lexington Data Center mainframe Services (CPU Application
Hours, DASD, and Tape Mounts) utilized by IBMGS-US in the performance
of Year 2000 work (the "Lexington Y2K Resources"); (b) in the event
that Eckerd's average use of Lexington Y2K Resources (i) increased
above the amount which is included in the applicable Lexington Y2K
Resources set forth in the Supplement, Eckerd shall pay to IBMGS-US, in
addition to the Annual Services Charge, ARCs as set forth in the
Supplement, or (ii) decreased below the amount which is included in the
applicable Lexington Y2K Resources set forth in the Supplement,
IBMGS-US shall credit Eckerd RRCs in accordance with this Section
17.14(2), and (c) beginning July 1, 1998 and semi-annually thereafter
until June 30, 1999 IBMGS-US will calculate the quantity of Lexington
Y2K Resources expended and invoice Eckerd for the net of ARCs and RRCs
for such period for Lexington Y2K Resources; provided, however, that
both RRCs and ARCs shall be calculated at the ARC rate for the purpose
of determining the amounts due, if any, under this Section 17.14(2).
(3) Eckerd may, at any time after the Commencement Date and from time to
time elect to migrate certain mainframe application processing or other
data center task being provided by IBMGS-US from the Lexington Data
Center to one or more Eckerd or Eckerd Affiliate data center(s)
designated by Eckerd representing, in aggregate, up to 20 percent of
the aggregate CPU Monthly Baseline for the Lexington Data Center set
forth in the Supplement on the Commencement Date. If Eckerd so elects
IBMGS-US will calculate the adjustment to the Annual Services Charges,
ARC and RRC affected by such adjustment to the Lexington Data Center
Baseline(s), and notify Eckerd of such adjustments and (c) upon
Eckerd's approval amend the Supplement to reflect the Lexington
Adjusted Baselines and adjustment to the applicable Fees.
17.15 IBM Help Desk Baseline Adjustment.
In the event that Eckerd in good faith believes the actual amount of IBM Help
Desk Services Call Minutes will increase or decrease by more than 10 percent
above or below the applicable Resource Baseline, Eckerd may elect to adjust such
Resource Baseline for the remainder of the Term to reflect such increase or
decrease. If Eckerd so elects (a) Eckerd shall provide notice of such election
(including the level to which the Resource Baseline is to be adjusted (the "Help
Desk Adjusted Baseline") to IBMGS-US no later than 90 days prior to the date
upon which such Help Desk Adjusted Baseline is to be effective, (b) IBMGS-US
will calculate the adjustment to the Annual Services Charges, ARCS, and RRCs
affected by such adjustment to the applicable Resource Baseline, and notify
Eckerd of such adjustment to the Annual Services Charges, ARCS, and RRCS, and
(c) upon Eckerd's approval and a six (6) month minimum commitment to the Help
Desk Adjusted Baseline the Parties will amend the Supplement to reflect the Help
Desk Adjusted Baseline and corresponding adjustment to the charges. The Help
Desk Resource Baseline may not be adjusted to a level which is lower than fifty
percent (50 percent) of the Help Desk Resource Baseline in effect on the
Commencement Date. Any adjustment to Resource Baselines and IBMGS-US's charges
to Eckerd which are implemented pursuant to this Section 17.15 shall remain in
effect for a minimum of six (6) months.
17.16 Field Services Baseline Adjustment.
In the event that Eckerd desires from time to time that IBMGS-US reduce by one
or more the number of SSRs per region required to provide Store Systems Support
Services in accordance with this Agreement (i) Eckerd shall provide notice
thereof to IBMGS-US, (ii) IBMGS-US will reduce the number of SSRs as requested
by Eckerd; provided, however, that the number of SSR's may not be adjusted to a
level which is lower than 80 percent of the number of SSR's providing Store
Systems Support Services as of the Commencement Date, (iii) IBMGS-US will
calculate the adjustment to the Annual Services Charges based upon such
reduction and notify Eckerd of such adjustment to the Annual Services Charges,
(iv) upon Eckerd's approval amend the Supplement to reflect the adjustment to
the charges, and (v) IBMGS-US shall be excused from any failure to meet the
applicable Performance Standards occurring after such reduction to the extent
such failure is caused by such reduction in the number of SSRs until the Parties
thereafter adjust the applicable Performance Standards in accordance with
Section 7.03(2).
17.17 Technology Improvements.
Eckerd and IBMGS-US anticipate that during the Term the information technology
costs as a percentage of the overall costs of providing the Services will
decrease. Accordingly, significant information technology price and performance
improvements which occur during the Term may result in greater savings in
respect of the total costs of providing the Services than IBMGS-US assumed in
establishing the Annual Services Charges, ARCs and RRCS. On June 30, 2000, or
such other date as the Parties may agree, IBMGS-US shall review with the Joint
Advisory Committee actual information technology trends during the Term (the
"Technology Review"). In the event Eckerd believes that significant information
technology improvements have occurred during the Term which have not been (1)
adopted by IBMGS-US on behalf of Eckerd and (2) reflected in IBMGS-US's charges,
(a) Eckerd may notify IBMGS-US of such belief within 60 days of the date of the
Technology Review and (b) upon receipt of such notice by IBMGS-US, Eckerd and
IBMGS-US shall negotiate and implement an appropriate reduction to the Annual
Services Charges, ARCs and RRCS. In the event Eckerd and IBMGS-US cannot agree
on the amount of any such reduction within 30 days of the date of Eckerd's
notice pursuant to this Section 17.17, Eckerd may terminate this Agreement no
later than April 1, 2001 upon (i) at least 180 days' notice to IBMGS-US and (ii)
payment of the Termination Fee set forth in Section 23.02.
ARTICLE 18 AUDITS.
18.01 Audit of Processing.
Upon reasonable notice from Eckerd, IBMGS-US shall provide such auditors and
inspectors as Eckerd or any Federal or state regulatory authority may, from time
to time, designate with access to the IBMGS-US Service Locations and the Systems
and for the purpose of performing, at Eckerd's expense, audits or inspections of
the business of Eckerd (including IBMGS-US's operations in respect of the
Services). IBMGS-US shall provide to such auditors and inspectors any assistance
that they reasonably require. If any audit by a regulatory authority having
jurisdiction over Eckerd or IBMGS-US results in IBMGS-US being notified that it
is not in compliance with any rule, regulation or law of any Federal, state or
local agency relating to IBMGS-US's provision of the Services, IBMGS-US shall,
within the period of time specified by such regulatory authority, comply with
such regulatory authority. If a change is required by a law or regulation
relating to Eckerd's business, such change shall be made at Eckerd's expense
except to the extent such change is included in the Maintenance services. If a
change is required by a law or regulation relating to IBMGS-US's business, such
change shall be made at IBMGS-US's expense.
18.02 Audit of Charges.
Upon at least 24 hours' notice from Eckerd and no more than twice during any
calendar year IBMGS-US shall provide Eckerd with access to all of the records
necessary to support its charges to Eckerd. If, as a result of such audit,
Eckerd determines that IBMGS-US has overcharged Eckerd, Eckerd shall notify
IBMGS-US of the amount of such overcharge and IBMGS-US shall promptly pay to
Eckerd the amount of the overcharge, plus interest at the rate of one percent
per month, but in no event to exceed the highest lawful rate of interest,
calculated from the date of receipt by IBMGS-US of the overcharged amount until
the date of payment to Eckerd. In the event any such audit reveals an overcharge
to Eckerd by IBMGS-US of five percent or more of a particular fee category,
IBMGS-US shall reimburse Eckerd for the costs of such audit.
18.03 IBMGS-US Audit.
If, as a result of an internal audit of its charges to Eckerd, IBMGS-US
determines that it has undercharged Eckerd, IBMGS-US may provide Eckerd with an
invoice in respect of such amount. Any such invoice shall evidence that the
amount was not charged to Eckerd previously, Eckerd shall promptly pay the
amount of the undercharge, plus interest at the rate of one percent per month,
but in no event to exceed the lawful rate of interest, calculated from the date
of the invoice which should have included the undercharged amount until the date
of payment by Eckerd; provided, however, that Eckerd shall not be obligated to
pay any such charges related to the Services provided more than 180 days before
the date of the invoice for such charges.
ARTICLE 19 CONFIDENTIALITY.
19.01 Confidential Information.
(1) All confidential or proprietary information and documentation (including the
terms of this Agreement, the Eckerd Data, the Eckerd Software, the Developed
Software, the Eckerd Third Party Software and the IBMGS-US Software)
("Confidential Information") relating to a Party shall be held in confidence by
the other Party to the same extent and in at least the same manner as such Party
protects its own confidential or proprietary information. Neither Party shall
disclose, publish, release, transfer or other-wise make available Confidential
Information of the other Party in any form to, or for the use or benefit of, any
person or entity without the other Party's consent. Each Party shall, however,
be permitted to disclose relevant aspects of the other Party's Confidential
Information to its officers, agents and employees and to the officers, agents
and employees of its corporate Affiliates or subsidiaries solely to the extent
that such disclosure is reasonably necessary for the performance of its duties
and obligations under this Agreement; provided, however, that such Party shall
take all reasonable measures to ensure that Confidential Information of the
other Party is not disclosed or duplicated in contravention of the provisions of
this Agreement by such officers, agents and employees. (2) The obligations in
this Section 19.01 shall not restrict any disclosure by either Party pursuant to
any applicable law, including the Securities Act of 1933 and the Securities
Exchange Act of 1934, both as amended, or the SEC rules and regulations
promulgated thereunder, or pursuant to any court or government agency (provided
that the disclosing Party shall give prompt notice to the non-disclosing Party
of such order) and shall not apply with respect to information which (a) is
developed by the other Party without violating the disclosing Party's
proprietary rights, (b) is or becomes publicly known (other than through
unauthorized disclosure), (c) is disclosed by the owner of such information to a
third party free of any obligation of confidentiality, (d) is already known by
such Party without an obligation of confidentiality other than pursuant to this
Agreement or any confidentiality agreements entered into before the Commencement
Date between Eckerd and IBMGS-US or (e) is rightfully received by a Party free
of any obligation of confidentiality. (3) Except as may relate to ideas,
concepts, know-how or techniques relating to the provision of pharmacy services
(which shall be deemed Confidential Information of Eckerd subject to this
Section 19.01), neither Party is restricted pursuant to this Agreement from
using any data processing or network management ideas, concepts, know-how and
techniques, including in the development and manufacturing of products and
services. Except as prohibited by Section 8.02, Section 8.03 and Section 8.08
the receipt of Confidential Information by a Party shall not limit or restrict
assignment or reassignment of employees of IBMGS-US and Eckerd within or between
the respective Parties and their Affiliates.
19.02 Unauthorized Acts.
Each Party shall (1) notify the other Party promptly of any material
unauthorized possession, use or knowledge, or attempt thereof, of the other
Party's Confidential Information by any person or entity which may become known
to such Party, (2) promptly furnish to the other Party full details of the
unauthorized possession, use or knowledge, or attempt thereof, and assist the
other Party in investigating or preventing the reoccurrence of any unauthorized
possession, use or knowledge, or attempt thereof, of Confidential Information,
(3) use reasonable efforts to cooperate with the other Party in any litigation
and investigation against third parties deemed necessary by the other Party to
protect its proprietary rights and (4) promptly use all reasonable efforts to
prevent a reoccurrence of any such unauthorized possession, use or knowledge of
Confidential Information. Each Party shall bear the cost it incurs as result of
compliance with this Section 19.02.
19.03 Action by IBMGS-US.
Neither Party shall commence any legal action or proceeding in respect of any
unauthorized possession, use or knowledge, or attempt thereof, of the other
Party's Confidential Information by any person or entity which identifies such
Party or such Confidential Information without such Party's consent.
ARTICLE 20 REPRESENTATIONS AND WARRANTIES.
20.01 By Eckerd.
Eckerd represents and warrants that: (1) it is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware, (2) it has all
the requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement, (3) the execution, delivery and performance of
this Agreement has been duly authorized by Eckerd, (4) no approval,
authorization or consent of any governmental or regulatory authority is required
to be obtained or made by it in order for it to enter into and perform its
obligations under this Agreement, (5) it shall comply with all applicable
Federal, state and local laws and regulations and shall obtain all applicable
permit and licenses, in connection with its obligations under this Agreement,
(6) it has not, and will not, disclose any Confidential Information of IBMGS-US,
(7) the Eckerd Software owned by Eckerd does not, as of the Commencement Date,
infringe upon the proprietary rights of any third Party, and (8) it is either
the owner of each Eckerd Machine or is authorized by its owner to permit
IBMGS-US to use such Eckerd Machines under this Agreement.
20.02 By IBMGS-US.
IBMGS-US represents and warrants that: (1) it is an unincorporated division of
International Business Machines Corporation, a corporation duly incorporated,
validly existing and in good standing under the laws of New York, (2) it has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement, (3) the execution, delivery and performance of
this Agreement has been duly authorized by IBMGS-US, (4) no approval,
authorization or consent of any governmental or regulatory authority is required
to be obtained or made by it in order for it to enter into and perform its
obligations under this Agreement, (5) it shall comply with all applicable
Federal, state and local laws and regulations and shall obtain all applicable
permit and licenses in connection with its obligations under this Agreement, (6)
it has not, and will not, disclose any Confidential Information of Eckerd, (7)
the Services shall be rendered by qualified personnel, or trainees under the
supervision of qualified personnel, in accordance with the Performance
Standards, (8) all Services performed by IBMGS-US for Eckerd will be performed
at least in accordance with industry standards and practices applicable to the
performance of such Services, (9) it will maintain the Machines in accordance
with the Performance Standards, (10) it will maintain-the End-User Machines for
which it has maintenance responsibilities pursuant to this Agreement in
accordance with the terms and conditions set forth in Schedule P, (11) it is
either the owner of each IBMGS-US machine or is authorized by its owner to use
it under this Agreement and (12) the Services and the Developed Software (except
for any Eckerd Data or programs provided by Eckerd) will not, and the IBMGS-US
Software does not and will not, infringe upon the proprietary rights of any
third party.
20.03 Disclaimer.
SUBJECT TO THE PERFORMANCE STANDARDS AND IBMGS-US'S OTHER OBLIGATIONS UNDER THIS
AGREEMENT, IBMGS-US DOES NOT ASSURE UNINTERRUPTED OR ERROR-FREE OPERATION OF THE
MACHINES. EXCEPT AS SPECIFIED IN SECTION 20.01 AND SECTION 20.02, NEITHER
IBMGS-US NOR ECKERD MAKES ANY OTHER WARRANTIES IN RESPECT OF THE SERVICES OR THE
SYSTEMS AND EACH EXPLICITLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A SPECIFIC
PURPOSE.
ARTICLE 21 JOINT ADVISORY COMMITTEE AND DISPUTE RESOLUTION.
21.01 Joint Advisory Committee.
The Joint Advisory Committee shall meet at least once each three-month period
during the Term (or such other time as the Joint Advisory Committee may agree
upon from time to time) for the purpose of resolving disputes that may arise
under this Agreement. The Joint Advisory Committee shall consider the disputes
in the order such disputes are brought before it. In the event that the Joint
Advisory Committee is unable to resolve a dispute, the Joint Advisory Committee
shall notify the senior management of each Party. No dispute under this
Agreement shall be the subject of litigation or other formal proceeding between
Eckerd and IBMGS-US before being considered by the Joint Advisory Committee,
provided, however, that either Party may seek injunctive relief to prevent or
stay a breach of Article 19 without appearing before the Joint Advisory
Committee.
21.02 Dispute Resolution.
In the event of a dispute between the Parties concerning the rights, duties,
obligations or meaning of this Agreement relating to Section 4.02, Section 4.04,
Section 4.05 and Schedule E-2 or the subject of calculation or delivery of AD
FTEs, including any claim that this Agreement has been breached, and the Parties
are unable to resolve such dispute to their mutual satisfaction in a timely
manner, either party may submit the facts of the dispute to binding arbitration
in accordance with the alternate dispute resolution rules of the Information
Technology Association of America, as administered by a Judicate. Arbitration of
any dispute, may not be commenced until the earlier to occur of (1) an agreement
by the Parties that further informal attempts described in Section 21.01 to
resolve the dispute are not warranted and (2) 60 days after the initial request
for arbitration have passed.
21.03 Continued Performance.
In the event of a good faith dispute between Eckerd and IBMGS-US regarding this
Agreement that cannot be resolved by the Joint Advisory Committee pursuant to
which Eckerd in good faith believes it is entitled to withhold payment, Eckerd
shall, upon request by IBMGS-US and on the date which any of the Fees are
required to be made during the pendency of such dispute, deposit the full amount
of the Fees in an interest-bearing escrow account in the bank or depository
specified by IBMGS-US and furnish evidence of such deposit to IBMGS-US. For as
long as Eckerd makes such escrow deposits during the pendency of such dispute,
IBMGS-US shall continue to provide the Services until the amount in escrow
exceeds $6,000,000. Upon resolution of the dispute, the Parties shall allocate
the money in the escrow account, plus any interest earned on such money,
according to the resolution of the dispute.
ARTICLE 22 TERMINATION.
22.01 Termination for Convenience.
(1) Eckerd may terminate this Agreement with an effective date of
termination on or after January 1, 2000 upon at least 180 days' prior
notice to IBMGS-US.
(2) Eckerd may terminate the VSAT Data Network Services under this
Agreement at any time after the Commencement Date upon 180 days prior
notice to IBMGS-US.
22.02 Termination for Cause.
Upon notice to the other Party, either Party may terminate this Agreement,
without charge to the terminating Party, in the event of a material breach by
the other; provided, however, that the Party seeking termination shall provide
the other Party with notice of such breach and the opportunity to cure such
breach, as follows: (1) in the event of a failure to pay any amount due and
payable under this Agreement when due, 10 business days and (2) in the event of
any other material breach (except as specified in Section 22.03), 30 days. If
the nature of any non-monetary breach is such that it would be unreasonable to
expect a cure within a 30-day period, the breaching Party shall be given an
additional 15 days to cure such breach (except as specified in Section 22.03).
In the event the material breach is not cured within the periods specified above
after delivery of notice, the non-breaching Party may terminate this Agreement,
upon notice to the breaching Party as of a date specified in such notice of
termination. The terminating Party shall have all rights and remedies generally
afforded by law or equity, subject to the limitations expressed in this
Agreement.
22.03 Termination for Failure to Provide the Services.
If IBMGS-US fails to provide the Critical Applications (except as may result
from the occurrence of a Force Majeure Event) and does not, within 48 hours
after receipt of a notice from Eckerd in respect of such failure, cure such
failure or, if such failure cannot be cured within such 48-hour period, provide
Eckerd with a workaround that allows Eckerd to perform such Critical
Applications, then Eckerd may, upon notice to IBMGS-US, terminate this Agreement
as of the date specified in the notice of termination.
22.04 Other Terminations.
This Agreement may terminate pursuant to Section 16.02, Section 17.17, Section
22.07, and Section 26.02.
22.05 Effect of Expiration or Terminations.
Upon the expiration of this Agreement or termination of this Agreement for any
reason:
(1) IBMGS-US shall provide the Termination Assistance Services in
accordance with Article 24;
(2) each Party shall have the rights specified in Article 12 in respect of
the Software;
(3) IBMGS-US shall transfer title to the IBMGS-US owned Machines which are
not IBMGS-US Machines used to provide Services from the Lexington Data
Center upon receipt by IBMGS-US of the applicable Termination Fee, if
any; further, IBMGS-US shall promptly return to Eckerd all Eckerd
Machines, including any such machines located at the IBMGS-US Service
Locations;
(4) Upon Eckerd's request, with respect to generally commercially available
IBMGS-US Third Party Software, which IBMGS-US has licensed or purchased
and is using solely to provide the Services as of the date of such
expiration or termination, (a) IBMGS-US shall transfer, assign or
sublicense such IBMGS-US Third Party Software to Eckerd and pay any
transfer fee or nonrecurring charge imposed by the applicable vendor
and (b) Eckerd shall reimburse IBMGS-US for initial license or purchase
charges for such IBMGS-US Third Party Software in an amount equal to
the remaining unamortized cost of such IBMGS-US Third Party Software,
if any, depreciated over a five-year life;
(5) Upon Eckerd's request, with respect to generally commercially available
IBMGS-US Third Party Software, which IBMGS-US has licensed or purchased
and is using to provide services to other IBMGS-US customers in a
shared environment as of the date of such expiration or termination,
IBMGS-US shall (a) assist Eckerd in obtaining licenses for such
IBMGS-US Third Party Software and (b) pay any license fee or charge
imposed by any applicable vendor; and
(6) Upon Eckerd's request, with respect to any contracts applicable solely
to services being provided to Eckerd for maintenance, disaster'
recovery services and other necessary third party services (other than
subcontractor services) being used by IBMGS-US to perform the Services
as of the expiration or termination, IBMGS-US (a) shall transfer or
assign such agreements to Eckerd or its designee, on terms and
conditions acceptable to both parties and (b) pay any transfer fee or
non-recurring charge imposed by the applicable vendors.
22.06 Client/Server.
Upon payment of the fees described in Section 22.05 and assumption of license
obligations described in Section 22.05 and as part of the Termination Assistance
Services, IBMGS-US shall deliver to Eckerd within 30 days of notice from Eckerd
at the location specified by Eckerd all equipment, Software, related accessories
and documentation (1) used by IBMGS-US to provide the Services as of the date of
the expiration or termination of this Agreement and (2) as may be necessary to
recreate the functionality of the Client/Server Environment.
22.07 Termination for Change of Control.
In the event of a Change in Control of Eckerd, Eckerd may terminate this
Agreement upon 90 days' notice to IBMGS-US given no later than 12 months after
the effective date of such Change in Control.
In the event of a Change in Control of IBMGS-US to any business, firm,
corporation, partnership, enterprise or organization that through the operation
of retail stores, mail-order businesses, health maintenance organizations,
hospitals or any other entity in which prescription drugs are sold, competes
with the business engaged or hereafter engaged in by Eckerd in any states in
which Eckerd or any of its subsidiaries is engaged in business at the time of
any such Change in Control, Eckerd may terminate this Agreement upon 90 days'
notice to IBMGS-US given no later than 12 months after the effective date of
such Change in Control.
"Change in Control" shall mean, in respect of an entity or group of entities
which is not an Eckerd Affiliate, the (1) consolidation or merger of a Party
with or into any entity, (2) sale, transfer or other disposition of all or
substantially all of the assets of a Party or (3) acquisition by an entity, or
group of entities acting in concert, of beneficial ownership of more than 35
percent of the outstanding voting securities or partnership interests of a
Party.
ARTICLE 23 TERMINATION FEE.
23.01 Termination for Convenience.
(1) In the event of a termination of this Agreement pursuant to Section
22.01(1) Eckerd shall pay to IBMGS-US on the effective day of such
termination (a) an amount equal to the appropriate fee specified in the
Supplement (the "Termination Fee") as may be adjusted pursuant to
Section 23.05, (b) all of IBMGS-US's reasonable and customary
relocation expenses incurred for human resource placement up to 50
percent of the number of non-Lexington Data Center full time employees
who are relocated from Eckerd Service Locations as a result of such
termination, multiplied by $36,000.00, and (c) the VSAT Data Network
Termination Charges specified in the Supplement. Upon Eckerd's request,
IBMGS-US will annually provide Eckerd with a estimate of such expenses.
(2) In the event of termination pursuant to Section 22.01(1), IBMGS-US will
invoice Eckerd (i) for charges set forth in Section 23.01(a) and
Section 23.01(d), no later than 30 days prior to the effective date of
termination, (ii) for charges set forth in Section 23.01(c), on the
effective date of termination, and (iii) for charges set forth in
Section 23.01(b) no later than one year after the effective date of
termination, each such invoice to be due and payable within 40 days of
receipt. The Parties agree that (i), (ii) and (iii) are Eckerd's sole
and exclusive liability for such termination.
(3) In the event that Eckerd elects to terminate the VSAT Data Network
Services under this Agreement in its entirety pursuant to Section
22.01(2), Eckerd shall pay to IBMGS-US on the effective day of such
termination an amount equal to the fee specified in the Supplement for
termination of the VSAT Data Network (the "VSAT Termination Fee"),
minus any VSAT Per Store Termination Charges paid by Eckerd pursuant to
Section 3.14(c), and Eckerd shall receive all right, title and interest
in the satellite dish (and related equipment) at the Store(s) which are
part of the VSAT Data Network on the effective date of such termination
on an "As-Is", "Where-Is" basis, after which Eckerd may, at its option,
deinstall or relocate any such satellite dish (and related equipment).
23.02 Technology Improvements.
In the event of a termination pursuant to Section 17.17, Eckerd shall pay a
termination fee of $14,000,000 on the effective date of such termination.
23.03 No Additional Fees.
In the event of a termination pursuant to Section 22.01(1) or Section 22.01(2),
Eckerd shall not pay to IBMGS-US any fees or charges other than the applicable
Termination Fee set forth in the Supplement and other charges related to
termination as set forth in Section 23.01 except charges otherwise payable under
this Agreement and any charges payable pursuant to Article 24.
23.04 Termination for Change of Control.
In the event of termination of this Agreement pursuant to Section 22.07 as a
result of a Change in Control of Eckerd, Eckerd shall pay IBMGS-US on the
effective date of such termination (a) an amount equal to the appropriate fee
specified in the Supplement as may be adjusted pursuant to Section 23.05, (b)
all of IBMGS-US's reasonable and customary relocation expenses incurred for
human resource placement up to 50 percent of the number of non-Lexington Data
Center full time employees who are relocated from Eckerd Service Locations as a
result of such termination, multiplied by $36,000.00, and (c) the VSAT Data
Network Termination Charges specified in the Supplement. Upon Eckerd's request,
IBMGS-US will annually provide Eckerd with a estimate of such expenses.
In the event of termination of this Agreement by Eckerd pursuant to Section
22.07 as a result of a Change in Control of IBMGS-US on the effective date of
such termination (a) an amount equal to the appropriate fee specified in the
Supplement as may be adjusted pursuant to Section 23.05, and (b) the VSAT Data
Network Termination Charges specified in the Supplement. Upon Eckerd's request,
IBMGS-US will annually provide Eckerd with a estimate of such expenses.
23.05 Proration.
Any Termination Fee will be prorated according to the following formula:
[{(A-B) / 12 months) x C] + B = Prorated Termination Fee where:
A = the Termination Fee specified in the Supplement for the Contract Year in
which termination is effective;
B = the Termination Fee specified in the Supplement for the Contract Year after
the Contract Year in which termination is effective; and
C = the number of months remaining during the Contract Year in which termination
is effective.
ARTICLE 24 TERMINATION ASSISTANCE.
Upon the expiration of this Agreement or the termination of this Agreement for
any reason, IBMGS-US shall, upon request by Eckerd (1) cooperate with Eckerd in
effecting the orderly transfer of the Services to a third party or the
resumption of the Services by Eckerd and (2) perform such services as may be
requested by Eckerd in connection with the transfer of the Services to a third
party or the resumption of the Services by Eckerd (the "Termination Assistance
Services"). The Termination Assistance Services shall be provided for up to 180
days after the expiration of this Agreement or termination of this Agreement for
any reason (the "Termination Assistance Period"). As part of the Termination
Assistance Services, IBMGS-US shall (a) freeze all non-critical Systems changes,
(b) notify all third party vendors of procedures to be following during the
Termination Assistance Period, (c) review all Systems libraries (tests and
production) with, the new service provider and Eckerd, (d) assist in
establishing naming conventions for the new production site, (e) analyze space
required for the databases and Systems libraries (f) generate and deliver to
Eckerd a tape and computer listing of the source code for the Developed Software
in a form reasonably requested by Eckerd, (g) unload the production and test
databases, (h) deliver tapes or other media requested by Eckerd of production
databases (and test content listings) to the new operations staff, (i) assist
with the loading of the databases, (j) assist with the communications network
turnover and (k) assist in the execution of a parallel operation and user
acceptance testing until the effective date of termination or expiration. After
the expiration of the Termination Assistance Period, IBMGS-US shall (i) answer
questions regarding the Services on an "as needed" basis and (ii) deliver to
Eckerd any remaining Eckerd-owned reports and documentation still in IBMGS-US's
possession. If, in conjunction with the Termination Assistance Services, Eckerd
requests that IBMGS-US perform New Services, IBMGS-US shall provide and Eckerd
shall pay IBMGS-US for such New Services during the Termination Assistance
Period the lesser of (x) IBMGS-US's then-current rate for such New Services or
(y) the charges for such New Services set forth in the applicable New Services
Work Order.
ARTICLE 25 INDEMNITIES.
25.01 Indemnity by Eckerd.
Eckerd shall indemnify IBMGS-US from, and defend IBMGS-US against, any liability
or expenses (including attorneys' fees) arising out of or relating to (1) any
claim that the Eckerd Software, the Eckerd Machines or any other equipment,
systems, products or other resources or items provided to IBMGS-US by Eckerd
infringe upon the proprietary rights of any third party (except as may have been
caused by a modification by IBMGS-US or Eckerd's combination, operation or use
with devices, data or programs not furnished by Eckerd), (2) any claim by a
third party arising out of or relating to Eckerd's use of the Systems or receipt
of the Services (except as may arise pursuant to Section 25.02), (3) any duties
or obligations accruing prior to the Commencement Date by Eckerd arising out of
or in connection with any agreements relating to the Eckerd Resources, (4) the
inaccuracy or untruthfulness of any warranty made by Eckerd under this
Agreement, (5) any amounts, including taxes, interest and penalties, assessed
against IBMGS-US which are obligations of Eckerd pursuant to Section 17.08, (6)
(a) a violation of Federal state or other laws in regulations for the protection
of persons or members of a protected class or category of persons by Eckerd or
its employees, subcontractors or agents, (b) sexual discrimination or harassment
by Eckerd or its employees, subcontractors or agents, (c) work-related injury
except as may be covered by IBMGS-US's workers compensation or death caused by
Eckerd, (d) accrued employee benefits not expressly retained by IBMGS-US and (e)
any other aspect of the employment relationship or the termination of the
employment relationship (including claims for breach of an expressed or implied
contract of employment) relating to Eckerd's performance under this Agreement
and (7) the failure to pay any taxes, charges, levies or assessments owed by
Eckerd pursuant to Section 17.08.
25.02 Indemnity by IBMGS-US.
IBMGS-US shall indemnify Eckerd from, and defend Eckerd against, any liability
or expenses (including attorneys' fees) arising out of or relating to (1) any
claim that the Services, the Developed Software, the IBMGS-US Software, the
IBMGS-US Machines, any modifications to Eckerd Software performed by IBMGS-US or
any other equipment, systems, products or other resources or items provided to
Eckerd by IBMGS-US infringe upon the proprietary rights of any third party
(except as may have been caused by a modification by Eckerd or Eckerd's
combination, operation or use with devices, data or programs furnished by
Eckerd), (2) any claim by a third party in respect of services or systems
provided by IBMGS-US to a third party, (3) any duties or obligations accruing on
or after the Commencement Date arising out of or in connection with any
agreements relating to the Eckerd Resources, (4) the inaccuracy or
untruthfulness of any representative or warranty made by IBMGS-US under this
Agreement, (5) any amounts, including taxes, interest and penalties, assessed
against Eckerd which are obligations of IBMGS-US pursuant to Section 17.08, (6)
IBMGS-US's failure to provide data to any entity that purchases data from Eckerd
(up to $80,000 per occurrence of such failure), (7) IBMGS-US's failure to obtain
the IBMGS-US Consents, (8) (a) a violation of Federal, state or other laws in
regulations for the protection of persons or members of a protected class or
category of persons by IBMGS-US or its employees, subcontractors or agents, (b)
sexual discrimination or harassment by IBMGS-US or its employees, subcontractors
or agents, (c) work-related injury except as nay be covered by Eckerd's workers
compensation or death caused by IBMGS-US, (d) accrued employee benefits not
expressly retained by Eckerd and (e) any other aspect of the employment
relationship or the termination of the employment relationship (including claims
for breach of an expressed or implied contract of employment), (9) any claim
arising-out of or relating to IBMGS-US's obligations with respect to the Eckerd
Leased Assets, the Eckerd Services Contracts and the Eckerd Third Party Software
Licenses, (10) IBMGS-US's failure to pay the amounts specified in Section 10.06
and (11) the failure to pay any taxes, charges, levies or assessments owed by
IBMGS-US pursuant to Section 17.08.
25.03 Indemnity and Contribution.
Each Party shall contribute to the amount paid or payable by the other Party for
any and all losses for which such Party is legally liable and in proportion to
such Party's comparative fault in causing such losses, arising in favor of any
person, corporation or other entity, including the parties, their employees,
contractors and agents, on account of personal injuries, death or damage to
tangible personal or real property in any way incident to, or in connection with
or arising out of (1) this Agreement, (2) the Services, (3) the presence of such
Party, its employees, contractors or agents on the premises of the other Party
or (4) the act or omission of such Party, its employees, contractors or agents.
25.04 Indemnification Procedures.
If any civil, criminal, administrative or investigative action or proceeding
(each, a "Claim") is commenced against any Party entitled to indemnifications
under Section 25.01, Section 25.02 or Section 25.03 (an "Indemnified Party")
notice thereof shall be given to the Party that is obligated to provide
indemnification (the "Indemnifying Party") as promptly as practicable. After
such notice, if the Indemnifying Party shall acknowledge in writing to such
Indemnified Party that this Agreement applies with respect to such Claim, then
the Indemnifying Party shall be entitled, if it so elects, in a notice delivered
to the Indemnified Party not less than 10 days prior to the date on which a
response to such Claim is due, to take control of the defense and investigation
of such Claim and to employ and engage attorneys of its sole choice to handle
and defend the same, at the Indemnifying Party's sole cost and expense. The
Indemnified Party shall cooperate in all reasonable respects with the
Indemnifying Party and its attorneys in the investigation, trial and defense of
such Claim and any appeal arising therefrom; provided, however, that the
Indemnified Party may, at its own cost and expense, participate, through its
attorneys or otherwise, in such investigation, trial and defense of such Claim
and any appeal arising therefrom. No settlement of a Claim that involves a
remedy other than the payment of money by the Indemnifying Party shall be
entered into without the consent of the Indemnified Party. After notice by the
Indemnifying Party to the Indemnified Party of its election to assume full
control of the defense of any such Claim, the Indemnifying Party shall not be
liable to the Indemnified Party for any legal expenses incurred thereafter by
such Indemnified Party in connection with the defense of that Claim. If the
Indemnifying Party does not assume full control over the defense of a Claim
subject to such defense as provided in this Section 25.04, the Indemnifying
Party may participate in such defense, at its sole cost and expense, and
the-Indemnified Party shall have the right to defend the Claim in such manner as
it may deem appropriate, at the cost and expense of the Indemnifying Party.
ARTICLE 26 DAMAGES.
26.01 Consequential Damages.
Neither Party shall be liable for any indirect, special or consequential damages
or lost profits arising out of or relating to such Party's performance under
this Agreement.
26.02 Credits.
In the event IBMGS-US fails to provide the Services in accordance with the
Performance Standards, IBMGS-US shall incur charges according to the schedule
set forth in Schedule E (each, a "Credit"; collectively, the "Credits") against
the Fees owed to IBMGS-US in respect of the month following the month in which
the Credit(s) was (were) incurred. If the Credits exceed (1) one third of the
monthly charge (as determined pursuant to the formula in Schedule E) for any
calendar month or (2) two-thirds of the monthly charge (as determined pursuant
to the formula in Schedule E) in any 90-day period during the Term, then Eckerd
may upon notice to IBMGS-US, terminate this Agreement.
26.03 Limitation of Direct Damages.
In the event one Party shall be liable to the other Party for direct damages
arising out of or relating to such Party's performance under this Agreement,
such Party may recover from the other Party its direct damages up to an amount
not to exceed $40,000,000 in the aggregate (the "Direct Damages Cap").
26.04 Exclusion.
The limitations set forth in Section 26. 01, Section 26.02 and Section 26.03 are
not applicable to (1) any breach of Article 19, (2) the failure of Eckerd to
make payments due under this Agreement, (3) indemnification claims as set forth
in Article 25 (except Section 25.01(4), Section 25.02(4) and Section 25.02(6) or
(4) the gross negligence or willful misconduct of either Party; provided,
however, that a Party's liability for damages relating to the exclusions set
forth in this Section 26.04 shall not exceed $100,000,000.
26.05 Remedies.
In the event IBMGS-US fails to provide the Services in accordance with the
Performance Standards, Eckerd may, at its option, (1) seek all remedies
available to it under the law, subject to the limitations specified in Section
26.01, Section 26.03 and Section 26.04 or (2) recover as liquidated damages the
Credit(s). If Eckerd elects to recover Credit(s), Eckerd's recovery of Credit(s)
shall constitute acknowledgment by Eckerd of full satisfaction of any claim by
Eckerd (except with respect to the right to termination described in Section
22.02, Section 22.03 or Section 26.02) that IBMGS-US has breached its obligation
under this Agreement with respect to such event or set of events giving rise to
the Credit(s).
ARTICLE 27 MISCELLANEOUS.
27.01 Assignment.
Neither Party may assign this Agreement, without the consent of the other Party;
provided, however, that either Party may, upon notice to the other Party, assign
this Agreement, without the other Party's consent, to any subsidiary or
Affiliate of such Party, or pursuant to a corporate reorganization or sale of
substantially all of the assets of such Party. Any assignment in contravention
of this Section 27.01 shall be void.
27.02 Notices.
All notices, requests, approvals and consents and other communications required
or permitted under this Agreement shall be in writing and shall be sent by
telecopy to the telecopy number specified below. A copy of any such notice shall
also be personally delivered or sent by (1) first class U.S. Mail, registered or
certified, return receipt requested, postage pre-paid or (2) U.S. Express Mail,
Federal Express, or other, similar overnight bonded mail delivery services.
In the case of IBMGS-US:
c/o Eckerd Corporation
8333 Bryan Dairy Road
Largo, Florida 33777
Attn: IBMGS-US Project Executive
Facsimile No.: (813) 395-6403
For termination, with a copy to:
IBMGS-US
Route I 00
Somers, NY 10589
Attn: General Counsel
Facsimile No.: (914) 766-8444
In the case of Eckerd:
Eckerd Corporation
8333 Bryan Dairy Road
Largo, Florida 33777
Attn: Eckerd Senior Vice President - Information Technology
Facsimile No.: (813) 395-6403
With a copy to:
Eckerd Corporation
8333 Bryan Dairy Road
Largo, Florida 33777
Attn: General Counsel
Facsimile No.: (813) 395-6468
Either Party may change its address or telecopy number for
purposes of notice by giving the other Party notice of the new address or
telecopy number and the date upon which it will become effective.
27.03 Counterparts.
This Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one single agreement between the parties.
27.04 Headings.
The article and section headings and the table of contents are for reference and
convenience only and shall not be considered in the interpretation of this
Agreement.
27.05 Relationship.
Except as otherwise provided in Section 10.03 and Section 10.08. the performance
by IBMGS-US of its duties and obligations under this Agreement shall be that of
an independent contractor and nothing contained in this Agreement shall create
or imply an agency relationship between IBMGS-US and Eckerd, nor shall this
Agreement be deemed to constitute a joint venture or partnership between the
Parties.
27.06 Consents, Approvals and Requests.
Except as specifically set forth in this Agreement, all consents and approvals
to be given by either Party under this Agreement shall not be unreasonably
withheld and each Party shall make only reasonable requests under this
Agreement.
27.07 Severability.
If any provision of this Agreement is held by a court of competent jurisdiction
to be contrary to law, then the remaining provisions of this Agreement will
remain in full force and effect.
27.08 Waiver.
No delay or omission by either Party to exercise any right or power it has under
this Agreement shall impair or be construed as a waiver of such right or power.
A waiver by any Party of any breach or covenant shall not be construed to be a
waiver of any succeeding breach or any other covenant. All waivers must be in
writing and signed by the Party waiving its rights.
27.09 Publicity.
Each Party shall (1) submit to the other all advertising, written sales
promotion, press releases and other publicity matters relating to this Agreement
in which the other Party's name or mark is mentioned or language from which the
connection of said name or mark may be inferred or implied and (2) not publish
or use such advertising, sales promotion, press releases or publicity matters
without the other Party's consent; provided, however, that either Party may
include the other Party's name and a factual description of the work performed
under this Agreement on employee bulletin boards, in its list of references and
in the experience section of proposals to third parties, in internal business
planning documents and in its Annual Report to stockholders, and whenever
required by reason of legal, accounting or regulatory requirements.
27.10 Entire Agreement.
This Agreement, the Schedules and the Supplement, which are hereby incorporated
by reference into this Agreement, is the entire agreement between the parties
with respect to its subject matter, and there are no other representations,
understandings or agreements between the parties subject matter.
27.11 Amendments.
No amendment to, or change, waiver or discharge of, any provision of this
Agreement shall be valid unless in writing and signed by an authorized
representative of the Party against which such amendment, change, waiver or
discharge is sought to be enforced.
27.12 Governing Law.
This Agreement shall be governed by the laws of the State of Florida.
27.13 Survival.
The terms of Article 13, Article 19, Article 20, Article 24, Article 25, Article
26, Section 8.08, Section 12.01, Section 12.02, Section 12.03, Section 14.01,
Section 14.03, Section 16.02, Section 21.02, Section 22.05, Section 23. 01,
Section 27.09, Section 27.12, this Section 27.13, Section 27.14, Section 27.16
and Section 27.17 shall survive the expiration of this Agreement or termination
of this Agreement for any reason.
27.14 Third Party Beneficiaries.
Each Party intends that this Agreement shall not benefit, or create any right or
cause of action in or on behalf of, any person or entity other than Eckerd and
IBMGS-US.
27.15 Insurance.
During the Term, IBMGS-US shall maintain insurance of the following types and in
the following amounts: (1) statutory workmen's compensation in accordance with
all Federal, state and local requirements and (2) comprehensive general public
liability (including contractual liability insurance) in an amount not less than
$2,000,000. All insurance polices obtained or maintained by IBMGS-US pursuant to
this Agreement shall name Eckerd as an additional insured, IBMGS-US shall not
cancel (or permit any lapse) under any such insurance policy. Each insurance
policy shall contain the agreement of the insurer that the insurer shall not
cancel such policy without 30 days' notice to Eckerd. IBMGS-US shall deliver to
Eckerd a certificate of insurance evidencing the above insurance coverage prior
to the Commencement Date.
27.16 Covenant of Further Assurances.
Eckerd and IBMGS-US covenant and agree that, subsequent to the execution and
delivery of this Agreement and without any additional consideration, each of
Eckerd and IBMGS-US will execute and deliver any further legal instruments and
perform any acts which are or may become necessary to effectuate the purposes of
this Agreement.
27.17 Hiring of Employees.
Eckerd may offer employment to and employ any non-Lexington Data Center IBMGS-US
employees upon the expiration or the termination of this Agreement for any
reason. The effective date of hire with Eckerd of these IBMGS-US employees shall
not be prior to the expiration or termination of this Agreement. In the event
this Agreement is extended pursuant to Article 2, Eckerd offers to such
employees must remain valid during any Extension Period and shall become
effective after expiration of such Extension Period. Eckerd may at any time
directly or indirectly solicit and hire any employee of IBMGS-US after such
employee is dismissed by IBMGS-US or terminates his or her employment with
IBMGS-US without the intention of accepting employment from Eckerd. In addition,
Eckerd may at any time hire any IBMGS-US employee that responds to an indirect
solicitation (e.g., through a newspaper, magazine or trade journal
advertisement). IBMGS-US shall not transfer or relocate any IBMGS-US employee to
whom Eckerd has made an offer pursuant to this Section 27.17 until such IBMGS-US
employee has rejected Eckerd's offer of employment or Eckerd has withdrawn such
offer of employment. In the event of the expiration of this Agreement or the
termination of this Agreement pursuant to Section 22.0l(l), any offers by Eckerd
must be made no later than 120 days prior to the effective date of such
expiration or termination. In addition, IBMGS-US shall not directly solicit such
employees prior to 120 days prior to the effective date of expiration or
termination of this Agreement pursuant to Section 22.01(1). In any event, the
IBMGS-US employees who have been made offers by Eckerd must either accept or
reject such offers within 10 days of such offer. IBMGS-US shall not directly
solicit any Eckerd employees during the Term and for one year after the
expiration of this Agreement or termination of this Agreement for any reason.
27.18 EDI.
IBMGS-US shall not resell any of the EDI Services provided from an Eckerd
Service Location or use such EDI services to provide services to a third party.
27.19 Construction.
The word "including" shall mean "including, without limitation," throughout this
Agreement.
27.20 Interpretation of Documents.
In the event of a conflict between this Agreement and the terms and conditions
of the Schedules, the terms of this Agreement shall prevail.
IN WITNESS WHEREOF, IBMGS-US and Eckerd have each caused this Agreement to be
signed and delivered by its duly authorized representative.
ECKERD CORPORATION
By: /s/ Kenneth G. Petersen
Vice President - Information Technology
IBM GLOBAL SERVICES US DIVISION OF INTERNATIONAL
BUSINESS MACHINES CORPORATION
By: /s/ Mario J. Naranjo
Senior Project Executive
EXHIBIT 15.1
Board of Directors
Eckerd Corporation:
RE: Registration Statement on Form S-3 (No. 33-50223)
With respect to the subject registration statement, we acknowledge our awareness
of the use therein of our report dated September 15, 1998, related to our review
of interim financial information, which report was included in the Form 10-Q of
Eckerd Corporation and subsidiaries (a wholly-owned subsidiary of J. C. Penney
Company, Inc.) for the thirteen and twenty-six weeks ended August 1, 1998.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
/s/ KPMG PEAT MARWICK LLP
Tampa, Florida
September 15, 1998
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