Information Technology Services Agreement (2002)Full Document 

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                    INFORMATION TECHNOLOGY SERVICES AGREEMENT


                                     BETWEEN


                         PACIFICARE HEALTH SYSTEMS, INC.


                                       AND


                   INTERNATIONAL BUSINESS MACHINES CORPORATION


                                DECEMBER 31, 2001




                                TABLE OF CONTENTS
                                   



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1.       DEFINITIONS AND CONSTRUCTION...............................................................      1

         1.1      Definitions.......................................................................      1
         1.2      Interpretation....................................................................      1
         1.3      Order of Precedence...............................................................      2

2.       TERM.......................................................................................      2

         2.1      Initial Term......................................................................      2
         2.2      Renewal Term; Extension Period....................................................      2

3.       SERVICES...................................................................................      3

         3.1      Base Services.....................................................................      3
         3.2      Improved Technology...............................................................      4
         3.3      Governmental Approvals; Changes in Laws...........................................      4
         3.4      Third Party Consents..............................................................      5
         3.5      Technical Architecture and Product Standards......................................      6
         3.6      Knowledge Sharing.................................................................      6
         3.7      Break/Fix and Technology Refresh..................................................      6
         3.8      Asset Transfer....................................................................      6
         3.9      Reports...........................................................................      6
         3.10     Right to Use Third Parties........................................................      7

4.       TRANSITION.................................................................................      8

         4.1      Transition Services...............................................................      8
         4.2      Transition Milestones.............................................................      8

5.       NEW SERVICES...............................................................................      8

         5.1      New Services......................................................................      8
         5.2      Third Party Services in Connection with New Services..............................      9

6.       PACIFICARE RESPONSIBILITIES................................................................      9

         6.1      PacifiCare Supplier Relationship Manager..........................................      9
         6.2      PacifiCare Resources..............................................................     10
         6.3      Use of PacifiCare Facilities......................................................     10
         6.4      PacifiCare Policies and Procedures................................................     10

7.       THIRD PARTY AGREEMENTS.....................................................................     11

         7.1      Assigned Agreements...............................................................     11
         7.2      Managed Agreements................................................................     11



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         7.3      Performance Under Agreements......................................................     12

8.       SERVICE LEVELS.............................................................................     12

         8.1      Base Service Levels...............................................................     12
         8.2      Service Levels for New Services...................................................     12
         8.3      Adjustment of Service Levels......................................................     13
         8.4      Root-Cause Analysis...............................................................     13
         8.5      Measurement and Monitoring Tools..................................................     13
         8.6      Continuous Improvement and Best Practices.........................................     13
         8.7      Service Level Credits.............................................................     14

9.       PACIFICARE SATISFACTION AND BENCHMARKING...................................................     14

         9.1      Satisfaction Survey...............................................................     14
         9.2      Benchmarking......................................................................     14

10.      SERVICE LOCATIONS..........................................................................     15

         10.1     Service Locations.................................................................     15
         10.2     Safety and Security Procedures....................................................     15
         10.3     Data Security.....................................................................     15
         10.4     Data Security Breaches............................................................     16
         10.5     Security Relating to Competitors..................................................     16

11.      HUMAN RESOURCES............................................................................     16

12.      SUPPLIER STAFF.............................................................................     16

         12.1     Supplier Client Relationship Manager..............................................     16
         12.2     Key Personnel.....................................................................     17
         12.3     Project Staff.....................................................................     17
         12.4     Subcontractors....................................................................     17
         12.5     Conduct of Supplier Personnel.....................................................     18
         12.6     Non-Competition...................................................................     19

13.      MANAGEMENT AND CONTROL.....................................................................     19

         13.1     Steering Committee................................................................     19
         13.2     Oversight and Management Process; Relationship with Keane.........................     19
         13.3     Policy & Procedures Manual........................................................     21
         13.4     Change Control Procedures.........................................................     21



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14.      PROPRIETARY RIGHTS.........................................................................     22

         14.1     Background Technology.............................................................     22
         14.2     PacifiCare Software...............................................................     22
         14.3     Supplier Software.................................................................     22
         14.4     Supplier Tools....................................................................     23
         14.5     Work Product......................................................................     23
         14.6     Policies and Procedures Manual....................................................     23
         14.7     Upgrades to Software; Refresh of Supplier Equipment...............................     23

15.      DATA.......................................................................................     23

         15.1     Ownership of PacifiCare Data......................................................     23
         15.2     Use of PacifiCare Data............................................................     23
         15.3     Correction and Reconstruction.....................................................     24
         15.4     Return of Data....................................................................     24

16.      CONTINUED PROVISION OF SERVICES............................................................     24

         16.1     Disaster Recovery Plan............................................................     24
         16.2     Force Majeure.....................................................................     25
         16.3     Alternate Source..................................................................     25
         16.4     Allocation of Resources...........................................................     25

17.      PAYMENTS AND INVOICING.....................................................................     26

         17.1     Base Fees.........................................................................     26
         17.2     Base Fees.........................................................................     26
         17.3     Variable Fees and Baseline Adjustments............................................     26
         17.4     Variable Fee Report...............................................................     26
         17.5     Time of Payment...................................................................     27
         17.6     Detailed Invoices.................................................................     27
         17.7     Fee Dispute.......................................................................     27
         17.8     Substantial Change in Baselines...................................................     27
         17.9     Adjustments to Fees...............................................................     27
         17.10    Expenses..........................................................................     27
         17.11    Rights of Set-Off.................................................................     28
         17.12    Proration.........................................................................     28
         17.13    Unused Credits....................................................................     28



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         17.14    [...***...].......................................................................     28

18.      TAXES......................................................................................     28

         18.1      .................................................................................     28
         18.2      .................................................................................     28
         18.3      .................................................................................     29
         18.4      .................................................................................     29
         18.5      .................................................................................     29
         18.6      .................................................................................     29

19.      AUDITS.....................................................................................     29

         19.1     Services..........................................................................     29
         19.2     Fees..............................................................................     30
         19.3     Omnibus Reconciliation Act........................................................     30
         19.4     Record Retention..................................................................     31
         19.5     Facilities........................................................................     31
         19.6     Audit Software....................................................................     31
         19.7     Relief............................................................................     31

20.      CONFIDENTIALITY............................................................................     31

         20.1     General Obligations...............................................................     31
         20.2     Exceptions........................................................................     31
         20.3     Attorney-Client Privilege.........................................................     32
         20.4     Unauthorized Acts.................................................................     32
         20.5     Injunctive Relief.................................................................     33
         20.6     Residual Information..............................................................     33

21.      REPRESENTATIONS AND WARRANTIES.............................................................     33

         21.1     By PacifiCare.....................................................................     33
         21.2     By Supplier.......................................................................     34
         21.3     Disclaimer........................................................................     34

22.      ADDITIONAL COVENANTS.......................................................................     35

         22.1     By PacifiCare.....................................................................     35
         22.2     By Supplier.......................................................................     35

23.      DISPUTE RESOLUTION.........................................................................     36

         23.1     Resolution Procedures.............................................................     36


                                              * CONFIDENTIAL TREATMENT REQUESTED

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         23.2     Exclusions........................................................................     36
         23.3     Continuity of Services............................................................     36

24.      TERMINATION................................................................................     37

         24.1     Termination for Convenience.......................................................     37
         24.2     Termination for Change in Control.................................................     37
         24.3     Termination for Cause.............................................................     37
         24.4     Termination for Failure to Provide Critical Services..............................     37
         24.5     Termination in Part...............................................................     38

25.      TERMINATION FEES...........................................................................     38

         25.1     Early Termination Fee.............................................................     38
         25.2     Asset Purchase....................................................................     38
         25.3     No Other Fees.....................................................................     38

26.      TERMINATION ASSISTANCE.....................................................................     38

         26.1     Termination Assistance Services...................................................     38
         26.2     Termination Assistance Services Fees..............................................     39
         26.3     Exit Duties and Exit Rights.......................................................     40

27.      INDEMNITIES................................................................................     41

         27.1     Indemnity by PacifiCare...........................................................     41
         27.2     Indemnity by Supplier.............................................................     42
         27.3     Indemnification Procedures........................................................     44
         27.4     Obligation to Replace.............................................................     44

28.      DAMAGES....................................................................................     45

         28.1     Consequential Damages.............................................................     45
         28.2     Direct Damages....................................................................     45
         28.3     Basis of the Bargain..............................................................     45
         28.4     Exclusions........................................................................     46

29.      INSURANCE..................................................................................     46

         29.1     Types and Amounts.................................................................     46
         29.2     Supplier Agents...................................................................     47
         29.3     Documentation.....................................................................     47
         29.4     Self Insurance....................................................................     47
         29.5     Intentions........................................................................     47



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         30.      Miscellaneous Provisions..........................................................     48
         30.1     Amendments........................................................................     48
         30.2     Assignment........................................................................     48
         30.3     Assignment of Claims..............................................................     48
         30.4     Bankruptcy........................................................................     48
         30.5     Conflict of Interest..............................................................     48
         30.6     Consents, Approvals and Requests..................................................     49
         30.7     Corporate Integrity...............................................................     49
         30.8     Counterparts......................................................................     49
         30.9     Covenant of Further Assurances....................................................     49
         30.10    Entire Agreement..................................................................     49
         30.11    Export............................................................................     49
         30.12    Good Faith and Fair Dealing ......................................................     49
         30.13    Governing Law and Venue...........................................................     50
         30.14    Notices...........................................................................     50
         30.15    Publicity.........................................................................     51
         30.16    Relationship......................................................................     51
         30.17    Severability......................................................................     51
         30.18    Survival..........................................................................     52
         30.19    Third Party Beneficiaries.........................................................     52
         30.20    Timing and Cumulative Remedies....................................................     52
         30.21    Waivers...........................................................................     52



                                       vi


                    INFORMATION TECHNOLOGY SERVICES AGREEMENT


         THIS INFORMATION TECHNOLOGY SERVICES AGREEMENT (the "AGREEMENT"), dated
as of December 31, 2001 (the "EFFECTIVE DATE"), is between PACIFICARE HEALTH
SYSTEMS, INC., a Delaware corporation with its principal place of business at
3120 W. Lake Center Drive, Santa Ana, California, 92704 ("PACIFICARE"), and
INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation with its
principal place of business at Route 100, Somers, New York 10589 ("SUPPLIER").

                                    RECITALS

         WHEREAS, the PacifiCare Entities (defined below) currently receive
information technology ("IT"), data processing and related services from
internal staff and certain third party providers;

         WHEREAS, the PacifiCare Entities desire to centralize the delivery of
their IT services to maximize efficiency, improve the speed of delivering IT
solutions for new business opportunities and improve IT service levels;

         WHEREAS, PacifiCare desires for the PacifiCare Entities to obtain from
Supplier, and Supplier desires to provide to the PacifiCare Entities, certain
IT, data processing and related services whereby the PacifiCare Entities shall
be provided with a stable and robust operating environment with sufficient
capacity and scalability to meet business objectives on a proactive, rather than
reactive, basis, in accordance with the terms and conditions of this Agreement;
and

         WHEREAS, PacifiCare and Supplier have engaged in extensive negotiations
and discussions that have culminated in the formation of the relationship
described in this Agreement whereby Supplier shall provide to the PacifiCare
Entities certain information technology, data processing and related services,
in accordance with the terms and conditions of this Agreement.

         NOW, THEREFORE, for and in consideration of the agreements set forth
below, PacifiCare and Supplier agree as follows:

                                    AGREEMENT

1.       DEFINITIONS AND CONSTRUCTION.

         1.1 DEFINITIONS. Capitalized terms used in this Agreement shall have
the meanings set forth in Exhibit A.

         1.2 INTERPRETATION.

                  (a) The schedules and exhibits attached to this Agreement are
hereby incorporated into and deemed part of this Agreement and all references to
"Agreement" include the schedules and exhibits to this Agreement.


                                       1


                  (b) The headings preceding the text of sections, the headings
to schedules and exhibits, the table of contents and the table of schedules
included in or attached to this Agreement are used for convenience only and are
not to be considered in construing or interpreting this Agreement.

                  (c) The use of the terms "including," "include" or "includes"
shall in all cases herein mean "including without limitation," "include without
limitation" or "includes without limitation," respectively.

                  (d) Words importing the singular include the plural and words
importing the masculine include the feminine and vice versa where the context so
requires.

                  (e) References to any Law shall mean references to the Law as
it exists on the Effective Date as well as in changed or supplemented form or to
a newly adopted Law.

                  (f) The Parties acknowledge and agree that they have mutually
negotiated the terms and conditions of this Agreement and that any provision
contained herein with respect to which an issue of interpretation or
construction arises shall not be construed to the detriment of the drafter on
the basis that such Party or its professional advisor was the drafter, but shall
be construed according to the intent of the Parties as evidenced by the entire
Agreement.

         1.3 ORDER OF PRECEDENCE. Except as otherwise expressly set forth in the
body of this Agreement or in any schedules or exhibits, in the event of a
conflict, ambiguity or inconsistency between the provisions in the body of this
Agreement and any schedule or exhibit, the provisions in the body of this
Agreement shall prevail.

2.       TERM.

         2.1 INITIAL TERM. The initial term of this Agreement (the "INITIAL
TERM") shall commence on the Effective Date and continue until 23:59 (Pacific
Time) on December 31, 2011 (the "INITIAL TERM EXPIRATION DATE"), or such earlier
date upon which this Agreement may be terminated in accordance with the
provisions hereof.

         2.2 RENEWAL TERM; EXTENSION PERIOD.

                  (a) Unless this Agreement is terminated in accordance with the
provisions hereof, PacifiCare shall notify Supplier at least one hundred and
eighty (180) days prior to the Initial Term Expiration Date as to whether or not
PacifiCare desires to renew this Agreement. If PacifiCare provides Supplier with
notice that it desires to renew this Agreement for a specified period (the
"RENEWAL TERM") and the Parties agree on the terms and conditions applicable to
the Renewal Term at least sixty (60) days prior to the Initial Term Expiration
Date, then this Agreement shall continue in effect beyond the Initial Term
Expiration Date in accordance with the terms and conditions agreed upon by the
Parties for the Renewal Term. If PacifiCare provides Supplier with notice that
it does not desire to renew this Agreement, this Agreement shall expire on the
Initial Term Expiration Date, subject to Supplier's obligation to provide
Termination Assistance Services as set forth in this Agreement.


                                       2


                  (b) If PacifiCare provides Supplier with notice that it
desires to renew this Agreement and the Parties have not agreed on the terms and
conditions applicable to a Renewal Term at least sixty (60) days prior to the
Initial Term Expiration Date, then the term of this Agreement shall extend for a
period determined by PacifiCare of up to twelve (12) months beyond the Initial
Term Expiration Date (the "EXTENSION PERIOD"), at the charges, terms and
conditions in effect as of the Initial Term Expiration Date. If, during the
Extension Period, the Parties are able to reach agreement on the terms and
conditions applicable to a Renewal Term, then this Agreement shall continue in
effect beyond the end of the Extension Period in accordance with the terms and
conditions agreed upon by the Parties for the Renewal Term. If, during the
Extension Period, the Parties are unable to reach agreement on the terms and
conditions applicable to a Renewal Term, this Agreement shall expire at the end
of the Extension Period, subject to Supplier's obligation to provide Termination
Assistance Services as set forth in this Agreement.

3.       SERVICES.

         3.1 BASE SERVICES. Commencing on the Effective Date and continuing
throughout the Initial Term and any Renewal Term or Extension Period, if
applicable (collectively, "TERM"), Supplier shall be responsible for providing
to the PacifiCare Entities (with respect to each PacifiCare Entity, as requested
by PacifiCare) the following services (collectively, the "BASE SERVICES"):

                  (a) the services, functions, tasks and responsibilities
described in this Agreement (including the services, tasks, functions,
responsibilities and projects described in Exhibit B (Statement of Work));

                  (b) the services, functions, tasks and responsibilities being
performed prior to the Effective Date by the Affected Employees set forth in
Schedule 3.1(b)(i) and the Affected Contractors set forth in Schedule 3.1(b)(ii)
or such other PacifiCare Entities' employees and contractors whose services,
functions or responsibilities were eliminated as a result of this Agreement, in
each case, if such service, function, task or responsibility could reasonably be
characterized as inherent to a service, function, task or responsibility
described in Exhibit B (Statement of Work), even if the service, function, task
or responsibility is not specifically described in this Agreement;

                  (c) any services, functions, tasks or responsibilities that
are not specifically described in this Agreement, but that are required for the
proper performance and delivery of the Services; and

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