Document:

Ex. 10.2 - Amendment No. 1 to Separation Agreement

Exhibit 10.2
Execution Copy

Amendment No. 1 to Separation Agreement
Dated: December 9th, 2013
This Amendment No. 1 (“Amendment”), to that certain Separation Agreement (the “Agreement”) between Sears Holdings Corporation, a Delaware corporation (“SHLD”), and Sears Hometown and Outlet Stores, Inc., a Delaware corporation (“SHO”), is made by the parties thereto and is retroactive to November 30th, 2013 (the “Amendment Date”).  Capitalized terms used but not otherwise defined herein have the meanings ascribed to such terms in the Agreement.
Whereas, the parties have determined that it is in both parties interest to amend the Separation Agreement and certain of the Ancillary Agreements thereto in connection with certain disputes that have arisen between the parties.
NOW, THEREFORE, in consideration of the above premises and the mutual covenants and other good and valuable consideration contained herein, the parties agree as follows:

		
	1.
	Amendments.  As of the Amendment Date, the Agreement shall be modified as set forth below:  

		
	a.
	Ancillary Agreements.  The definition of “Ancillary Agreements” in Section 1.1 of the Agreement is amended by adding a new subsection (viii) as follows:

“(vii)    the “Retail Establishment Agreement; and

(viii)    the Supplemental Agreement.

		
	b.
	Additional Cooperation.  A new Section 12.2 is added to the Agreement as follows:

“12.2    Additional Cooperation.  The parties agree to further cooperate with each other as follows (including, where applicable, causing their Affiliates to provide such cooperation):

(a)    Subleasing by SHO and its Affiliates. For each lease or sublease to SHO granted by SHLD’s Affiliates that require SHLD’s Affiliates’ consent to sublease, SHLD’s Affiliate will not unreasonably withhold or delay their consent to subleases by SHO to its dealers and franchises.  For each such request, SHO will pay SHLD a $2,500 per-sublease consent fee.  SHLD’s Affiliates’ may not withhold its consent to a sublease due to the proximity of such location to a Sears FLS (unless such location is in violation of the proximity restrictions contained in the parties’ Merchandising Agreement).”

(b)    Sears Canada.  SHO is permitted to hold direct discussions with Sears Canada about business opportunities (thru October 31, 2018).  The rights of Sears Canada’s shareholders will not be affected.  For clarity, the parties note that this provision does not grant SHO any additional rights under the parties’ Ancillary Agreements.

DMLIB-#442077-v5-SHLD_SHO_Amendment_No__1_to_Separation_Agreement.DOCX

Exhibit 10.2
Execution Copy

(c)    Caribbean.  SHO and SHC will negotiate in good faith with respect to SHO’s proposals from time to time to conduct its dealer and franchise business in the Caribbean region; provided that neither party is obligated to enter into a definitive agreement.  SHO acknowledges that SHC has existing contractual obligations and rights in effect with counterparties conducting business in the region.  For clarity, the parties note that this provision does not grant SHO any additional rights under the parties’ Ancillary Agreements. 

(d)     Additional Businesses.  SHO may own, establish, acquire, and operate businesses (each a “New SHO Business”) that do not: (i) use the “Sears” name, and (ii) that is not a Seller Competitor.  SHLD’s Affiliates will not be obligated to supply merchandise or provide services for any New SHO Businesses (under the Ancillary Agreements and SHO and its Affiliates will not be obligated to accept performance from SHLD’s Affiliates under the Ancillary Agreements), but upon SHO’s request, SHLD Affiliates and SHO will negotiate in good faith, regarding SHLD’s Affiliates continuing to, on commercially reasonable terms, supply merchandise and to provide services for New SHO Businesses permitted under this subsection (d); provided that neither party is obligated to enter into a definitive agreement.

(e)     Ground Leases.  SHO is the owner of certain buildings on land leased by a SHLD Affiliate at the following locations: (x) Portage, IN; (y) O’Fallon, MO; and (z) Shelton, CT (the “SHLD Ground Leases”).  With respect to each location, SHLD’s Affiliates have authorized SHO to speak with the landlord on the SHLD Ground Lease regarding (1) the cancellation of the SHLD Ground Lease for the location, at no charge or liability to SHLD and (2) the execution and delivery of a new ground lease for the location between the landlord and SHO, at no charge to SHLD (each new lease, a “New Ground Lease”).  SHO will use commercially reasonable efforts to enter into a New Ground Lease for each location on the foregoing terms, and if, with respect to a location, SHO and the Landlord enter into a New Ground Lease; SHLD will consent to the cancelation of the existing SHLD Ground Lease; provided that it is at no cost to SHLD.  Subject to the next sentence, if with respect to a location SHO has complied with the preceding sentence but the Landlord for the location is unwilling to enter into a New Ground Lease with SHO and/or cancel the existing SHLD Ground Lease, the applicable SHLD Affiliate will assign the SHLD Ground Lease for the location to SHO provided that either a landlord’s consent is not required or SHO has obtained such consent at its sole cost and expense.  With respect to each such assignment, SHLD Affiliate’s will not be obligated to (i) pay any amount in connection with such assignment (other than amounts which SHO agrees in advance and in writing to pre-fund to such SHLD Affiliate for payment to the landlord or applicable third parties) or (ii) incur any other additional liability or any ongoing liability (except remaining liable as tenant on the SHLD Ground Lease) in connection such assignment.  If SHLD’s Affiliates remain liable as tenant or otherwise with respect to an SHLD Ground Lease that is assigned to SHO, SHO will provide SHLD’s Affiliates with an indemnification agreement containing commercially reasonable terms and conditions.

(f)     Norristown.  SHLD and SHO will enter a lease to zero out rent back to the Effective Date and SHO will have responsibility under that lease for the upkeep of the 

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DMLIB-#442077-v5-SHLD_SHO_Amendment_No__1_to_Separation_Agreement.DOCX

Exhibit 10.2
Execution Copy

Norristown property.  In addition, upon SHO’s request, SHLD will convey to SHO, via a quit-claim deed, title to the buildings, structures, and improvements (that includes all existing easements and development rights, to the extent they exist) associated with the Norristown estate for years; in which case SHO will be liable for all costs associated with transferring such property to SHO (e.g. transfer taxes) and SHO will within 5 days reimburse SHLD for any such costs pay by SHLD.\

(g)  HVAC, Utilities, and Related Matters Regarding Certain SHO-SHLD Leases/Subleases.  SHO’s obligations under the leases and subleases from SHLD’s Affiliates listed on Schedule 12.2(g) regarding HVAC, utilities, taxes, insurance, and similar items (such as roofs, other structural matters, parking lot repairs, and storm drains) will reflect the following resolution of these matters (which resolutions are reflected in the four recently executed TGI leases):

(1)SHO will have no responsibility for CAM, taxes, and insurance, which will be included in the existing basic rent.

(2)SHO will be responsible for utilities (gas, water, electric, sewer) based on the percent of building being leased/subleased by SHO (assumes co-tenant is similar user).  For example, if SHO occupies 30,000 sf of a 100,000 sf building, SHO will pay 30% of total utility expense.  If SHO occupies all of a building SHO will pay 100% of the total utility expense.

(3)SHLD’s Affiliates will have sole responsibility for maintenance, repair and replacement of roofs, building structures, sprinkler systems, parking lots, storm drains, common areas, and similar obligations.

(4)SHO will be responsible for maintenance, repair, and replacement of the HVAC units directly serving the area it occupies subject to an annual, per location, cap on such charges of $15,000 (“Annual HVAC Cap”).  Expenses in excess of the Annual HVAC Cap will be reimbursed by SHLD Affiliates and amortized over the remaining years of lease (but no less than 3 years) and will be paid as additional rent up to the Annual HVAC CAP in years when HVAC service does not exceed the  cap.  SHO will have no obligation to pay outstanding amortized amounts at lease/sublease termination.  For example, if a property on Schedule 12.2(h): (i)  SHLD had 3 years left on its lease (2014-2016) and (iii) that property needed a single 30K HVAC repair in 2014on an HVAC unit directly serving the area occupied by SHO, then SHO’s rent would be increased by $15K in 2014, and by $7.5K in 2015 and 2016 to cover the repair.

(h)     Changes Affecting accounting entries.  Each party agrees that prior to changing an established practice for entering accounting entries that affect the other party’s accounts (e.g., due to a change in such party’s interpretation of an Ancillary Agreement), 

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DMLIB-#442077-v5-SHLD_SHO_Amendment_No__1_to_Separation_Agreement.DOCX

Exhibit 10.2
Execution Copy

such party will notify the other party in writing of such change in accordance with the notice provisions of the Services Agreement.  

(i)     Reporting.  In the event of a Dispute, each party agrees that it will, upon reasonable request of the other party, provide specific information requested which is necessary to confirm whether such party is in conformance with this Agreement with respect to such disputed matter; provided that neither party will be required to produce information: (1) that cannot be readably obtained without incurring significant expense or (2) is protectable from discovery because it is legally privileged or constitutes attorney client work product.”  

		
	c.
	Schedule 12.2(g).  A new Schedule 12.2(g) is added to the Agreement as set forth on Appendix #1 hereto:

		
	2.
	Condition Precedent.  It is a condition precedent to the effectiveness of this Amendment that the parties (or their Affiliates, as applicable) also execute (collectively the “Related Amendments”): (a) that certain Amendment #2 to Merchandising Agreement, (b) that certain Amendment No. 1 to Services Agreement, (c) that certain Amendment No. 1 to Store License Agreement (Outlet), and (d) that certain Supplemental Agreement.

		
	3.
	No Other Amendments.  Except as expressly amended herein, the Agreement and the Ancillary Agreements shall continue in full force and effect, in accordance with its terms, without any waiver, amendment or other modification of any provision thereof, including the parties’ choice of Illinois law (pursuant to Section 14.10(a) of the Agreement) which also applies to this Amendment. 

Signature Page Follows

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DMLIB-#442077-v5-SHLD_SHO_Amendment_No__1_to_Separation_Agreement.DOCX

Exhibit 10.2
Execution Copy

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date set forth below by their respective officers thereunto duly authorized.

SEARS HOLDINGS CORPORATION
By:     /s/ RONALD BOIRE
Ronald Boire
Executive Vice President, Chief Merchandising Officer and President, Sears Full-Line Stores & Kmart Formats
December 9, 2013
SEARS HOMETOWN AND OUTLET STORES, INC.
By:     /s/ W.BRUCE JOHNSON
W. Bruce Johnson
Chief Executive Officer and President
Date: December 9, 2013

DMLIB-#442077-v5-SHLD_SHO_Amendment_No__1_to_Separation_Agreement.DOCX

Exhibit 10.2
Execution Copy

Appendix #1
Schedule 12.2(g)
Leases/Subleases Between SHLD Affiliates and SHO

	
			
	Property Name
	Format
	Lease Type

	West Babylon  NY
	OUT
	Sublease

	West Covina  CA
	OUT
	Sublease

	Tampa  FL
	OUT
	Sublease

	Tucson  AZ
	OUT
	Sublease

	Holyoke  MA
	OUT
	Lease

	North Miami Beach  FL
	OUT
	Sublease

	Cudahy  WI
	OUT
	Sublease

	Bridgeview  IL
	OUT
	Sublease

	Chesapeake  VA
	OUT
	Sublease

	Englewood  CO
	OUT
	Sublease

	Henderson  NV
	OUT
	Lease

	Bloomfield  MI
	OUT
	Sublease

	Raleigh  NC
	OUT
	Lease

	Greensboro  NC
	OUT
	Lease

	El Monte  CA
	OUT
	Sublease

	Concord  NC
	OUT
	Lease

	Norfolk  VA
	OUT
	Lease

	Pittsburgh  PA ORDC
	OUT
	Lease

	Pearl City  HI ORDC
	OUT
	Sublease

	Cupey Bajo  PR ORC
	OUT
	Lease

	San Diego  CA ORDC
	OUT
	Lease

	Nashville  TN ORDC
	OUT
	Lease

	Santa Ana  CA ORDC
	OUT
	Lease

	Jacksonville  FL
	OUT
	Lease

	Shoreline  WA
	OUT
	Lease

	Hendersonville  TN
	OUT
	Sublease

	Minneapolis  MN
	OUT
	Lease

	St.Petersburg  FL ORDC
	OUT
	Lease

	Melrose Park  IL ORDC
	OUT
	Lease

	Tucker  GA ORDC
	OUT
	Lease

	Winter Park  FL ORDC
	OUT
	Lease

	Richmond  VA ORDC
	OUT
	Lease

	Sacramento  CA ORDC
	OUT
	Sublease

	Sparks  NV
	OUT
	Lease

	Hayward  CA
	OUT
	Sublease

	Houston  TX ORDC
	OUT
	Lease

	Wauwatosa  WI
	OUT
	Sublease

DMLIB-#442077-v5-SHLD_SHO_Amendment_No__1_to_Separation_Agreement.DOCXex103amendmentno1toservi

Exhibit 10.3      Execution Copy   Amendment No. 1 to Services Agreement    Dated: December 9, 2013   This Amendment No. 1 (“Amendment”), to that certain Services Agreement (the “Agreement”) between Sears Holdings   Management Corporation, a Delaware corporation (“SHMC”), and Sears Hometown and Outlet Stores, Inc., a Delaware   corporation (“SHO”), is made by the parties thereto and is retroactive to October 6, 2013 (the “Amendment Date”).  Capitalized   terms used but not otherwise defined herein have the meanings ascribed to such terms in the Agreement.   Whereas, the parties have determined that it is in both parties interest to amend the Separation Agreement and certain of the   Ancillary Agreements thereto in connection with certain disputes that have arisen between the parties.    NOW, THEREFORE, in consideration of the above premises and the mutual covenants and other good and valuable   consideration contained herein, the parties agree as follows:      1. Amendments.  The Agreement shall be modified as set forth below:        a. Exhibit 1 (Outlet: Retainer Services Agreement).  References in Appendix 1.01-A to the “FY12 Sears Outlet:   Retainer Services Agreement” (which is attached to Appendix 1.01-A  as Exhibit 1) are, retroactive to February 1, 2013,   deemed to be references to the Exhibit 1 attached hereto as Attachment #1.      b. Hybrid Delivery.  Effective February 2, 2014:        i. Section 1(g) under the heading “Sears.com Functionality” in the 2nd column on page A-13 of Appendix 1.01-A   of the Agreement, is amended and restated as follows “       “SHO will pay SHMC a 3% commission on hybrid delivery sales originating in a store operated by SHMC or   its Affiliates.”       ii. In the 2nd column, on page A-65 of Appendix1.01-A of the Agreement, the four paragraphs under the heading   “Hybrid Delivery Market Process” in the “HOME SERVICES” Section is deleted and replaced with the following:       “Hybrid Delivery Market Process     

 

Exhibit 10.3      Execution Copy      A Hybrid Delivery Market is a market that is either serviced out of a Sears, Roebuck and Co. full-line   department store (SDO) or out of a SHO Store (by the SHO Store owner).   SHO will assign the Delivery Rate for each zip code and transmit the completed zip code file with the   rates to Home Services Delivery for entry into the POS (Point of Sale) system.   When a Sears’ full-line store sells merchandise for delivery into a Hybrid Delivery Market zip code that   is assigned to a SHO store, 50% of the SPRS margin is transferred from the Sears full-line store to the   SHO store performing that delivery.    For a period of 30 months, beginning on February 2, 2014, SHMC will use the SHO stores who have   been selected for Hybrid Delivery as of the October 31, 2013 exclusively to provide deliveries to   customer location zip codes identified as Hybrid Delivery Markets. The Parties will work in good faith   to expand the list of Hybrid Delivery Markets where economically justified.”   c. Retail Support Services (currently provided by IBM).        i. Seller waives the approximately $1.3M in Retail Support Charges (f/k/a the IBM Charges) SHO has withheld in   2013 and SHMC agrees that SHO will not be charged any additional Retail Support Charges for 2013 (except   charges related to any new SHO store openings).      ii. As of the February 2nd, 2014, a new row is added to page A-64 in Appendix 1.01-A of the Agreement at the end   of the “IT Services” Section as follows:        IT Service Costs – Retail   Support Charges   “Retail Support Charges” means the charges incurred for services for in-   store information technology services (currently provided by IBM) which   SHO was being charged by SHMC as of the Amendment Date under that   certain Amended and Restated Exhibit for Retail Support Services (f/k/a   Exhibit 15) between SHMC and IBM effective as of May 9, 2011 (or any   successor agreement SHMC enters into for such services, collectively, the   “Retail Support Agreement”).  The Services under the Retail Support   Agreement include level 2 support for LAN management, asset tracking,   security services, software distribution and QA, monitoring, incident and   FY 2014      SHO will be billed base   Retail Support Charges of   $1,000,000 in 2014;   however the actual   number billed will be   adjusted as of January 1st,   2014 based upon the     

 

Exhibit 10.3      Execution Copy      problem management, and special retail services (related to store   openings, closings, and moves).  The Retail Support Charges do not   cover, among other things, onsite hardware maintenance (e.g., cash   registers) and hardware depot, and SHMC will be continued to be charged   for such services as otherwise provided for in this Agreement.        SHO will be charged for the Retail Support Charges as provided for   herein; unless SHO terminates the underlying Retail Support Services as   permitted under Section 3.01 of the Agreement; in which case these   charges will be prorated on a daily basis.      In addition to the Retail Support Charges in the right hand column, SHO   will continue to be charged: (i) for all “Special Retail Services (e.g., store   openings/closings) and per incident charges (e.g., hot box replacement)   under the Retail Support Agreement, and (ii) other retail support and non-   retail charges for third party IT contractors providing Services (e.g., IBM   and NCR) passed along to SHO in accordance with the Agreement.      In the event that SHO’s number of locations supported under the Retail   Support Agreement (e.g. stores, ORDCS), open at the first day of fiscal   year 2014 and 2015, respectively (each a “Beginning SHO Locations   Count”) vary from 1,239 (the number of SHO locations as of November   2, 2013); then the Retail Support Charges in the right hand column of this   row will be adjusted for that year (up or down, as applicable), by $807.10   in fiscal 2014 and $1,614.20 in fiscal 2015.  Furthermore, in the event that   SHO’s net number of locations (after taking into account opening and   closings) supported under the Retail Support Charges as of the last fiscal   day of 2014 and 2015, respectively (each the “Ending SHO Locations   Count”) vary from the Beginning SHO Locations Count for that year,   then SHO (in the event of an net increase) or SHMC (in the event of a net   decrease) will pay the other party a true-up amount by the 20th day of such   fiscal year equal to: (x) the difference between the Beginning SHO   number of SHO locations   being serviced as provided   in the middle column of   this row.  These Retail   Support Charges will be   paid by SHO in 4 equal,   quarterly payments.        FY 2015      SHO will be billed Retail   Support Charges of   $2,000,000  in 2015;   however the actual   number billed will be   adjusted as of January 1st,   2015 based upon the   number of SHO locations   being serviced as provided   in the middle column of   this row.  These Retail   Support Charges will be   paid by SHO in 4 equal,   quarterly payments.          

 

Exhibit 10.3      Execution Copy      Locations Count and the Ending SHO Locations Count, multiplied by   $807.10 in fiscal 2014 and $1,560.06 in fiscal 2015.  For example if: (a)   the Beginning SHO Locations Count was 1,300 for fiscal 2014, (b) the   Ending SHO Locations Count was 1,400 for 2014, then the 4 quarterly   payments would for 2014 would be increased to $12,308.31 and SHO   would pay SHMC a true-up payment of $80,710.25 in January 2015 for   2014.        On or before the 10th day of fiscal 2015 and fiscal 2016 SHO will report   to SHMC in writing the Beginning SHO Locations Count and the Ending   SHO Locations Count for 2014 and 2015, respectively.        d. System Migration.  As of the February 2nd, 2014, a new row is added to page A-64 in Appendix 1.01-A of the   Agreement at the end of the “IT Services” Section as follows:      IT Service Costs – System   Migration   For a period of three (3) years, beginning on October 31, 2013, SHMC   shall use Good Faith efforts to provide appropriate IT and related services   (including people, access to systems and data/information migration,   testing, verification, integration, and similar services) on a time and   materials basis to assist SHO in its desire to successfully migrate within   the time frames set forth in each SHO Migration Plan (as defined below)   from SHMC systems, infrastructure, and managed services (“System   Migration Services”) to: (1) SHO’s systems and infrastructure and/or (2)   systems, infrastructure and managed services provided to SHO by third   parties.   SHO shall be responsible for creating a detailed migration plan   for each such SHMC system, infrastructure and managed service used by   SHO (each a “SHO Migration Plan”) and for managing each such   migration.  The parties will, by December 31, 2014 use Good Faith efforts   to mutually agree on the final migration date for each SHO Migration   Plan.  SHO will provide each SHO Migration Plan to SHMC for its   review and comment.  SHO will, in Good Faith, take into account   SHMC’s comments in finalizing each SHO Migration Plan.          

 

Exhibit 10.3      Execution Copy         The Labor Rates for System Migration Charges are as follows:      Labor Type Skill Set Hourly Rate    SHMC or its   Affiliates Associate   Associate $100.00   3rd Party Contractor Variable 3rd party   charges to   SHMC or its   Affiliates   without mark-   up.         SHO will pay no data/information-transfer or other charges   assessed by SHMC for System Migration Services.     SHO will reimburse SHMC upon demand for its reasonable, out-   of-pocket costs necessarily incurred to provide the System   Migration Services (including all costs assessed by third parties).    All costs and expenses approved by SHO in writing, shall be   conclusively deemed to be necessarily and reasonable.        Upon a written request by SHO for System Migration   Services, SHMC in Good Faith will assess with respect to each request for   System Migration Services whether: (i) it has the internal resources that   are qualified to perform the requested services and whether they are   available to assist SHO (based upon SHMC’s estimates of its internal   needs for its associates); or (ii) external resources are necessary.        If external resources are necessary, and if those resources will be   modifying SHMC’s or its Affiliates’ systems, SHMC will retain such   resources at SHO’s request and at SHO’s sole expense.  If external   resources do not need to modify or access SHMC’s of its’ Affiliates     

 

Exhibit 10.3      Execution Copy      systems, SHO will hire such resources directly.          2. Condition Precedent.  It is a condition precedent to the effectiveness of this Amendment that the parties (or their Affiliates, as   applicable) also execute: (a) that certain Amendment No. 1 to Separation Agreement, (b) that certain Amendment #2 to   Merchandising Agreement, (c) that certain Amendment No. 1 to Store Licensing Agreement (Outlet), and (d) that certain   Supplemental Agreement.      3. No Other Amendments.  Except as expressly amended herein, the Agreement shall continue in full force and effect, in   accordance with its terms, without any waiver, amendment or other modification of any provision thereof, including the   parties’ choice of Illinois law (pursuant to Section 12.14 of the Agreement) which also applies to this Amendment.       Signature Page Follows         

 

Exhibit 10.3      Execution Copy       IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date set forth below by their respective   officers thereunto duly authorized.         SEARS, HOLDINGS MANAGEMENT   CORPORATION      By:  /s/ RONALD BOIRE   Executive Vice President, Chief   Merchandising Officer and President, Sears   Full-Line Stores & Kmart Formats   December 9, 2013         SEARS HOMETOWN AND OUTLET STORES,   INC.      By:  /s/ W.BRUCE JOHNSON   W. Bruce Johnson   Chief Executive Officer and President   Date: December 9, 2013                 

 

Exhibit 10.3      Execution Copy   Attachment #1      Exhibit 1    (Outlet: Retainer Services Agreement)      See attached 6 page document      End of Attachment         

 

Exhibit 10.3      Execution Copy      OBU Project Outline – Exhibit 1   Dated: December 9, 2013   Requesting Party: Sears Hometown and   Outlet Stores, Inc.   (“SHO”)   Requesting Party   Contact:    Donnie Franzen   Date Submitted: 11/06/2013 OBU Account Manager: Syed Ali       Project Name: Sears Outlet: Retainer Services Agreement 2013 - 18244            1 Statement of Work     WorkLenz ID: 18244   1.1 Project Description    The Online Business Unit at Sears Holdings Management Corporation  (“OBU”) will    provide design, development, project management, QA and Support services for the    evolution  and maintenance  of  the  SHO’s  online  platforms  set  forth  below.  All    services  provided  under  this  Exhibit  1  (the  “Online SOW”)  shall  be  deemed    “Services”  provided  under  the  Service  Agreement  between  SHO  and  the OBU.     The aim of this understanding is to provide a basis for close co‐operation between    the SHO and the OBU in support of SHO’s website and supporting functionality,    but does not address promotions, marketing or related capabilities.    Objectives of Service    1. Propose the OBU Delivery Team structure and associated budget to support    the following  SHO online platforms: SearsOutlet.com and    ReturnsFlow.com.    2. To define the cost structure associated with the services  with the intent to    achieve  a  price/value  relationship  that  exceeds  what  can  be    managed/sourced  via  competitive  bid  by  SHO  from  providers  other  than    SHMC and its current supporting vendor/partners.         

 

Exhibit 10.3      Execution Copy      1.2 Team     The OBU will provide both dedicated and shared resources based on and offshore to    drive and support the development needs of SHO’s online business.     The current  team and costs can be  found  in Section 3. Appendix A attached hereto    provides monthly staffing and cost detail.       A dedicated resource will work primarily on SHO projects and will not be staffed onto    other projects  for  significant  time unless  first discussed with and approved by SHO.    Dedicated  resources  will  continue  to  perform  administrative,  management,    performance management, recruiting, and other OBU required tasks outside of core    project work. These tasks typically require no more than 5 hours per week.    1.3 Hiring and Staffing Notes    • Increasing Team Size: OBU requires 60 days‐notice to add additional team members    to those supporting SHO’s projects.    • Reducing Team Size: OBU requires 60 days‐notice to reduce the number of  its team    members supporting SHO projects.      • OBU will  provide  an  adjusted  quote  and  addendum  to  this  Exhibit  1  to  reduce  or    increase the size of its team supporting SHO.    • Interchanging Resources: At  its discretion, OBU may  interchange resources on SHO’s    project(s) by providing 30 days prior notice to SHO’s online team. OBU will provide a    week  overlap  between  the  outgoing  and  the  incoming  resource  for  knowledge    transfer. During  such  a  time, Online will not  charge  additional  fees  for overlapping    time. The OBU may then remove resources once a replacement  is  in place, and such    replacement  has  undergone  the  previously  described  training/knowledge  transfer    process.     • Hiring  and  Recruiting:  OBU  is  solely  responsible  for  recruiting  resources  including    compensation, bonus etc. However, OBU will work closely with SHO to ensure SHO’s    needs for specific skills are met. OBU  is solely responsible for determining use of full    time employees and/or contract resources.    • Performance Management: On unsatisfactory resource performance, SHO will provide    in writing the resource name and examples of poor performance. There after OBU will    determine how  to handle  resource  issues  (e.g. coaching, performance  improvement    plan, reallocate tasks/roles, interchange resources, etc.)    • Resource Replacement and backfill: OBU will use commercially reasonable efforts to     

 

Exhibit 10.3      Execution Copy      promptly backfill departing  team members. Notwithstanding  the  forgoing, OBU will    continue  to  meet  deliverable  deadlines  by  adding  temporary  resources,  working    overtime, or other implementing other contingencies.    • Team Location: Dedicated resources will be based either at Hoffman Estate or offsite.    • Temporary Resources: Additional temporary resources may be added to augment the    team supporting SHO as needed and/or to meet specific skill set needs of SHO.   This    work will be quoted and contracted separately.     1.4 Key Assumptions and Specifics of Budget     See Appendix A    1.5 Term and Termination    • This Online SOW is in effect from February 1, 2013 through January 31, 2014.   • After January 31, 2014, this Online SOW will renew monthly unless a new this Online    SOW or extension is put in place.    • This Online SOW may be terminated in accordance with the Services Agreement.    • Upon termination, OBU will release and/or redeploy team resources    • Project costs may be evaluated and adjusted from time‐to‐time as necessary    with mutual agreement from OBU and SHO.    • Appendix A reflects February – July 2013 actual, mutually agreed upon    charges and forecasted charges for August 2013  through January 2014    assuming stated staffing.                 

 

Exhibit 10.3      Execution Copy      2 Funding and Chargeback     Please provide  signatures; development will not begin without acceptance and approval of    Project Costs.    Payment Terms (EFFECTIVE FEBRUARY 1ST, 2013): Sears Outlet shall be charged on a   monthly basis.  Details of the charges can be found in Appendix A of this document.        Expenses:  Pricing does not include image royalty or software licensing, if applicable.  All third   party costs are estimates.  Third party expenses directly incurred by the OBU exclusively for   SHO projects will be billed and paid by SHO at cost to OBU.   Signature constitutes agreement to pay the  fees outlined in Appendix A hereto in accordance   with the Agreement.        JA #   (Required):    Unit/Overhead:    Sign-off: Name Title Signature Date   BU Requestor Donnie   Franzen   Director, E-Commerce     BU Approval J.J.   Ethridge   VP, Supply Chain &   Technology - SHO          3 Annual Cost Summary    SHO 2013 - OBU Delivery Team - Budget Proposal / Exec Summary   Cost Category       Amount (in $)   Labor $3,200,792   OBU $3,267,108   Ux $515,233   Onshore $1,467,024   Offshore $1,284,851   Infosys $289,328         Total Labor $3,556,436         Total Labor Bill (at 10% Discount) $3,200,792         Other Expenses $83,598     

 

Exhibit 10.3      Execution Copy      Site Hosting     SHO Site Hosting & Support $169,000   SHO Site Hosting (Discount - same as 2012) -$122,000   Returns Flow Site Hosting $14,214   Tools     Tools $22,384   Product Reviews $0          Total Bill - (Labor & Other Expenses)    - To SHO online business* $3,284,390         *Of the Annual Costs listed above, SHO has paid $ 2,526,345 through October 31st, 2013.       Includes Labor for Core Outlet – Engineering & Ux Delivery Team Only    Assumes the Core Team is ramped up full staffing level from FY 2013 (Feb 1st).        Other Expenses Includes    o  SHO Returns Flow Site hosting and maintenance   o Tools à Dynatrace, Catch Point   o Tools à Akamai (this cost is absorbed by Sears OBU and not charged to SHO)    Doesn’t include    o Any new SHO required infrastructure (hardware or software) if needed for 2013   o Any new operational site monitoring tools that will be needed by SHO at later time   (ex: Tea Leaf, etc.)   o Incremental delivery work from OBU (Outside of Core Outlet Delivery Team)   o Incremental delivery work from I&TG, or other teams external to OBU, within   SHMC that need to work on SHO projects        

 

Exhibit 10.3      Execution Copy      4 Appendix A            

 

Exhibit 10.3      Execution Copy

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