Document:

exv10w1

 

Exhibit 10.1

Professional Service Agreement

(for Use with Manufacturing Services Only)

This Agreement is hereby entered into on this 31st day of May, 2005 (the “Effective Date”) by
and between Visual Networks Operations, Inc., of 2092 Gaither Road, Rockville, MD 20850
(hereinafter “Customer”), and Plexus Services Corp., of 55 Jewelers Park Drive, Neenah, WI 54956,
(hereinafter “Plexus”).

	 	1.  	DEFINITIONS

	 	a.  	Affiliates

Any corporation or other entity controlled by, controlling, or under common control
with any other corporation or entity. “Control” means the direct or indirect
beneficial ownership of at least fifty (50%) percent of the voting stock of, or at
least a fifty (50%) percent interest in the income of, such corporation or entity,
or the power to elect at least fifty (50%) percent of the directors or trustees of
such corporation, or such other relationship which in fact constitutes actual
control.

	 	b.  	Assembly or Assemblies

Shall mean printed circuit board assemblies and/or systems that Plexus will
manufacture for Customer.

	 	c.  	Component Value

Shall mean Plexus’ standard cost for a given Component plus mark-up as defined in
Plexus’ then effective quote for an applicable Assembly.

	 	d.  	Components

Shall mean any and all material used in the manufacture of Customer’s Assemblies.

	 	e.  	Customer-Owned Property

Shall mean any asset in Plexus’ possession including but not limited to
Customer-Supplied Components or test equipment that is provided by Customer at no
charge.

	 	f.  	Engineering Change (“EC”)

Shall mean mechanical, software, electrical, design and/or specification changes
which, if made to the Assemblies, would affect the form, fit, function, delivery
schedule, performance, reliability, appearance, dimensions, tolerance, safety or
purchase price of such Assemblies or which would require any additional test.

	 	g.  	Quarterly Business Review (“QBR”)

Shall mean a strategic business meeting between the Customer and Plexus to discuss
current business issues and opportunities as further defined in Section 4.

	 	h.  	Specifications

The manufacturing and test specifications for the Assemblies supplied by Customer
and agreed to in writing by Plexus.

	 	i.  	Supplier

Shall mean any vendor, including Customer that provides Components or services to
Plexus.

	 	2.  	PURPOSE, SCOPE, AND APPLICABLE DOCUMENTS

This Agreement sets forth the terms and conditions under which Plexus will manufacture
Assemblies for Customer and provide related services. The parties agree that (i) each of
Plexus’ and Customer’s Affiliates shall be entitled to the rights and benefits afforded Plexus
and Customer, respectively, hereunder, and (ii) Plexus and Customer shall cause any such Plexus
or Customer Affiliate participating in this Agreement to perform the obligations of Plexus and
Customer, respectively,

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hereunder as if named a party herein. Each party shall be liable for the failure of any of its
Affiliates to so perform hereunder.

This Agreement contains the following Addendums, which are incorporated herein and made part of
this Agreement:

Addendum 1 – Forecasting, Ordering, and Inventory Planning

Addendum 2 – Inventory Mitigation, Reporting, and Liability

Addendum 3 – Pricing and Payment

In the event of any conflict between this Agreement and the Addendums attached hereto, the
Addendums shall control.

Non-Exclusive Relationship

The relationship contemplated under this Agreement is non-exclusive and nothing in this
Agreement will limit in any manner the right or ability of either party to enter into any
agreement with any other person or entity which creates rights or obligations of the party that
are the same as or substantially similar to the rights and obligations of such party hereunder.

Relocation of Servicing Manufacturing Facility

Plexus shall provide to Customer written notice at least one year prior to Plexus performing
the services contemplated under this Agreement using any facility other than Plexus’
Massachusetts manufacturing facility.

3. TERM

The term of this Agreement shall be from the Effective Date through the third anniversary of
the Effective Date, and shall be automatically extended for successive terms of one (1) year
each unless either party terminates this Agreement by giving the other party written notice of
such termination as provided in Section 12 hereto.

4. QUARTERLY BUSINESS REVIEWS (“QBR”)

Plexus and Customer agree to meet quarterly, or as otherwise agreed by both parties, to discuss
the state of business and to review business performance issues and improvement initiatives.
The items to be reviewed include, but are not limited to, the following:

	 	a.  	Customer and Plexus Business Trends

Customer and Plexus agree to review their business initiatives and any significant
changes that may affect the relationship of Customer and Plexus. In addition,
Customer will present business trends and performance to Forecast so that Plexus
can better serve the current Customer requirements.

	 	b.  	Cost Savings Initiatives (Components and Labor)

Plexus and Customer agree to review initiatives to reduce cost from the bill of
materials and manufacturing process for the Assemblies.

	 	c.  	Delivery Performance

Plexus and Customer agree to measure, review and discuss delivery performance for
all Assemblies. Both parties agree to measure actual delivery dates as compared to
Customer requested delivery dates and to Plexus’ expected delivery dates.

	 	d.  	Quality Performance

Plexus and Customer agree to discuss the agreed upon quarterly quality metrics for
the program.

	 	e.  	Payment Performance

Plexus and Customer agree to review any issues that are preventing payment within
the agreed upon payment terms.

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	 	f.  	Pricing

Plexus and Customer agree to review pricing under this Agreement. Any Assembly
price adjustments required shall be based upon total Assembly order quantities,
prevailing Component market prices, supply chain programs, Engineering Change
requests or other relevant data.

	 	5.  	QUALITY STANDARDS

	 	a.  	General

Plexus agrees to maintain a quality assurance program sufficient for Customer to
maintain Customer’s quality assurance program compliant with the requirements of
ISO 9001:2000. Without limiting the foregoing, Plexus shall maintain a quality
assurance program compliant with the requirements of ISO 9002: 2000.

	 	b.  	Workmanship Requirements

Assemblies manufactured by Plexus will be assembled, inspected, and tested in
accordance with the Specifications. Unless otherwise agreed upon in writing,
Plexus shall maintain an Assembly assurance “workmanship” requirement which
mandates internal compliance to IPC-A-610 Class 2. Target process in writing and
Assembly first pass yields (or PPM’s) in manufacturing shall be jointly agreed to
between Plexus Quality Engineering and the Customer. These Customer goals will
form the basis for Continuous Quality Improvement (“CI”) Activities at Plexus.

	 	c.  	Continuous Improvement

Plexus and Customer agree to hold a CI meeting or conference call as often as
necessary to be established with the Customer’s Quality Team and Plexus CI Team.
This CI event will result in documented action items at Plexus that drive
improvement efforts that can be reported to management at both organizations.

	 	d.  	Chronic Tests Failures (“Production”)

Customer Assemblies will be manufactured and tested to the Specifications
associated with the current Assembly revision. Assemblies that fail the approved
tests three (3) times for the same issue or that cannot be repaired by Plexus due
to a design related issue will be deemed non-repairable Assemblies. The
non-repairable Assemblies will be clearly marked as “failed Assemblies.” Both
companies agree to review the status of all “failed Assemblies” within ten (10)
business days of identification and to dispose of them by scrapping the Assemblies
at Plexus and invoicing the Customer or shipping the Assemblies and invoicing the
Customer. Assembly invoices will be issued at the quoted Assembly price with
payment terms as described in Addendum 3 of this Agreement.

	 	e.  	Inspection/Audit

Customer shall have the right, upon reasonable notice and during normal business
hours, to visit any manufacturing unit of Plexus or its suppliers (subject to
having received any such supplier’s consent), in order to review quality systems or
to inspect individual deliveries to Customer. Plexus shall assist during such
visits and shall make available all records, information, and documentation as is
reasonably necessary to accomplish the purpose of the visit.

	 	f.  	Certain Certifications

Plexus shall comply with Customer’s reasonable requirements in connection with
Customer obtaining and maintaining Underwriters Laboratory certification of its
build processes which compliance shall include without limitation permitting
reasonable onsite visits by Customer’s selected certification authority. Customer
and its selected certification authority shall comply with Plexus’ reasonable
security policies relating to onsite visits under this Section.

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	 	g.  	Reports

Plexus shall provide Customer the following reports:

	 	i.  	Gross Inventory Report (valued) (substantially in the form
set forth the attached spreadsheet) - on a calendar monthly basis;
	 
	 	ii.  	Excess Inventory Report (valued) (substantially in the form set forth
the attached spreadsheet) - on a calendar monthly basis;
	 
	 	iii.  	Open Order Report (valued) (substantially in the form set
forth the attached spreadsheet) - on a calendar weekly basis;
	 
	 	iv.  	PPV Report (valued) (substantially in the form set forth the attached
spreadsheet) - on a calendar monthly basis;

	 	6.  	ENGINEERING CHANGES

	 	a.  	Notice of change

Customer shall consult Plexus on the feasibility and impact of any contemplated
Engineering Change (EC) prior to submitting the EC to Plexus. Customer agrees to
submit all ECs to Plexus in writing.

	 	b.  	Notice of EC cost impact

Plexus shall as soon as practicable implement any EC except in cases in which any
additional fees or charges to Customer would apply as a result of implementing the
EC in which case Plexus will use best efforts to respond to the Customer within
three (3) business days with a written evaluation of the EC including: a) the
administrative cost to implement the EC, b) the cost to modify tooling or related
non-recurring expenses, c) the obsolete quantity of Components Plexus has on hand
and/or on order with its Suppliers related to the EC, d) the cost to rework
work-in-process and any ongoing unit price adjustment resulting from the EC, e) the
expected effect on the delivery schedule to include the effect on all in-process
work (e.g., re-workable, repairable, etc.), and f) the manner in which the EC will
be implemented. In the event that additional fees or charges apply to the EC,
Plexus and Customer shall exercise best efforts to determine the optimal course of
action to give effect to the EC and implement such plan upon mutual agreement.

	 	6.  	TOOLING AND CUSTOMER-OWNED PROPERTY

All tooling produced or obtained by Plexus for the Assemblies delivered hereunder will be paid
for by Customer at prices agreed upon by the parties. Tooling shall become and remain the
property of Customer at the time payment in full is received by Plexus. Customer may also
consign tooling to Plexus for the manufacture of the Assemblies. Plexus shall not procure any
tooling on behalf of Customer without Customer’s prior written consent (which consent may be
given by email).

All Customer-Owned Property shall be used by Plexus only for the benefit of Customer, and shall
be delivered to Customer upon request. Plexus will not cause or allow to occur any lien or
encumbrance on any such Customer-Owned Property in Plexus possession. Plexus will insure any
Customer-Owned Property in Plexus’ possession at the replacement value thereof under the terms
of Plexus’ then current insurance policies. Upon reasonable notice and request, Plexus shall
provide Customer with certificate(s) of insurance, which name Customer as loss payee, as proof
of all such risk insurance for the Customer-Owned Property at Plexus. Such certificate(s)
shall be endorsed to contain a provision requiring the insurers to endeavor to provide Customer
with thirty (30) days’ written notice of any cancellation or adverse material change in such
insurance.

Plexus may at the request of Customer maintain, repair, calibrate, or upgrade Customer-Owned
Property. Customer will pay for any such services on a time and materials basis. Labor
charges will be billed at Plexus’ then current billing rate. Replacement parts for test
equipment will be charged at Plexus’ cost plus 15%. Travel expenses will be added to any such
services, including travel between Plexus and/or one of its Affiliates.

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If Customer requests the return of any Customer-Owned Property from Plexus and the return of
such Customer-Owned Property directly prevents Plexus from providing Assemblies or warranty
service to Customer, then Plexus shall notify Customer in writing that the return will have
such consequences. Should Customer still desire that Plexus effect the return, then Plexus
will be relieved of such obligations.

	 	8.  	DOCUMENTATION

Customer is responsible for supplying Plexus with complete documentation and updates to the
same. This includes complete and current sets of documentation including, at a minimum, all
prints, software, artwork, and bill of materials with manufacturer and part number, and any
specifications, including test specializations or procedures called for on any Customer prints.
It is the Customer’s responsibility to assure that Plexus receives timely notification of any
changes to the documentation, and updated prints reflecting such changes.

	 	9.  	LIMITED WARRANTY

Plexus warrants that the Assemblies will conform to the Specifications and be free from defects
in workmanship performed by Plexus for a period of [***] from the date of shipment by Plexus.
With respect to Components, Plexus will transfer to Customer any transferable Component
warranties received from the manufacturer thereof. If Components are returned under
manufacturer’s warranty, Plexus will, on Customer’s behalf and without additional charge,
manage the return of any such Components to the manufacturer thereof for repair or replacement.

Plexus will, at it’s option and free of charge, repair or replace Assemblies not conforming to
the warranties in this Section 9 provided they are returned to Plexus bearing a return
materials authorization (RMA) number issued by Plexus, securely packaged, with freight prepaid,
and notice of the nonconformity was provided within the warranty period. Plexus’ warranty for
replacement or repaired Assemblies shall be the same as the warranty stated herein provided
that the duration of such warranty shall be limited to the greater of (a) the duration of the
warranty which remained on the original defective Assemblies returned to Plexus as of the date
of Plexus’ receipt of the same and (b) [***]. In addition, any repair services performed by
Plexus will be warranted by Plexus to conform to the Specifications and be free from defects in
workmanship for a period of [***] from the date of shipment of the repaired product (with any
such warranty defects being subject to the same remedies provided above). Plexus will make all
reasonable efforts to respond to Customer promptly after receiving an RMA number request.
Plexus will return any Assemblies repaired or replaced pursuant to this paragraph to Customer
with freight prepaid.

This warranty does not apply to:

	 	a)  	Design deficiencies
	 
	 	   	Plexus expressly disclaims any warranty relating to design deficiency.
	 
	 	b)  	Malfunctions, defects, or failures resulting from misuse; abuse;
accident; neglect; improper installation, operation or maintenance contrary to the
specifications for the Assembly; theft; vandalism; acts of God; power failures or
surges; casualty; or alteration, modification, or repairs by any party other than
Plexus.
	 
	 	c)  	Any defect not made known by Customer to Plexus as soon as practical
after the defect first appears.
	 
	 	d)  	Assemblies shipped by Plexus and not tested according to agreed-upon
test procedures at the direction of Customer.

THE FOREGOING CONSTITUTES CUSTOMER’S SOLE REMEDIES AGAINST PLEXUS FOR BREACH OF THE WARRANTY
OBLIGATIONS SET FORTH IN THIS SECTION 9. EXCEPT AS PROVIDED IN THIS SECTION, PLEXUS MAKES NO
WARRANTIES WITH RESPECT TO THE ASSEMBLIES OR ITS SERVICES HEREUNDER, EXPRESS OR IMPLIED,
INCLUDING ANY IMPLIED WARRANTIES RESPECTING NONINFRINGEMENT, OR MERCHANTABILITY OR

	 	 	[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

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FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM A COURSE OF
PERFORMANCE, A COURSE OF DEALING, OR TRADE USAGE.

Customer will provide to Plexus any software required to be loaded by Plexus onto the
Assemblies. Plexus represents and warrants that all software loaded onto the Assemblies is as
required by the Specifications and without modification from the software as provided by
Customer to Plexus and Plexus has not loaded any other software onto the Assemblies. OTHER
THAN THE FOREGOING WARRANTY WITH RESPECT SOFTWARE, PLEXUS MAKES NO WARRANTY WITH RESPECT TO
SOFTWARE AND ALL SOFTWARE IS PROVIDED “AS IS.”

Any repair services requested of Plexus by Customer not explicitly covered by the above
warranty, including, but not limited to, upgrade services, will be out-of-warranty services and
performed by Plexus at its option and on a time and materials basis. In addition, Assemblies
for which Plexus cannot duplicate the failure reported by Customer shall be returned to
Customer and Plexus will invoice Customer, and Customer will pay charges reflecting the time
and materials expended by Plexus in evaluating such Assemblies.

	 	10.  	PROPRIETARY RIGHTS

All intellectual property produced or developed by Customer or Plexus during the term of this
Agreement in connection with the design of the Assemblies shall be owned exclusively by
Customer. All intellectual property produced or developed by Plexus during the term of this
Agreement in connection with the manufacture of the Assemblies for Customer shall be owned
exclusively by Plexus. The manufacture of the Assemblies by Plexus for Customer hereunder does
not convey to either party any rights or license, express or implied, or by estoppel or
otherwise, under any trade secret, patent, trademark, copyright or maskwork of the other party,
except as may be necessary for each party to perform under this Agreement. Each party
expressly reserves all rights under trade secrets, patents, trademarks, copyrights or maskworks
owned by such party.

	 	11.  	INDEMNIFICATION AND INSURANCE

	 	11.1  	Customer agrees to defend at its expense, hold harmless and indemnify Plexus, its
affiliates, officers, shareholders, directors, employees, and agents, from and against any
judgments, liabilities, claims, demands, expenses, or costs (including reasonable
attorneys’ fees) (collectively, “Losses”) arising from any third party claim, action, or
allegation relating to the designs or specifications of the Assemblies or the infringement
by the Assemblies of any third party intellectual property right.
	 
	 	11.2  	Plexus agrees to defend at its expense, hold harmless and indemnify
Customer, its affiliates, officers, shareholders, directors, employees, and agents, from
and against any Losses arising from any third party claim, action, or allegation relating
to the infringement by any manufacturing process owned by, supplied by or used by Plexus
in the performance of this Agreement of any third party intellectual property right, other
than any such manufacturing process that is required to be employed by Customer
specifications.
	 
	 	11.3  	The indemnifying party shall have control of the defense and negotiations for
settlement of any indemnifiable claim under this Section 11 (“Claim”), provided that the
indemnifying party does not materially prejudice the indemnified party without the
indemnified party’s prior written consent. The indemnified party shall have the right to
participate in the investigation, defense and settlement negotiations of any Claim with
separate counsel chosen and paid for by the indemnified party, subject to the indemnifying
party’s right to control the defense absolutely, in its sole discretion. The indemnified
party may, at any time and at its own cost and expense (which cost and expense shall not
be subject to indemnification under this Section 11), settle any Claim against it so long
as such settlement is expressly without prejudice to the interest or position of the
indemnifying party.
	 
	 	11.4  	At all times during the performance of services under this Agreement, Plexus shall
maintain the minimum levels of insurance as follows: (1) Comprehensive General Liability

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Insurance (which shall, among other things, provide coverage for products and
completed operations) with minimum limits of $1,000,000 per person and $2,000,000 per
occurrence and Umbrella Liability Insurance with minimum limits of $4,000,000 per
occurrence; (2) workers’ compensation in the statutory amounts and with benefits
required by the laws of the state in which Plexus’ employees are hired if the states
are other than that in which the work is performed; and (3) employers’ liability with
minimum limit of liability of $1,000,000 for bodily injury by accident/each accident,
$1,000,000 for bodily injury by disease/each employee and $1,000,000 for bodily
injury by disease/policy limit (aggregate). Plexus shall cause the insurance
carrier, upon request by Customer, to deliver to Customer a written certificate of
coverages confirming compliance with the requirements of this Section. The required
coverage specified above shall not in any way affect Plexus’ liability under this
Agreement.

	 	12.  	TERMINATION

Either party may terminate this Agreement at any time and for any reason upon one hundred
eighty (180) days prior written notice to the other party. In addition, either party may
terminate this Agreement in the event that the other party (i) fails to cure a material default
under this Agreement within thirty (30) days after receiving written notice thereof or (ii)
becomes insolvent, files, or has filed against it a petition in bankruptcy, makes an assignment
for the benefit of creditors, or generally becomes unable to pay its debts as they become due.

Upon termination of this Agreement, all outstanding Customer Purchase Orders shall be deemed
canceled unless otherwise agreed by the parties in writing. Customer agrees to pay Plexus (a)
the Component Value of any Components on hand or on order as of the date of termination, (b)
the full applicable price of any finished goods or work-in-process (as if the same were
completed) on hand at Plexus or in transit to Customer as of the termination date (Plexus will
complete any such work-in-process as requested by Customer), and (c) any related packaging and
transportation costs.

	 	13.  	SURVIVAL

Sections 1, 3, 7, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 20, 22, 23, 24, 25 and 26 of this
Agreement shall survive the termination of this Agreement in accordance with their terms.

	 	14.  	LIMITATION OF LIABILITY

EXCEPT AS SET FORTH IN SECTION 11, IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT,
WARRANTY, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, PRODUCT LIABILITY, OR OTHERWISE, SHALL
EITHER PARTY BE LIABLE TO THE OTHER FOR ANY LOSS OF PROFITS, LOSS OF USE, OR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL, OR EXEMPLARY DAMAGES OF ANY KIND, WHETHER OR NOT PLEXUS IS ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING THE FAILURE, OR ESSENTIAL PURPOSE, OF
ANY REMEDY.

	 	15.  	FORCE MAJEURE

Plexus shall not be liable for any delay in or failure of performance under this Agreement due
to any contingency beyond Plexus’ reasonable control, including, but not limited to, an act of
God, war, acts of terrorism, insurrection, fire, riot, strikes or labor unrest, sabotage, an
act of public enemy, flood, storm, accident, Component shortages, or changes in laws or
regulations.

	 	16.  	ASSIGNMENT

Neither Plexus nor Customer shall assign this Agreement, or any of its rights or delegate any
of its responsibilities under this Agreement, and any purported attempt to do so will be null
and void, unless agreed to by both parties in writing; provided, however, that Plexus and
Customer may, without consent, assign this Agreement to any successor organization resulting
from a merger, spin-off, or other reorganization, or any sale of all or substantially all of
such party’s assets. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and permitted assigns.

	 	17.  	APPLICABLE LAW

The parties hereby agree that this Agreement shall be governed by and will be construed in
accordance with the laws of the State of New York, irrespective of the conflicts of law
provisions thereof. The sale of Assemblies hereunder shall not be governed by, or subject to,
the United Nations Convention on Contracts for the International Sale of Goods.

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	 	18.  	LANGUAGE

The parties agree that (i) the English language shall be the exclusive and official language of
this Agreement, (ii) this Agreement shall be interpreted exclusively in the English language,
and (iii) the English language will govern all future relations of the parties, including, but
not limited to, any proceeding, mediation, arbitration, dispute, or claim hereunder.

	 	19.  	RELATIONSHIP OF THE PARTIES

Neither party is designated or appointed an agent or representative to the other party and no
party will have any authority, either expressed or implied, to create or assume any agency or
obligation on behalf of or in the name of the other party. The relationship of Plexus to
Customer is that of independent contractor, and neither party will have any responsibility for,
or obligations to, the employees of the other.

	 	20.  	SEVERABILITY

If any provision of this Agreement is adjudged to be unenforceable in whole or in part, such
adjudication shall not affect the validity of the remainder of this Agreement. Each provision
of this Agreement is severable from every other provision and constitutes a separate, distinct
and binding covenant.

	 	21.  	COOPERATION

The parties cooperated in the preparation and negotiation of this Agreement and this Agreement
will not be construed against or in favor of any party by virtue of the identity, interest, or
affiliation of its preparer.

	 	22.  	NON-WAIVER; REMEDIES

Failure by either party to exercise any right granted in this Agreement shall not be deemed a
waiver of such right. A waiver of any right under this Agreement must be in writing and signed
by an authorized representative of the party making such waiver. No delay, failure or waiver
of either party’s exercise or partial exercise of any right or remedy under this Agreement
shall operate to limit, impair, preclude, cancel, waive or otherwise affect such right or
remedy. Except as otherwise stated herein, the remedies under this Agreement shall be
cumulative and not exclusive, and the election of one remedy shall not preclude pursuit of
other remedies generally available under the governing law.

	 	22.  	ENTIRE AGREEMENT; MODIFICATION

This Agreement contains the entire understanding of the parties pertaining to the subject
matter hereof, and no other agreements, oral or otherwise, shall be deemed to exist or to bind
the parties pertaining to the subject matter hereof. This agreement may not be modified or
terminated orally, and no claimed modification, termination, or waiver shall be binding unless
in writing and signed by authorized representatives of both parties. The parties expressly
agree that (a) any preprinted terms and conditions on any Plexus or Customer forms or documents
shall be void and of no effect in interpreting the obligations of either party during the term
of this Agreement and (b) any terms set forth in the Pricing Schedule (defined in Section (a)
of Addendum 3) that are inconsistent with the terms of this Agreement (other than the Pricing
Schedule) shall be null and void and of no force or effect.

	 	24.  	COUNTERPARTS; FACSIMILE SIGNATURES

This Agreement may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which when taken together shall constitute one and the same instrument.
The delivery of signatures to this Agreement by facsimile transmission shall be binding as
original signatures.

	 	25.  	INSPECTION RIGHTS/SAS 70 REPORTS

To confirm compliance with the terms of this Agreement, for the term of this Agreement and for
a period of one (1) year after the expiration or termination of this Agreement, Customer shall
have the right to cause mutually acceptable independent certified public accountants, which
auditors will not be compensated on a contingency basis and will be bound to keep all
information confidential except as necessary to disclose discrepancies to Customer, during
Plexus’s normal business hours and at Customer’s sole expense, to examine and audit Plexus’
books, records, documents and materials as reasonably requested with respect to billings for
its performance under this Agreement relative to the amounts Customer had agreed to pay. The
foregoing audit right will be subject to and limited by any confidentiality obligations owed by
Plexus to third parties. Plexus shall reimburse Customer for

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reasonable out-of-pocket expenses incurred for performance of such audits that reveal material
variances in the amounts invoiced under this Agreement relative to the amounts Customer had
agreed to pay. A variance shall be deemed material if it involves any excess charge to
Customer of more than $100,000 or five percent (5%) of the amount actually due from Customer to
Plexus in any given three (3) calendar month period, whichever is greater.

Plexus and Customer will cooperate with each other in good faith and without imposing
unreasonable burden to the other to satisfy any reasonable requirements in connection with
Customer’s preparation and auditing of its financial statements and Customer’s corporate
governance compliance efforts (including without limitation its internal controls compliance
requirements) as they relate to Plexus’ performance of this Agreement. Without limiting the
foregoing, if Plexus prepares or causes to be prepared a SAS 70 report (whether Type I, Type II
or otherwise) for any period (“SAS 70 Period”), then, upon Customer’s request, Plexus shall, at
no additional cost except to the extent that such SAS 70 report is specific to Customer,
provide to Customer a copy of such SAS 70 report for such SAS 70 Period. For the avoidance of
doubt, the foregoing shall not be construed to require Plexus to prepare a SAS 70 report at
Customer’s request.

	 	26.  	NON-DISCLOSURE; FILING REQUIREMENTS UNDER SECURITIES LAWS

That certain Mutual Non-Disclosure Agreement (“NDA”) between Plexus and Customer dated as of
March 28, 2005 set forth in Addendum 4 is hereby incorporated by reference. The term “Purpose”
in the NDA is hereby amended to mean the performance of this Agreement. Notwithstanding the
terms of Section 10 of the NDA, the NDA shall have a term that is coterminous with this
Agreement.

Notwithstanding any confidentiality obligations under this Agreement or any other agreement
between the parties, each party may make disclosures relating to the relationship contemplated
under this Agreement, including the text of the Agreement, as required to discharge its
obligations under federal and state securities laws and securities exchange listing
requirements. However, at least five (5) business days prior to filing this Agreement or any
amendment hereto, the filer will inform the other party of its intent to do so and will allow
the other party to make reasonable suggested redactions of text in the Agreement or any
amendment of it prior to filing. The filer will thereupon make reasonable efforts to redact
the text suggested by the other party in its filing. The parties agree to cooperate in good
faith in this effort and to consider the opinion of counsel as to the legality of any redacted
text. Without limiting the foregoing, any pricing information in this Agreement, including,
but not limited to, the pricing provisions of Schedule A to Addendum 3, will be redacted prior
to filing this Agreement.

Plexus acknowledges that Customer is required to file this Agreement as an exhibit to its
reports with the U.S. Securities and Exchange Commission to satisfy its federal securities laws
reporting requirements. Accordingly, no later than the date that the parties execute this
Agreement, the parties shall agree to required redactions of the text of this Agreement for
such filing purposes.

In witness whereof, the parties have executed this Agreement as of the Effective Date.

	 	 	 	 	 	 	 	 	 
	VISUAL NETWORKS OPERATIONS, INC.	 	PLEXUS SERVICES CORP.	 	 
	By:

	 	/s/ Sean Hunt
	 	By:
	 	/s/ Paul Ehlers
	 	 
	 	 	 	 	 	 	 	 	 
	Title:

	 	Vice President and General Counsel
	 	Title:
	 	Vice President	 	 
	 	 	 	 	 	 	 	 	 
	Date:

	 	June 6, 2005
	 	Date:
	 	June 6, 2005	 	 
	 	 	 	 	 	 	 	 	 

PSA – Standard – Manufacturing
Services Only

9

 

Addendum 1

Forecasting, Ordering, and Inventory Planning

	1.  	DEFINITIONS

	 	a.  	Customer-Supplied Components
	 
	 	   	Shall mean Components in Plexus’ possession that are provided by Customer at no
charge.
	 
	 	b.  	Delivery Date
	 
	 	   	Shall have the meaning set forth in Section 4 below.
	 
	 	c.  	Demand
	 
	 	   	Shall mean quantities of Assemblies required by Customer and communicated to Plexus
via Customer’s Purchase Orders.
	 
	 	d.  	Forecast
	 
	 	   	Shall mean a twelve (12) month rolling estimate of requirements provided by Customer
for each Assembly including the quantities to be manufactured and the requested
Delivery Date.
	 
	 	e.  	Manufacturing Lead-Time
	 
	 	   	The lead-time communicated by Plexus to Customer to kit Components and manufacture
an Assembly which time is expected to be approximately two weeks.
	 
	 	f.  	Purchase Order
	 
	 	   	Shall mean an order by Customer, communicated via EDI, email, facsimile or other
means, to purchase Assemblies, Components, or other materials, at a stated quantity,
unit price, and delivery date.

	2.  	FORECASTS AND PURCHASE ORDERS

	 	a.  	Forecasts
	 
	 	   	Customer agrees to provide Plexus an updated Forecast each calendar quarter for each
Assembly manufactured by Plexus. Forecasts will be non-binding on Customer with
respect to Assemblies estimated to be required.
	 
	 	b.  	Purchase Orders
	 
	 	   	Customer agrees to issue Purchase Orders for an Assembly at a time in advance of the
requested delivery date set forth in Customer’s Purchase Order at least equal to the
Manufacturing Lead-Time of the applicable Assembly plus the lead-time of the longest
lead-time Component of such Assembly plus three (3) days. Plexus will respond to
Purchase Orders in writing within three (3) business days with either its acceptance
or rejection of the Purchase Order. Any rejection by Plexus of a Purchase Order
shall be accompanied with an explanation of the reasons for the rejection. Plexus
will make reasonable efforts to accommodate all Purchase Orders.
	 
	 	c.  	Component Procurement
	 
	 	   	Unless otherwise agreed by the parties, Plexus will procure all Components
necessary to fulfill Purchase Orders at lead-times reasonably consistent with the
lead-times of such Components at the time of order. Customer acknowledges that
Plexus may be required by Suppliers to procure Components in minimum or economic
order quantities and that such quantities may exceed Customer’s actual Demand.
Plexus will obtain Customer’s pre-approval (by e-mail or other written means) of
all such procurements. Customer will be liable for any such minimum or economic
order quantities so procured by Plexus.

Buy to Forecast, Build to Order Addendum

1

 

	3.  	DEMAND CHANGES AND CANCELLATION

Demand may not be rescheduled or cancelled within [***] of the Delivery Date (the “Frozen
Period”). Unless otherwise agreed by Plexus in writing, Demand may be rescheduled in accordance
with the following table provided that no Demand may be rescheduled more than [***] from the
originally scheduled Delivery Date or to the extent that such Demand is within the Frozen
Period:

	 	 	 
	 	 	Percent of Scheduled
	Time prior to	 	Quantity that Cannot Be
	Delivery Date	 	Rescheduled or Cancelled
	[***]

[***]

[***]

[***]
	 	[***]

[***]

[***]

[***]

Any Demand cancellation or rescheduling will be subject to Customer liability for
Components under Addendum 2 hereof.

Plexus will make all reasonable efforts to accommodate any increase in Demand by Customer.
Plexus will notify Customer as soon as practicable of any Components impeding Customers
requested increase in Demand. Should any additional costs be required to expedite delivery of
Assemblies or Components to meet Customer’s increase in Demand, Plexus will notify Customer of
the same and, if approved by Customer, Customer shall pay Plexus for such additional cost.

	4.  	DELIVERY

The delivery date for an Assembly will be the delivery date set forth in Customer’s Purchase
Order accepted in writing by Plexus (the “Delivery Date”). Assemblies will be shipped by Plexus
FCA (Incoterms 2000) Plexus’ shipping point to Customer for domestic shipments and Ex Works
(Incoterms 2000) Plexus’ shipping point to Customer for international shipments. Assemblies
will be deemed delivered upon Plexus’ release of Assemblies to the carrier for shipment.

	5.  	COMPONENTS SUPPLIED BY CUSTOMER

Customer may provide Plexus with Customer-Supplied Components or Components purchased by Plexus
from Customer that are required to manufacture Customer’s Assemblies. Customer will be
responsible as a Supplier to Plexus for the quality and on-time delivery of Components supplied
to Plexus. Title and risk of loss to Customer-Supplied Components shall at all times remain
with Customer. Plexus will not cause to occur or allow any lien or encumbrance on
Customer-Supplied Components and shall insure the same at the replacement value thereof while in
its possession under the terms of Plexus’ then current insurance policies with Customer listed
as loss payee. Any Customer-Supplied Components incorporated in the Assemblies will be
inspected by Plexus prior to incorporation and included within the scope of Plexus’ obligations
set forth in Section 9 of the Agreement, provided that if Plexus reasonably determines that an
inspected Component fails inspection, Plexus shall return the Component to Customer.

Customer’s inability to provide defect-free Components in a timely manner may affect Plexus’
ability to meet Delivery Dates. Any additional expenses that Plexus must incur due to delayed
shipment resulting from a quality or delivery issue from Customer will be borne by the Customer.
In addition, Plexus reserves the right to define a new Delivery Date based upon the
availability and condition of Components supplied by Customer.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

Buy to Forecast, Build to Order Addendum

2

 

Addendum 2

Inventory Mitigation, Reporting, and Liability

	1.  	DEFINITIONS

	 	a.  	Excess Components
	 
	 	   	Shall mean those Components reasonably procured by Plexus in accordance with
Addendum 1 and that (i) are projected to be consumed by Plexus in the manufacture of
Assemblies in greater than [***] based on Customer Demand or (ii) have remained in
Plexus inventory for greater than [***].
	 
	 	b.  	Obsolete Components
	 
	 	   	Shall mean those Components procured by Plexus in accordance
with Addendum land that
have been removed from the bill of materials of an Assembly, or which appear on an
Assembly bill of materials that has no Demand.
	 
	 	c.  	OX Components
	 
	 	   	Shall mean Obsolete Components and Excess Components.
	 
	 	d.  	OX Report
	 
	 	   	The report issued by Plexus as described and defined in Section 2.b. below.

	2.  	COMPONENT INVENTORY REPORTING, LIABILITY AND COVERAGE

	 	a.  	Component Mitigation
	 
	 	   	Plexus may have OX Components on hand or on order from time to time as a consequence
of, for example, Demand cancellation or reschedule, Plexus’ support of increases to
Demand by Customer, the failure to have adequate or conforming supplies of Customer
consigned, supplied, or managed Components, allocations, end of life requirements,
economic or minimum order quantities, or engineering or material change orders.
	 
	 	   	Plexus will use all reasonable efforts to minimize Component liability to Customer
caused by Customer Demand changes, cancellations, and other factors. These efforts
will include returning Components to, or restocking Components with, Suppliers,
canceling orders with Suppliers, or using Components to meet the current demand of
other Plexus customers. Customer agrees to assist Plexus in such efforts if
appropriate and requested by Plexus.
	 
	 	   	Customer acknowledges that Plexus’ mitigation efforts, even if successful, may
result in cancellation, restocking, and similar charges imposed by Suppliers.
Plexus will obtain Customer’s approval (by email or other written means) prior to
incurring such charges. If so approved by Customer, Customer will pay Plexus for
the charges imposed within thirty (30) days from the receipt of Plexus’ invoice.
	 
	 	b.  	Component Inventory Reporting
	 
	 	   	From time to time on its own initiative or upon Customer request, Plexus will
provide a written report to Customer detailing the level of OX Components at Plexus
(the “OX Report”). Customer will respond to Plexus in writing within twenty (20)
days of receipt of the OX Report with any good faith disagreement to it, detailing
with reasonable particularity the nature of any such disagreement. Should Customer
disagree with the OX Report, Customer and Plexus will work in good faith to promptly
resolve the disagreement, escalating such disagreement to executive management at
the request of

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

Buy to Forecast, Build to Order Addendum

3

 

	 	   	either party. Any undisputed portion of the OX Report will proceed
to resolution as provided in Section 2c. below.
	 
	 	c.  	OX Component Liability Resolution
	 
	 	   	Subject to having performed the mitigation and reporting on OX Components as
provided above, Customer shall:

	 	(i)  	remit payment to Plexus for Obsolete Components at the Component Value
thereof within thirty (30) days of receipt of Plexus’ invoice; and
	 
	 	(ii)  	with respect to Excess Components, at its option and within thirty (30)
days of Customer’s receipt of Plexus’ invoice, either (i) remit payment to Plexus
for the Excess Material at the Component Value thereof, (ii) remit a deposit to
Plexus for the Excess Material at the Component Value thereof, or (iii) provide
Plexus with a Purchase Order for Assemblies that will consume the Excess Material.

	 	   	The remittance of a deposit by Customer as provided above will represent a security
to Plexus for Customer’s Component liability. Plexus and Customer will review any
amounts on deposit with Plexus from time to time at either party’s discretion and
make adjustments to the same to reflect the-then current Component Value of Excess
Components at Plexus. Plexus may hold any such deposits made by Customer under this
Agreement in any manner at its discretion. Title and risk of loss for Components
against which a deposit has been made shall remain with Plexus. Plexus will also
retain responsibility to insure and warehouse such Components according to Plexus’
then-current practices. However, in the event Components for which Plexus has
received a deposit are not consumed within six (6) months of Plexus’ receipt, said
deposit, at Plexus’ option, will be converted into a payment by Customer for such
Components. In addition, in the event this Agreement or the manufacturing
relationship between Customer and Plexus has terminated, any deposits from Customer
then held by Plexus will convert, at Plexus’ option, into a payment by Customer for
any Components procured in accordance with this Agreement. Upon the conversion of
any deposit into a payment by Customer for Components, Plexus will ship such
Components as soon as practicable FCA Plexus’ point of shipment to Customer.

Buy to Forecast, Build to Order Addendum

4

 

Addendum 3

Pricing and Payment

	 	a.  	Unless otherwise agreed by Plexus in writing, prices quoted are FCA Plexus’ point of
shipment to Customer (Incoterms 2000) for domestic shipments and Ex Works (Incoterms
2000) Plexus’ shipping point to Customer for international shipments. Plexus’ price
quotations are based upon drawings, specifications, and other written information
available to Plexus at the time of quotation. Any additional or different data
supplied thereafter may require price adjustments. Any manufacturer’s tax, retailer’s
occupation tax, use tax, sales tax, excise tax, or tax of any nature whatsoever (except
any tax based on Plexus’ net income) imposed on or measured by the transaction between
Plexus and Customer shall be paid by Customer in addition to the prices quoted or
invoiced. In the event Plexus is required to pay such tax, Customer shall reimburse
Plexus for the same in accordance with the invoice terms set forth in Section (e). If
the transaction between Plexus and Customer is exempt from all such taxes, Customer
shall provide Plexus with a tax exemption certificate or other document acceptable to
all taxing authorities at the time the order or contract is submitted. The prices
quoted do not include, unless specifically stated otherwise, the cost for testing
and/or submittals for Assembly approvals or any annual file maintenance fee, such as
for UL, VDE, CSA or FCC. Plexus will assist Customer in obtaining such approvals and
charge for such services at Plexus’ current hourly billing rate. Schedule A to this
Addendum 3 lists the pricing (“Pricing Schedule”) for the Assemblies as of the
Effective Date. The parties may amend the Pricing Schedule from time to time pursuant
to the procedure set forth in Section (b).
	 
	 	b.  	Pricing will be reviewed at QBRs conducted by the parties. In the event new
pricing is agreed to at a QBR (or at any other time by mutual agreement), such new
pricing will be implemented on shipments by Plexus beginning on the day following such
agreement. On the day new pricing is implemented, Plexus will also write-down or
write-up, as applicable, existing raw materials, work-in-process and finished goods
inventory held by it to reflect the new agreed to pricing and invoice or credit
Customer for the same, as applicable. Customer will pay such invoices as provided
below. If Plexus increases the components of pricing other than actual materials costs
(“Plexus Pricing”) by more than the [***] during any 12 month period, then Customer
shall have the right to terminate this Agreement by providing to Plexus no less than 90
days advance written notice of termination. In any event, if Plexus increases Plexus
Pricing by more than [***] during any 12 month period, such increase shall constitute a
material default under Section 12. The remedies contemplated by the preceding two
sentences shall not apply, however, if any such pricing increase relates to (a) a
significant change in the volume of assemblies being manufactured by Plexus (relative
to previously quoted volume pricing) except as contemplated by the price breaks set
forth in the Pricing Schedule, (b) a change in the Assemblies or the nature of services
to be provided by Plexus that Customer requests or that affects Plexus’ industry
generally (e.g., a regulatory requirement), or (c) a change in the assumptions on which
previous Plexus pricing was based.
	 
	 	c.  	In the event that the cost of Assemblies (as determined by Plexus’ costing
systems) declines and the cost saving is initiated by Plexus, Plexus will be entitled
to retain the benefit of such cost reduction from the time such cost saving is
generated until the second QBR thereafter, but in no event for longer than six (6)
months. For three (3) months thereafter, [***] of such cost savings will be passed on
to Customer in the form of a price reduction. Thereafter, [***] of such cost savings
will be passed on to Customer in its entirety. In the event a cost reduction is
initiated and obtained by Customer or jointly between Customer and Plexus whether
pursuant to a QBR or otherwise, such cost

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

Buy to Forecast, Build to Order Addendum

5

 

	 	   	reduction will be passed on to Customer
entirely at the next QBR conducted by the parties in the form of a price reduction to
be implemented as set forth above.
	 
	 	d.  	Plexus agrees to notify Customer of Component purchases related to Demand that
will create adverse purchase price variance in excess of $500.00 per Component per
calendar month. Customer agrees to issue a separate Purchase Order for the value of
the purchase price variance plus markup as identified in the Plexus quotation, or to
change its Assembly Purchase Order(s) to reflect the revised unit purchase price
including the adverse purchase price variance plus markup as supplied in the Plexus
quotation. All Component purchase price variances under the limits specified in this
Section (d) shall be aggregated and paid for by Customer at the end of the quarter.
	 
	 	e.  	Unless otherwise stated herein, all undisputed payments hereunder by Customer
to Plexus shall be made in US Dollars within [***] following Customer’s receipt of the
invoice from Plexus without set-off of any kind. Customer shall use reasonable efforts
to report any believed discrepancies in Plexus’ invoices no later than [***] after the
receipt of invoice. Undisputed invoice amounts not paid within [***] of the date
thereof will be subject to an interest charge equal to the lesser of [***] per month or
the highest rate allowed by law. Payment shall be deemed made when Customer’s check is
received by Plexus or electronic fund transfer is completed.
	 
	 	e.  	Customer acknowledges that the above payment terms, and any other credit terms,
limits, or vehicles granted by Plexus to Customer during the course of the performance
of this Agreement, will be subject to periodic review and modification by Plexus at any
time at its discretion.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

Buy to Forecast, Build to Order Addendum

6

 

Schedule A to Addendum 3

     [***]

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE
ACT OF 1934, AS AMENDED.

Buy to Forecast, Build to Order Addendum

7

 

Addendum 4

Mutual Non-Disclosure Agreement

     See Mutual Non-Disclosure Agreement between Plexus and Customer dated as of March 28, 2005.

Buy to Forecast, Build to Order Addendum

8

 

MUTUAL NON-DISCLOSURE AGREEMENT

This Mutual Non-Disclosure Agreement (this “Agreement”) is entered into as of March 28, 2005 (the
“Effective Date”) by and between Visual Networks Operations, Inc., a Delaware corporation
(“Visual”), and Plexus Services Corp., a Nevada corporation (“Company”).

     A. In connection with providing a quote for the provision of Contract Manufacturing Services
(the “Purpose”), the parties propose to provide to each other certain Confidential Information
(defined below).

     B. The parties wish to set out the rights and obligations in respect of the Confidential
Information;

     ACCORDINGLY, the parties, intending to be legally bound, hereby agree as follows:

1. Definitions

     “Confidential Information” means any and all confidential and proprietary information
disclosed by or on behalf of the Disclosing Party to the Receiving Party in connection with the
Purpose, during the term of this Agreement, including without limitation information that the
Disclosing Party identifies in writing as confidential before or after disclosure to the Receiving
Party.

     “Disclosing Party” means the party whose Confidential Information is being disclosed.
Disclosing Party includes the entities controlling, controlled by or under common control with the
Disclosing Party.

     “Receiving Party” means the party receiving the Confidential Information of the Disclosing
Party. Receiving Party includes the entities controlling, controlled by or under common contract
with the Receiving Party

2. Confidentiality Obligations

In consideration of each party disclosing or permitting continued access to its Confidential
Information, each of the parties will:

     (a) maintain as confidential all Confidential Information of the other party;

     (b) not disclose the Confidential Information of the other party to any third party;

     (c) use the Confidential Information of the other party only for the Purpose;

     (d) not directly or indirectly export or transmit any Confidential Information of the other
party to any country to which such export or transmission is restricted by law or regulation; and

     (e) promptly provide written notice to the Disclosing Party of any actual or threatened breach
of the terms of this Agreement.

3. Exceptions

The foregoing obligations shall not apply to any Confidential Information to the extent that the
Receiving Party shows by documentary evidence that:

     (a) the Disclosing Party’s Confidential Information is in the public domain through no act or
failure to act on the part of Receiving Party;

     (b) the Disclosing Party’s Confidential Information is or was obtained by the Receiving Party
without restriction as to use or disclosure;

     (c) the Disclosing Party’s Confidential Information has been independently derived by the
Receiving Party without the use of the Disclosing Party’s Confidential Information;

     (d) the Disclosing Party’s Confidential Information is required by law or regulation to be
disclosed, but only for the purposes of such law or regulation, and only if the Receiving Party
first notifies the Disclosing Party of the disclosure requirement and permits the Disclosing Party
to seek an appropriate protective order;

     (e) the Disclosing Party’s Confidential Information is required to be disclosed in response to
a valid order of a court or other governmental body but only for the purposes of such order, and
only if the Receiving Party first notifies the Disclosing Party of the order and permits the
Disclosing Party to seek an appropriate protective order; or

     (f) the Disclosing Party’s Confidential Information is disclosed with, and in compliance with,
the terms of the prior written permission of the Disclosing Party.

4. Further Provisions Regarding Public Domain Information

4.1 Confidential Information shall not be deemed to be in the public domain because it is known to
only a few of those people to whom it might be of commercial interest.

4.2 Detailed information, and a combination of two or more portions of the Confidential Information
shall not be deemed to be generally available to the public by reason only of each separate portion
being so available.

4.3 Specific disclosures (such as technical specifications, operating parameters, business plans,
etc.) shall not be deemed to be within the public domain merely because they are embraced by
general disclosures (i.e., disclosures that do not detail specifications, parameters, or business
plans) in the public domain or in the possession of the Receiving Party.

4.4 Specific combinations of features disclosed hereunder shall not be deemed to be within the
public domain because individual features are separately in the public domain or in the possession
of the Receiving Party.

 

 

5. Return of Confidential Information

Upon the Disclosing Party’s written request, the Receiving Party will promptly return or destroy
(at the Disclosing Party’s option) all Confidential Information in its possession, custody or
control, including notes or copies thereof, and confirm in writing, signed by an officer of
Receiving Party, that it has so returned or destroyed all such Confidential Information.

6. Limited License; Warranty Disclaimer; Limitation of Liability

6.1 Subject to the terms and conditions of this Agreement, the Disclosing Party hereby grants to
the Receiving Party a nonexclusive, nontransferable, royalty-free, limited and revocable license,
during the term of this Agreement, to use the Disclosing Party’s Confidential Information for the
sole purpose of performing the Purpose. The Receiving Party shall not make any copies of the
Disclosing Party’s Confidential Information without the express written consent of the Disclosing
Party. Except as expressly set forth in this Section 6.1, nothing in this Agreement shall be
construed as granting any license or right under any patent, copyright, trademark, trade secret or
otherwise.

6.2 IN CONNECTION WITH ITS CONFIDENTIAL INFORMATION, THE DISCLOSING PARTY MAKES NO REPRESENTATIONS
OR WARRANTIES OF ANY KIND AND HEREBY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, WHETHER EXPRESS
OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
INFRINGEMENT.

6.3 NEITHER PARTY SHALL BE LIABLE UNDER THIS AGREEMENT FOR ANY INDIRECT, SPECIAL, INCIDENTAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING FOR ANY LOSS OF PROFITS, LOSS
OF BUSINESS, LOSS OF USE OR DATA AND INTERRUPTION OF BUSINESS, WHETHER BASED ON CONTRACT, TORT
(INCLUDING NEGLIGENCE), WARRANTY, GUARANTEE OR ANY OTHER LEGAL OR EQUITABLE GROUNDS, EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

7. Ownership

7.1 Title to all Confidential Information (including copies thereof) shall be and remain with the
Disclosing Party.

7.2 The Receiving Party shall not remove any proprietary, trademark, copyright, trade secret, or
other similar legend from any form of the Confidential Information and all copies permitted
hereunder shall bear all proprietary markings contained on or in the originals.

8. Injunctive Relief

Each party acknowledges that any breach of this Agreement may cause irreparable harm to the other
party. The Receiving Party hereby acknowledges that no remedy at law will afford the Disclosing
Party adequate protection against, or appropriate compensation for, breach of the Receiving Party’s
obligations under this Agreement. Accordingly, the Receiving Party agrees that the Disclosing
Party shall be entitled to specific performance of the Receiving Party’s obligations, as well as
the right to pursue any and all other rights and remedies available at law or in equity for such a
breach.

9. Governing Law

This Agreement shall be governed by the laws of the State of Maryland, excluding its body of law
controlling conflicts of laws.

10. Term & Survival

10.1 The term of this Agreement shall take effect on the Effective Date and continue until
terminated by either party upon thirty (30) days written notice to the other party.

10.2 Each party’s obligations with respect to Confidential Information of the other party shall
survive any termination of this Agreement. Notwithstanding the foregoing, the confidentiality
obligations with respect to non-technical Confidential Information disclosed hereunder expire three
years after termination of this Agreement.

11. Variation, Modification, Assignment and Effect

11.1 This Agreement may only be varied or modified by written agreement between the parties.

11.2 This Agreement may not be assigned without the prior written consent of both parties.

11.3 This Agreement contains the final, complete and exclusive agreement of the parties relative to
the subject matter hereof and supersedes all prior understandings of the parties relating to
Confidential Information disclosed in connection with the Purpose.

11.4 If any provision of this Agreement is determined by a competent authority to be unenforceable,
that provision shall be severed and the remainder of this Agreement will continue in full force and
effect.

[Signature Page Follows]

-2-

 

     IN WITNESS WHEREOF, the parties have caused their authorized representatives to execute this
Agreement as of the Effective Date.

	 	 	 	 	 	 	 	 	 
	VISUAL NETWORKS OPERATIONS, INC.	 	 	 	Plexus Services Corp.
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Sean Hunt
	 	 	 	By:
	 	/s/ Alissa U. Beyer
	

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Name:

	 	Sean Hunt
	 	 	 	Name:
	 	Alissa Ulbricht Beyer
	

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Title:

	 	Vice President and General Counsel
	 	 	 	Title:
	 	Corp. Legal Specialist
	

	 	 
	 	 	 	 	 	 

-3-exv10w36

 

Exhibit 10.36

EXECUTION COPY

 

 

GUARANTEE AND COLLATERAL AGREEMENT

made by

SEARS HOLDINGS CORPORATION,

SEARS, ROEBUCK AND CO.,

SEARS ROEBUCK ACCEPTANCE CORP.,

KMART HOLDING CORPORATION,

KMART MANAGEMENT CORPORATION,

KMART CORPORATION

and certain of their respective Subsidiaries

in favor of

JPMORGAN CHASE BANK,
N.A.,

as Administrative Agent

Dated as of March 24, 2005

 

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 1.
	 	DEFINED TERMS	 	 	1	 
	

	 	 	1.1	 	 	Definitions
	 	 	1	 
	

	 	 	1.2	 	 	Other Definitional Provisions
	 	 	4	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 2.
	 	GUARANTEE	 	 	4	 
	

	 	 	2.1	 	 	Guarantee
	 	 	4	 
	

	 	 	2.2	 	 	Right of Contribution
	 	 	5	 
	

	 	 	2.3	 	 	No Subrogation
	 	 	5	 
	

	 	 	2.4	 	 	Amendments, etc. with respect to the Borrower Obligations
	 	 	5	 
	

	 	 	2.5	 	 	Guarantee Absolute and Unconditional
	 	 	6	 
	

	 	 	2.6	 	 	Reinstatement
	 	 	6	 
	

	 	 	2.7	 	 	Payments
	 	 	7	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 3.
	 	GRANT OF SECURITY INTEREST	 	 	7	 
	

	 	 	3.1	 	 	Collateral; Grant of Security Interest
	 	 	7	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 4.
	 	REPRESENTATIONS AND WARRANTIES	 	 	7	 
	

	 	 	4.1	 	 	Title; No Other Liens
	 	 	7	 
	

	 	 	4.2	 	 	Perfected First Priority Liens
	 	 	8	 
	

	 	 	4.3	 	 	Jurisdiction of Organization
	 	 	8	 
	

	 	 	4.4	 	 	Credit Card Accounts Receivable
	 	 	8	 
	

	 	 	4.5	 	 	Related Intellectual Property
	 	 	8	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 5.
	 	COVENANTS	 	 	8	 
	

	 	 	5.1	 	 	Delivery of Instruments and Chattel Paper
	 	 	8	 
	

	 	 	5.2	 	 	Maintenance of Insurance
	 	 	9	 
	

	 	 	5.3	 	 	Maintenance of Perfected Security Interest; Further Documentation
	 	 	9	 
	

	 	 	5.4	 	 	Changes in Name, etc
	 	 	9	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 6.
	 	REMEDIAL PROVISIONS	 	 	9	 
	

	 	 	6.1	 	 	Certain Matters Relating to Credit Card Accounts Receivable
	 	 	9	 
	

	 	 	6.2	 	 	Communications with Obligors; Grantors Remain Liable
	 	 	10	 
	

	 	 	6.3	 	 	Proceeds to be Turned Over To Agent
	 	 	10	 
	

	 	 	6.4	 	 	Application of Proceeds
	 	 	10	 
	

	 	 	6.5	 	 	Code and Other Remedies
	 	 	11	 
	

	 	 	6.6	 	 	Deficiency
	 	 	12	 
	

	 	 	6.7	 	 	Grant of License in Intellectual Property, Software
	 	 	12	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 7.
	 	THE AGENT	 	 	13	 
	

	 	 	7.1	 	 	Agent’s Appointment as Attorney-in-Fact, etc
	 	 	13	 
	

	 	 	7.2	 	 	Duty of Agent
	 	 	14	 
	

	 	 	7.3	 	 	Execution of Financing Statements
	 	 	14	 
	

	 	 	7.4	 	 	Authority of Agent
	 	 	14	 
	 
	 	 	 	 	 	 	 	 	 	 
	SECTION 8.
	 	MISCELLANEOUS	 	 	14	 
	

	 	 	8.1	 	 	Amendments in Writing
	 	 	14	 

i

 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	

	 	 	8.2	 	 	Notices
	 	 	14	 
	

	 	 	8.3	 	 	No Waiver by Course of Conduct; Cumulative Remedies
	 	 	15	 
	

	 	 	8.4	 	 	Enforcement Expenses; Indemnification
	 	 	15	 
	

	 	 	8.5	 	 	Successors and Assigns
	 	 	15	 
	

	 	 	8.6	 	 	Set-Off
	 	 	15	 
	

	 	 	8.7	 	 	Counterparts
	 	 	16	 
	

	 	 	8.8	 	 	Severability
	 	 	16	 
	

	 	 	8.9	 	 	Section Headings
	 	 	16	 
	

	 	 	8.10	 	 	Integration
	 	 	16	 
	

	 	 	8.11	 	 	GOVERNING LAW
	 	 	16	 
	

	 	 	8.12	 	 	Submission To Jurisdiction; Waivers
	 	 	16	 
	

	 	 	8.13	 	 	Acknowledgements
	 	 	17	 
	

	 	 	8.14	 	 	Additional Grantors
	 	 	17	 
	

	 	 	8.15	 	 	Releases
	 	 	17	 
	

	 	 	8.16	 	 	WAIVER OF JURY TRIAL
	 	 	18	 

SCHEDULES

	 	 	 
	Schedule 1

	 	Notice Addresses
	Schedule 2

	 	Perfection Matters
	Schedule 3

	 	Jurisdictions of Organization

 ii 

 

 

GUARANTEE AND COLLATERAL AGREEMENT

      GUARANTEE AND COLLATERAL AGREEMENT, dated as of March 24, 2005, made by each of the
signatories hereto (together with any other entity that may become a party hereto as provided
herein, the “Grantors”), in favor of JPMorgan Chase Bank, N.A., as administrative agent (in
such capacity, the “Agent”) for the banks and other financial institutions or entities (the
“Lenders”) from time to time parties to the Five-Year Credit Agreement, dated as of
February 22, 2005 (as amended, supplemented or otherwise modified from time to time, the
“Credit Agreement”), among Sears Holdings Corporation (“Holdings”), Sears Roebuck
Acceptance Corp. (“SRAC”), Kmart Corporation (“Kmart Corp.” and, together with
SRAC, the “Borrowers”), the Lenders and the Agent.

W I T N E S S E T H:

      WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make
extensions of credit to the Borrowers upon the terms and subject to the conditions set forth
therein;

      WHEREAS, the Borrowers are members of an affiliated group of companies that includes each
other Grantor;

      WHEREAS, the proceeds of the extensions of credit under the Credit Agreement will be used in
part to enable the Borrowers to make valuable transfers to one or more of the other Grantors in
connection with the operation of their respective businesses;

      WHEREAS, the Borrowers and the other Grantors are engaged in related businesses, and each
Grantor will derive substantial direct and indirect benefit from the making of the extensions of
credit under the Credit Agreement; and

      WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective
extensions of credit to the Borrowers under the Credit Agreement that the Grantors shall have
executed and delivered this Agreement to the Agent for the ratable benefit of the Lenders;

      NOW, THEREFORE, in consideration of the premises and to induce the Agent and the Lenders to
enter into the Credit Agreement and to induce the Lenders to make their respective extensions of
credit to the Borrowers thereunder, each Grantor hereby agrees with the Agent, for the ratable
benefit of the Lenders, as follows:

SECTION 1. DEFINED TERMS

      1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the
following terms are used herein as defined in the New York UCC: Accounts, Chattel Paper,
Instruments, Proceeds and Supporting Obligations.

      (b) The following terms shall have the following meanings:

          “Agreement”: this Guarantee and Collateral Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.

 

 

 2 

          “Borrower Obligations”: with respect to any Borrower, the collective reference to the
unpaid principal of and interest on the Advances and Reimbursement Obligations and all other
obligations and liabilities of such Borrower (including, without limitation, interest accruing at
the then applicable rate provided in the Credit Agreement after the maturity of such Borrower’s
Advances and Reimbursement Obligations and interest accruing at the then applicable rate provided
in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to such Borrower, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding) to the Agent or any Lender
(or in the case of Specified Cash Management Agreements and Specified Swap Agreements, any
Affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due,
or now existing or hereafter incurred, which may arise under, out of, or in connection with, the
Credit Agreement, this Agreement, the other Loan Documents, any Letter of Credit, any Specified
Cash Management Agreement, any Specified Swap Agreement or any other document made, delivered or
given in connection with any of the foregoing, in each case whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including,
without limitation, all fees and disbursements of counsel to the Agent or to the Lenders that are
required to be paid by such Borrower pursuant to the terms of any of the foregoing agreements). For
purposes of Section 2, Borrower Obligations shall be deemed to include any obligation of any Group
Member (other than Sears Canada) that is not a Borrower in respect of Specified Cash Management
Agreements and Specified Swap Agreements.

          “Cash Management Agreement”: any agreement or arrangement pursuant to which a bank or
other financial institution agrees to provide treasury management services (including controlled
disbursement, automated clearinghouse transactions, return items, overdrafts, interstate depository
network services and purchasing cards).

          “Collateral”: as defined in Section 3.1.

          “Collateral Account”: any collateral account established by the Agent as provided in
Section 6.1 or 6.3.

          “Copyrights”: (i) all copyrights arising under the laws of the United States, any
other country or any political subdivision thereof, whether registered or unregistered and whether
published or unpublished, all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, all registrations, recordings and applications
in the United States Copyright Office and (ii) the right to obtain all renewals thereof.

          “Copyright Licenses”: any written agreement naming any Grantor as licensor or
licensee granting any right under any Copyright, including, without limitation, the grant of rights
to manufacture, distribute, exploit and sell materials derived from any Copyright.

          “Credit Card Accounts Receivable”: all Accounts together with all income, payments
and proceeds thereof, owed by an issuer of credit cards to a Grantor resulting from charges by a
customer of a Grantor on credit cards issued by such issuer in connection with the sale of goods by
a Grantor, or services performed by a Grantor.

          “Guarantor Obligations”: with respect to any Guarantor, all obligations and
liabilities of such Guarantor which may arise under or in connection with this Agreement
(including, without limitation, Section 2), any other Loan Document, any Specified Cash Management
Agreement or any Specified Swap Agreement to which such Guarantor is a party, in each case whether on account
of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements of counsel to the Agent or to
the Lenders that are required to be paid by such Guarantor pursuant to the terms of this Agreement
or any other Loan Document).

 

 

 3 

          “Guarantors”: the collective reference to each Grantor in its capacity as a guarantor
pursuant to Section 2.

          “Intellectual Property”: the collective reference to all rights, priorities and
privileges relating to intellectual property, whether arising under United States, multinational or
foreign laws or otherwise, including, without limitation, all Copyrights, Copyright Licenses,
Patents, Patent Licenses, Trademarks and Trademark Licenses, and all rights to sue at law or in
equity for any infringement or other impairment thereof, including the right to receive all
proceeds and damages therefrom.

          “Inventory”: all “inventory” as such term is defined in the New York UCC and in any
event including inventory, merchandise, goods and other personal property that are held by or on
behalf of any Grantor for sale or are furnished or are to be furnished under a contract of service,
or that constitute work in process, finished goods, returned goods, supplies or materials of any
kind, nature or description used or consumed or to be used or consumed in such Grantor’s business
or in the processing, production, packaging, promotion, delivery or shipping of the same, including
all supplied and embedded software.

          “New York UCC”: the Uniform Commercial Code as from time to time in effect in the
State of New York.

          “Obligations”: (i) in the case of each Borrower, its Borrower Obligations, and (ii)
in the case of each Guarantor, its Guarantor Obligations.

          “Patents”: (i) all letters patent of the United States, any other country or any
political subdivision thereof, all reissues and extensions thereof and all goodwill associated
therewith, (ii) all applications for letters patent of the United States or any other country and
all divisions, continuations and continuations-in-part thereof and (iii) all rights to obtain any
reissues or extensions of the foregoing.

          “Patent License”: all agreements, whether written or oral, providing for the grant by
or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in
part by a Patent.

          “Securities Act”: the Securities Act of 1933, as amended.

          “Software”: means all “software” are such term is defined in the New York UCC used by
any Grantor to process, assemble, prepare for sale, market for sale, sell or otherwise dispose of
the Collateral, other than software embedded in any category of goods, including all computer
programs and all supporting information provided in connection with a transaction related to any
program.

          “Specified Cash Management Agreement”: any Cash Management Agreement entered into by
any Group Member (other than Sears Canada) and any Lender or affiliate thereof.

          “Specified Swap Agreement”: any Swap Agreement entered into by any Group Member
(other than Sears Canada) and any Lender or affiliate thereof in respect of interest rates,
currency exchange rates or commodity prices.

          “Subsidiary Guarantor”: each Guarantor other than Holdings.

 

 

 4 

          “Swap Agreement”: any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement involving, or settled by reference to, one or
more rates, currencies, commodities, equity or debt instruments or securities, or economic,
financial or pricing indices or measures of economic, financial or pricing risk or value or any
similar transaction or any combination of these transactions; provided that no phantom
stock or similar plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of any Borrower or any of its Subsidiaries
shall be a “Swap Agreement”.

          “Trademarks”: (i) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos and other source or
business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in connection therewith,
whether in the United States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political subdivision thereof, or
otherwise, and all common-law rights related thereto, and (ii) the right to obtain all renewals
thereof.

          “Trademark License”: any agreement, whether written or oral, providing for the grant
by or to any Grantor of any right to use any Trademark.

      1.2 Other Definitional Provisions. (a) The words “hereof,” “herein”, “hereto” and
“hereunder” and words of similar import when used in this Agreement shall refer to this Agreement
as a whole and not to any particular provision of this Agreement, and Section and Schedule
references are to this Agreement unless otherwise specified.

      (b) The meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.

      (c) Where the context requires, terms relating to the Collateral or any part thereof, when
used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part
thereof.

SECTION 2. GUARANTEE

      2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and severally,
unconditionally and irrevocably, guarantees to the Agent, for the ratable benefit of the Lenders
and their respective successors, indorsees, transferees and assigns, the prompt and complete
payment and performance by each Borrower when due (whether at the stated maturity, by acceleration
or otherwise) of the Borrower Obligations of such Borrower.

      (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum
liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed
the amount which can be guaranteed by such Guarantor under applicable federal and state laws
relating to the insolvency of debtors (after giving effect to the right of contribution established
in Section 2.2).

      (c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time
exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee
contained in this Section 2 or affecting the rights and remedies of the Agent or any Lender
hereunder.

      (d) The guarantee contained in this Section 2 shall remain in full force and effect until all
the Borrower Obligations (other than Obligations arising under Specified Swap Agreements and
Specified

 

 

 5 

Cash Management Agreements) and the obligations of each Guarantor under the guarantee
contained in this Section 2 shall have been satisfied by payment in full, no Letter of Credit shall
be outstanding and the Commitments shall be terminated, notwithstanding that from time to time
during the term of the Credit Agreement any of the Borrowers may be free from any Borrower
Obligations.

      (e) No payment made by any of the Borrowers, any of the Guarantors, any other guarantor or any
other Person or received or collected by the Agent or any Lender from any of the Borrowers, any of
the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or
any set-off or appropriation or application at any time or from time to time in reduction of or in
payment of any of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise
affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment
(other than any payment made by such Guarantor in respect of any of the Borrower Obligations or any
payment received or collected from such Guarantor in respect of any of the Borrower Obligations),
remain liable for the Borrower Obligations up to the maximum liability of such Guarantor hereunder
until each of the Borrower Obligations (other than Obligations arising under Specified Swap
Agreements and Specified Cash Management Agreements) are paid in full, no Letter of Credit shall be
outstanding and the Commitments are terminated.

      2.2 Right of Contribution. Each Subsidiary Guarantor hereby agrees that to the extent
that a Subsidiary Guarantor shall have paid more than its proportionate share of any payment made
hereunder, such Subsidiary Guarantor shall be entitled to seek and receive contribution from and
against any other Subsidiary Guarantor hereunder which has not paid its proportionate share of such
payment. Each Subsidiary Guarantor’s right of contribution shall be subject to the terms and
conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the
obligations and liabilities of any Subsidiary Guarantor to the Agent and the Lenders, and each
Subsidiary Guarantor shall remain liable to the Agent and the Lenders for the full amount
guaranteed by such Subsidiary Guarantor hereunder. This Section 2.2 shall not apply to Sears in its
capacity as a Guarantor of the Borrower Obligations of SRAC or to Kmart in its capacity as a
Guarantor of the Borrower Obligations of Kmart Corp.

      2.3 No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or
any set-off or application of funds of any Guarantor by the Agent or any Lender, no Guarantor shall
be entitled to be subrogated to any of the rights of the Agent or any Lender against any Borrower
or any other Guarantor or any collateral security or guarantee or right of offset held by the Agent
or any Lender for the payment of any of the Borrower Obligations, nor shall any Guarantor seek or
be entitled to seek any contribution or reimbursement from any Borrower or any other Guarantor in
respect of payments made by such Guarantor hereunder, until all amounts owing to the Agent and the
Lenders by each of the Borrowers on account of its Borrower Obligations (other than Obligations
arising under Specified Swap Agreements and Specified Cash Management Agreements) are paid in full,
no Letter of Credit shall be outstanding and the Commitments are terminated. If any amount shall
be paid to any Guarantor on account of such subrogation rights at any time when any of the Borrower
Obligations (other than Obligations arising under Specified Swap Agreements and Specified Cash
Management Agreements) shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Agent and the
Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such
Guarantor, be turned over to the Agent in the exact form received by such Guarantor (duly indorsed
by such Guarantor to the Agent, if required), to be applied against the Borrower Obligations,
whether matured or unmatured, in such order as the Agent may determine.

      2.4 Amendments, etc. with respect to the Borrower Obligations. Each Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of rights against any
Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any
of the Borrower Obligations made by the Agent or any Lender may be rescinded by the Agent or such
Lender and any of

 

 

 6 

the Borrower Obligations continued, and any of the Borrower Obligations, or the
liability of any other Person upon or for any part thereof, or any collateral security or guarantee
therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by
the Agent or any Lender, and the Credit Agreement and the other Loan Documents and any other
documents executed and delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Agent (or the Required Lenders or all Lenders, as the case
may be) may deem advisable from time to time, and any collateral security, guarantee or right of
offset at any time held by the Agent or any Lender for the payment of any of the Borrower
Obligations may be sold, exchanged, waived, surrendered or released. Neither the Agent nor any
Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by
it as security for any of the Borrower Obligations or for the guarantee contained in this Section 2
or any property subject thereto.

      2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of
the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or
proof of reliance by the Agent or any Lender upon the guarantee contained in this Section 2 or
acceptance of the guarantee contained in this Section 2; each of the Borrower Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed,
extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all
dealings between any of the Borrowers and any of the Guarantors, on the one hand, and the Agent and
the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon
any of the Borrowers or any of the Guarantors with respect to any of the Borrower Obligations.
Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be
construed as a continuing, absolute and unconditional guarantee of payment without regard to (a)
the validity or enforceability of the Credit Agreement or any other Loan Document, any of the
Borrower Obligations or any other collateral security therefor or guarantee or right of offset with
respect thereto at any time or from time to time held by the Agent or any Lender, (b) any defense,
set-off or counterclaim (other than a defense of payment or performance) which may at any time be
available to or be asserted by any Borrower or any other Person against the Agent or any Lender, or
(c) any other circumstance whatsoever (with or without notice to or knowledge of any Borrower or
such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal
discharge of any of the Borrowers for the Borrower Obligations, or of such Guarantor under the
guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any
demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the
Agent or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise
pursue such rights and remedies as it may have against the Borrowers, any other Guarantor or any
other Person or against any collateral security or guarantee for any of the Borrower Obligations or
any right of offset with respect thereto, and any failure by the Agent or any
Lender to make any such demand, to pursue such other rights or remedies or to collect any
payments from any of the Borrowers, any other Guarantor or any other Person or to realize upon any
such collateral security or guarantee or to exercise any such right of offset, or any release of
any Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or
right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and
shall not impair or affect the rights and remedies, whether express, implied or available as a
matter of law, of the Agent or any Lender against any Guarantor. For the purposes hereof “demand”
shall include the commencement and continuance of any legal proceedings.

      2.6 Reinstatement. The guarantee contained in this Section 2 shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Borrower Obligations is rescinded or must otherwise be restored or returned by the Agent
or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any
Borrower or any Guarantor, or

 

 

 7 

upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, any Borrower or any Guarantor or any substantial
part of its property, or otherwise, all as though such payments had not been made.

      2.7 Payments. Each Guarantor hereby guarantees that payments hereunder will be paid
to the Agent without set-off or counterclaim in Dollars at the office of the Agent located at 270
Park Avenue, New York, New York 10017 or such other address of the Agent as may be designated in
accordance with Section 9.02 of the Credit Agreement.

SECTION 3. GRANT OF SECURITY INTEREST

      3.1 Collateral; Grant of Security Interest. Each Grantor hereby grants to the Agent,
for the ratable benefit of the Lenders, a security interest in, all of the following property now
owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any
time in the future may acquire any right, title or interest (collectively, the
“Collateral”), as collateral security for the prompt and complete payment and performance
when due (whether at the stated maturity, by acceleration or otherwise) of such Grantor’s
Obligations:

      (a) all Credit Card Accounts Receivable;

      (b) all Chattel Paper relating to Credit Card Accounts Receivable;

      (c) all Instruments relating to Credit Card Accounts Receivable;

      (d) all Inventory;

      (e) all books and records pertaining to the Collateral; and

      (f) to the extent not otherwise included, all Proceeds, insurance claims, Supporting
Obligations and products of any and all of the foregoing and all collateral security and guarantees
given by any Person with respect to any of the foregoing.

SECTION 4. REPRESENTATIONS AND WARRANTIES

      To induce the Agent and the Lenders to enter into the Credit Agreement and to induce the
Lenders to make their respective extensions of credit to the Borrowers thereunder, each Grantor
hereby represents and warrants to the Agent and each Lender that:

      4.1 Title; No Other Liens. Except for the security interest granted to the Agent for
the ratable benefit of the Lenders pursuant to this Agreement and the other Liens permitted to
exist on the Collateral by the Credit Agreement, such Grantor owns each item of the Collateral free
and clear of any and all Liens or claims of others. No financing statement or other public notice
with respect to all or any part of the Collateral is on file or of record in any public office,
except such as have been filed in favor of the Agent, for the ratable benefit of the Lenders,
pursuant to this Agreement or as are permitted by the Credit Agreement. For the avoidance of
doubt, it is understood and agreed that any Grantor may, as part of its business, transfer and/or
grant licenses to third parties to use Intellectual Property owned, licensed to or developed by a
Grantor so long as such conveyances and/or licenses do not materially impair the license

 

 

 8 

of the Agent in and to such Intellectual Property. For purposes of this Agreement and the other Loan
Documents, such licensing activity shall not constitute a “Lien” on such Intellectual Property.

      4.2 Perfected First Priority Liens. The security interests granted pursuant to this
Agreement (a) upon completion of the filings and other actions specified on Schedule 2 (which, in
the case of all filings and other documents referred to on said Schedule, have been delivered to
the Agent in completed and, if applicable, duly executed form) will constitute valid perfected
security interests in all of the Collateral in favor of the Agent, for the ratable benefit of the
Lenders, as collateral security for such Grantor’s Obligations, enforceable in accordance with the
terms hereof against all creditors of such Grantor and any Persons purporting to purchase any
Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on
the date hereof other than Permitted Liens.

      4.3 Jurisdiction of Organization. On the date hereof, such Grantor’s jurisdiction of
organization and identification number from the jurisdiction of organization (if any) are specified
on Schedule 3. Such Grantor has furnished to the Agent a certified charter, certificate of
incorporation or other organization document and long-form good standing certificate as of a date
which is recent to the date hereof.

      4.4 Credit Card Accounts Receivable. (a) No amount payable to such Grantor under or
in connection with any Credit Card Account Receivable is evidenced by any Instrument or Chattel
Paper which has not been delivered to the Agent.

      (b) None of the obligors on any Credit Card Account Receivable is a Governmental Authority.

      4.5 Related Intellectual Property. Such Grantor owns or has a license to use all
Intellectual Property which is reasonably necessary to sell the Collateral in the ordinary course.
Such Grantor shall take all reasonable and necessary steps to maintain and preserve the benefit of each Trademark License, Copyright
License and Patent License which relates to Intellectual Property to the extent that the use of
such Intellectual Property would be reasonably necessary in connection with the Agent’s enforcement
of any of its remedies under the Loan Documents. Such Grantor does not own any Eligible Inventory
which is subject to any Copyright License, Trademark License or Patent License or other agreement
with any third party which would require any consent of any third party upon sale or disposition of
that Eligible Inventory where such sale or disposition is made pursuant to a going-out-of-business
sale, orderly liquidation or similar sale, in each case, to the extent such going-out-of-business
sale, orderly liquidation or similar sale is conducted at the Stores, and such Grantor will
promptly deliver notice to the Agent upon entering into any Copyright License, Trademark License or
Patent License or amendment thereto which would require any such consent.

SECTION 5. COVENANTS

          Each Grantor covenants and agrees with the Agent and the Lenders that, from and after the date
of this Agreement until the Obligations (other than Obligations in respect of Specified Cash
Management Agreements, Specified Swap Agreements and indemnity obligations not yet due and payable)
shall have been paid in full, no Letter of Credit shall be outstanding and the Commitments shall
have terminated:

      5.1 Delivery of Instruments and Chattel Paper. If any amount payable under or in
connection with any of the Credit Card Accounts Receivable shall be or become evidenced by any
Instrument or Chattel Paper, such Instrument or Chattel Paper shall be promptly delivered to the
Agent, duly indorsed in a manner satisfactory to the Agent, to be held as Collateral pursuant to
this Agreement.

 

 

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      5.2 Maintenance of Insurance. Such Grantor will maintain insurance as and to the
extent required under the Credit Agreement. All such insurance provided by insurance companies or
associations shall (i) provide that no cancellation, material reduction in amount or material
change in coverage thereof shall be effective until at least 30 days after receipt by the Agent of
written notice thereof and (ii) name the Agent as insured party or loss payee with respect to
Inventory.

      5.3 Maintenance of Perfected Security Interest; Further Documentation. (a) Such
Grantor shall maintain the security interest created by this Agreement as a perfected security
interest having at least the priority described in Section 4.2 and shall defend such security
interest against the claims and demands of all Persons whomsoever, subject to the rights of such
Grantor under the Loan Documents to dispose of the Collateral.

      (b) At any time and from time to time, upon the written request of the Agent, and at the sole
expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have
recorded, such further instruments and documents and take such further actions as the Agent may
reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement
and of the rights and powers herein granted, including, without limitation, (i) filing any
financing or continuation statements under the Uniform Commercial Code (or other similar laws) in
effect in any jurisdiction with respect to the security interests created hereby and (ii) to the
extent applicable, taking any actions necessary to enable the Agent to obtain “control” (within the
meaning of the applicable Uniform Commercial Code) with respect thereto.

      5.4 Changes in Name, etc. Such Grantor will not, except upon 15 days’ prior written
notice to the Agent and delivery to the Agent of all additional financing statements and other
documents reasonably requested by the Agent to maintain the validity, perfection and priority of
the security interests provided for herein, change its organizational form from that of a
registered entity to an unregistered entity (or from an unregistered entity to a registered entity)
or change its jurisdiction of organization from that referred to in Section 4.3. Such Grantor will
provide written notice of any change in its name or organizational form (other than changes in
organizational form referred to in the immediately preceding sentence) within 15 days of such
change.

SECTION 6. REMEDIAL PROVISIONS

      6.1 Certain Matters Relating to Credit Card Accounts Receivable. (a) If required by
the Agent at any time after the occurrence and during the continuance of an Event of Default (or
automatically in the case of an Event of Default under Section 7.01(e) of the Credit Agreement with
respect to any Borrower), any payments of Credit Card Accounts Receivable, when collected by any
Grantor, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such
Grantor in the exact form received, duly indorsed by such Grantor to the Agent if required, in a
Collateral Account maintained under the sole dominion and control of the Agent, subject to
withdrawal by the Agent for the account of the Lenders only as provided in Section 6.4, and (ii)
until so turned over, shall be held by such Grantor in trust for the Agent and the Lenders,
segregated from other funds of such Grantor. Each such deposit of Proceeds of Credit Card Accounts
Receivable shall be accompanied by a report identifying in reasonable detail the nature and source
of the payments included in the deposit.

      (b) At the Agent’s request, at any time after the occurrence and during the continuance of an
Event of Default, each Grantor shall deliver to the Agent all original and other documents
evidencing, and relating to, the agreements and transactions which gave rise to the Credit Card
Accounts Receivable, including, without limitation, all original orders, invoices and shipping
receipts.

 

 

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      6.2 Communications with Obligors; Grantors Remain Liable. (a) The Agent in its own
name or in the name of others may at any time after the occurrence and during the continuance of an
Event of Default communicate with obligors under the Credit Card Accounts Receivable to verify with
them to the Agent’s satisfaction the existence, amount and terms of any Credit Card Accounts
Receivable.

      (b) Upon the request of the Agent at any time after the occurrence and during the continuance
of an Event of Default, each Grantor shall notify obligors on the Credit Card Accounts Receivable
that the Credit Card Accounts Receivable have been assigned to the Agent for the ratable benefit of
the Lenders and that payments in respect thereof shall be made directly to the Agent.

      (c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under
each of the Credit Card Accounts Receivable to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance with the terms of any
agreement giving rise thereto. Neither the Agent nor any Lender shall have any obligation or
liability under any Credit Card Accounts Receivable (or any agreement giving rise thereto) by
reason of or arising out of this Agreement or the receipt by the Agent or any Lender of any payment
relating thereto, nor shall the Agent or any
Lender be obligated in any manner to perform any of the obligations of any Grantor under or
pursuant to any Credit Card Accounts Receivable (or any agreement giving rise thereto), to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or
as to the sufficiency of any performance by any party thereunder, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.

      6.3 Proceeds to be Turned Over To Agent. In addition to the rights of the Agent and
the Lenders specified in Section 6.1 with respect to payments of Credit Card Accounts Receivable,
if an Event of Default shall occur and be continuing, and if requested by the Agent (or
automatically in the case of an Event of Default under Section 7.01(e) of the Credit Agreement with
respect to any Borrower), all Proceeds received by any Grantor consisting of cash, checks and other
near-cash items shall be held by such Grantor in trust for the Agent and the Lenders, segregated
from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over
to the Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the
Agent, if required). All Proceeds received by the Agent hereunder shall be held by the Agent in a
Collateral Account maintained under its sole dominion and control. All Proceeds while held by the
Agent in a Collateral Account (or by such Grantor in trust for the Agent and the Lenders) shall
continue to be held as collateral security for all the Obligations and shall not constitute payment
thereof until applied as provided in Section 6.4.

      6.4 Application of Proceeds. At such intervals as may be agreed upon by the Borrowers
and the Agent, or, if an Event of Default shall have occurred and be continuing, at any time at the
Agent’s election, the Agent may apply all or any part of Proceeds constituting Collateral, whether
or not held in any Collateral Account, and any proceeds of the guarantee set forth in Section 2, in
payment of the Obligations in the following order:

      First, to pay incurred and unpaid fees and expenses of the Agent under the Loan
Documents;

      Second, to the Agent, for application by it towards payment of amounts then due
and owing and remaining unpaid in respect of the Obligations (other than Obligations
relating to Specified Cash Management Agreements and Specified Swap Agreements), pro
rata among the Lenders according to the amounts of the Obligations (other than
Obligations relating to Specified Cash Management Agreements and Specified Swap Agreements)
then due and owing and remaining unpaid to the Lenders;

 

 

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      Third, to the Agent, for application by it towards prepayment of the
Obligations (other than Obligations relating to Specified Cash Management Agreements and
Specified Swap Agreements), pro rata among the Lenders according to the
amounts of the Obligations (other than Obligations relating to Specified Cash Management
Agreements and Specified Swap Agreements) then held by the Lenders;

      Fourth, to the applicable Lenders or affiliates thereof in payment of amounts
then due and owing and remaining unpaid in respect of Specified Swap Agreements, pro
rata among the applicable Lenders and affiliates thereof according to the amounts
then due and owing and remaining unpaid in respect of Specified Swap Agreements;

      Fifth, to the applicable Lenders or affiliates thereof towards prepayment,
settlement and termination of Specified Swap Agreements and outstanding hedge arrangements
thereunder, pro rata among the applicable Lenders and affiliates thereof
according to the amounts that would become due and owing upon the prepayment, settlement and
termination of such Specified Swap Agreements and the outstanding hedge arrangements
thereunder;

      Sixth, to the applicable Lenders or affiliates thereof in payment of amounts
then due and owing and remaining unpaid in respect of Specified Cash Management Agreements,
pro rata among the applicable Lenders and affiliates thereof according to
the amounts then due and owing and remaining unpaid in respect of Specified Cash Management
Agreements;

      Seventh, to the applicable Lenders or affiliates thereof in prepayment of
amounts then outstanding in respect of Specified Cash Management Agreements, pro
rata among the applicable Lenders and affiliates thereof according to the amounts
then outstanding in respect of Specified Cash Management Agreements;

      Eighth, any balance remaining after the Obligations shall have been paid in
full, no Letters of Credit shall be outstanding and the Commitments shall have terminated
shall be paid over to the Borrowers or to whomsoever may be lawfully entitled to receive the
same.

      6.5 Code and Other Remedies. If an Event of Default shall occur and be continuing,
the Agent, on behalf of the Lenders, may exercise, in addition to all other rights and remedies
granted to them in this Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under the New York UCC or
any other applicable law. Without limiting the generality of the foregoing, the Agent, without
demand of performance or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby waived), may in
such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s
board or office of the Agent or any Lender or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Agent or any Lender shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption
in any Grantor, which right or equity is hereby waived and released. Each Grantor further agrees,
at the Agent’s request, to assemble the Collateral and make it available to the Agent at places
which the Agent shall reasonably select, whether at such Grantor’s premises or elsewhere. The
Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.5, after
deducting all reasonable costs and

 

 

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expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Agent and the Lenders hereunder, including, without limitation,
reasonable attorneys’ fees and disbursements, to the payment in whole or in part of the
Obligations, in the order set forth in Section 6.4, and only after such application and after the
payment by the Agent of any other amount required by any provision of law, including, without
limitation, Section 9-615(a)(3) of the New York UCC, need the Agent account for the surplus, if
any, to any Grantor. To the extent permitted by applicable law, each Grantor waives all claims,
damages and demands it may acquire against the Agent or any Lender arising out of the exercise by
them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such sale or other
disposition.

      6.6 Deficiency. Each Grantor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the
fees and disbursements of any attorneys employed by the Agent or any Lender to collect such
deficiency.

      6.7 Grant of License in Intellectual Property, Software. (a) For the purpose of
enabling the Agent to exercise the rights and remedies under Section 6 at such time as the Agent
shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each
Grantor hereby (i) assigns and transfers to the Agent and grants to the Agent, for the benefit of
the Agent and the Lenders, an irrevocable, nonexclusive license (exercisable without payment of
royalty or any other compensation to such Grantor) to use, license or sublicense, any Intellectual
Property rights now owned or licensed or hereafter acquired by such Grantor, and wherever the same
may be located, and including in such license access to all media in which any of the licensed
items may be recorded or stored and to all computer software and programs used for the compilation
or printout thereof and (ii) irrevocably agrees that the Agent may sell any of such Grantor’s
Inventory directly to any Person, including without limitation Persons who have previously
purchased such Grantor’s Inventory from such Grantor and in connection with any such sale or other
enforcement of the Agent’s rights under this Agreement, may sell Inventory which bears any
Trademark owned by or licensed to such Grantor and any Inventory that is covered by any Copyright
owned by or licensed to such Grantor and the Agent may finish any work in process and affix any
Trademark owned by or licensed to such Grantor and sell such Inventory as provided herein;
provided that, notwithstanding the foregoing, this Agreement shall not constitute a license
to use, license or sublicense, any Intellectual Property to the extent such license or sublicense
is prohibited by or results in the termination of or requires any consent not obtained under, any
contract, license, agreement, instrument or other document evidencing or giving rise to such
Intellectual Property, except to the extent that the term in such contract, license, agreement,
instrument or other document providing for such prohibition, breach, default or termination or
requiring such consent is ineffective under applicable law.

      (b) For the purpose of enabling the Agent to exercise the rights and remedies under Section 6
at such time as the Agent shall be lawfully entitled to exercise such rights and remedies, and for
no other purpose, each Grantor hereby assigns and transfers to the Agent and grants to the Agent,
for the benefit of the Agent and the Lenders, an irrevocable, nonexclusive license (exercisable
without payment of royalty or any other compensation to such Grantor) to use, license or
sublicense, any Software now owned or licensed or hereafter acquired by such Grantor;
provided that, notwithstanding the foregoing, this Agreement shall not constitute a license
to use, license or sublicense, any Software to the extent such license or sublicense is prohibited
by or results in the termination of or requires any consent not obtained under, any contract,
license, agreement, instrument or other document evidencing or giving rise to such Software, except
to the extent that the term in such contract, license, agreement, instrument or other document
providing for such prohibition, breach, default or termination or requiring such consent is
ineffective under applicable law.

 

 

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SECTION 7. THE AGENT

      7.1 Agent’s Appointment as Attorney-in-Fact, etc. (a) Each Grantor hereby irrevocably constitutes and appoints the Agent and any officer or
agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor and in the name of such
Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the
generality of the foregoing, each Grantor hereby gives the Agent the power and right, on behalf of
such Grantor, without notice to or assent by such Grantor, to do any or all of the following:

      (i) in the name of such Grantor or its own name, or otherwise, take possession of and
indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment
of moneys due under any Credit Card Account Receivable or with respect to any other Collateral
and file any claim or take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Agent for the purpose of collecting any and all such moneys
due under any Credit Card Account Receivable or with respect to any other Collateral whenever
payable;

      (ii) pay or discharge taxes and Liens levied or placed on or threatened against the
Collateral, effect any repairs or any insurance called for by the terms of this Agreement and
pay all or any part of the premiums therefor and the costs thereof;

      (iii) execute, in connection with any sale provided for in Section 6.5, any indorsements,
assignments or other instruments of conveyance or transfer with respect to the Collateral; and

      (iv) (1) direct any party liable for any payment under any of the Collateral to make
payment of any and all moneys due or to become due thereunder directly to the Agent or as the
Agent shall direct; (2) ask or demand for, collect, and receive payment of and receipt for,
any and all moneys, claims and other amounts due or to become due at any time in respect of or
arising out of any Collateral; (3) sign and indorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the Collateral; (4)
commence and prosecute any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other
right in respect of any Collateral; (5) defend any suit, action or proceeding brought against
such Grantor with respect to any Collateral; (6) settle, compromise or adjust any such suit,
action or proceeding and, in connection therewith, give such discharges or releases as the Agent
may deem appropriate; and (7) generally, sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely as though the
Agent were the absolute owner thereof for all purposes, and do, at the Agent’s option and such
Grantor’s expense, at any time, or from time to time, all acts and things which the Agent deems
necessary to protect, preserve or realize upon the Collateral and the Agent’s and the Lenders’
security interests therein and to effect the intent of this Agreement, all as fully and
effectively as such Grantor might do.

      Anything in this Section 7.1(a) to the contrary notwithstanding, the Agent agrees that it
will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless
an Event of Default shall have occurred and be continuing.

      (b) If any Grantor fails to perform or comply with any of its agreements contained herein, the
Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise
cause performance or compliance, with such agreement.

 

 

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      (c) The expenses of the Agent incurred in connection with actions undertaken as provided in
this Section 7.1, together with interest thereon at a rate per annum equal to the highest rate per
annum at which interest would then be payable on any category of past due Base Rate Advances under
the Credit Agreement, from the date of payment by the Agent to the date reimbursed by the relevant
Grantor, shall be payable by such Grantor to the Agent on demand.

      (d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done
by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the security interests
created hereby are released.

      7.2 Duty of Agent. The Agent’s sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC
or otherwise, shall be to deal with it in the same manner as the Agent deals with similar property
for its own account. Neither the Agent, any Lender nor any of their respective officers,
directors, employees or agents shall be liable for failure to demand, collect or realize upon any
of the Collateral or for any delay in doing so or shall be under any obligation to sell or
otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take
any other action whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Agent and the Lenders hereunder are solely to protect the Agent’s and the Lenders’
interests in the Collateral and shall not impose any duty upon the Agent or any Lender to exercise
any such powers. The Agent and the Lenders shall be accountable only for amounts that they
actually receive as a result of the exercise of such powers, and neither they nor any of their
officers, directors, employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.

      7.3 Execution of Financing Statements. Each Grantor authorizes the Agent to file or
record financing statements and other filing or recording documents or instruments with respect to
the Collateral without the signature of such Grantor in such form and in such offices as the Agent
determines appropriate to perfect the security interests of the Agent under this Agreement. Each
Grantor hereby ratifies and authorizes the filing by the Agent of any financing statement with
respect to the Collateral made prior to the date hereof.

      7.4 Authority of Agent. Each Grantor acknowledges that the rights and
responsibilities of the Agent under this Agreement with respect to any action taken by the Agent or
the exercise or non-exercise by the Agent of any option, voting right, request, judgment or other
right or remedy provided for herein or resulting or arising out of this Agreement shall, as between
the Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the Agent and the
Grantors, the Agent shall be conclusively presumed to be acting as agent for the Lenders with full
and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation,
or entitlement, to make any inquiry respecting such authority.

SECTION 8. MISCELLANEOUS

      8.1 Amendments in Writing. None of the terms or provisions of this Agreement may be
waived, amended, supplemented or otherwise modified except in accordance with Section 9.01 of the
Credit Agreement.

      8.2 Notices. All notices, requests and demands to or upon the Agent or any Grantor
hereunder shall be effected in the manner provided for in Section 9.02 of the Credit Agreement;
provided

 

 

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that any such notice, request or demand to or upon any Grantor shall be addressed to such
Grantor at its notice address set forth on Schedule 1.

      8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the Agent nor any
Lender shall by any act (except by a written instrument pursuant to Section 8.1), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of the Agent or any Lender, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise of any other right,
power or privilege. A waiver by the Agent or any Lender of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or remedy which the Agent or such Lender
would otherwise have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.

      8.4 Enforcement Expenses; Indemnification. (a) Each Grantor agrees to pay or
reimburse each Lender and the Agent for all its costs and expenses incurred in collecting against
such Grantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any
rights under this Agreement and the other Loan Documents to which such Grantor is a party,
including, without limitation, the fees and disbursements of one counsel to the Lenders and of one
counsel to the Agent.

      (b) Each Grantor agrees to pay, and to save the Agent and the Lenders harmless from, any and
all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise,
sales or other taxes which may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated by this Agreement.

      (c) Each Grantor agrees to pay, and to save the Agent and the Lenders harmless from, any and
all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement to the extent the Borrowers would be
required to do so pursuant to Section 9.04 of the Credit Agreement.

      (d) The agreements in this Section 8.4 shall survive repayment of the Obligations and all
other amounts payable under the Credit Agreement and the other Loan Documents.

      8.5 Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall
inure to the benefit of the Agent and the Lenders and their successors and assigns; provided that
no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement
without the prior written consent of the Agent.

      8.6 Set-Off. Each Grantor hereby irrevocably authorizes the Agent and each Lender at
any time and from time to time while an Event of Default pursuant to Section 7.01(a) of the Credit
Agreement shall have occurred and be continuing, without notice to such Grantor or any other
Grantor, any such notice being expressly waived by each Grantor, to set-off and appropriate and
apply any and all deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, at any time held or owing by the Agent or such Lender
to or for the credit or the account of such Grantor, or any part thereof in such amounts as the
Agent or such Lender may elect, against and on account of the obligations and liabilities of such
Grantor to the Agent or such Lender hereunder and claims of every nature and description of the
Agent or such Lender against such Grantor, in any currency, whether arising hereunder, under the
Credit Agreement, any other Loan Document or otherwise, as the Agent or such

 

 

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Lender may elect, whether or not the Agent or any Lender has made any demand for payment. The Agent and each Lender
shall notify such Grantor promptly of any such set-off and the application made by the Agent or
such Lender of the proceeds thereof, provided that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of the Agent and each Lender under this
Section 8.6 are in addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Agent or such Lender may have.

      8.7 Counterparts. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts (including by telecopy), and all of said
counterparts taken together shall be deemed to constitute one and the same instrument.

      8.8 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

      8.9 Section Headings. The Section headings used in this Agreement are for convenience
of reference only and are not to affect the construction hereof or be taken into consideration in
the interpretation hereof.

      8.10 Integration. This Agreement and the other Loan Documents represent the agreement
of the Grantors, the Agent and the Lenders with respect to the subject matter hereof and thereof,
and there are no promises, undertakings, representations or warranties by the Agent or any Lender
relative to subject matter hereof and thereof not expressly set forth or referred to herein or in
the other Loan Documents.

      8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

      8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby irrevocably and
unconditionally:

      (a) submits for itself and its property in any legal action or proceeding relating to this
Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement
of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States of America for the Southern District of New
York, and appellate courts from any thereof;

      (b) consents that any such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;

      (c) agrees that service of process in any such action or proceeding may be effected by mailing
a copy thereof by registered or certified mail (or any substantially similar form of mail), postage
prepaid, to such Grantor at its address referred to in Section 8.2 or at such other address of
which the Agent shall have been notified pursuant thereto;

 

 

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      (d) agrees that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

      (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.

      8.13 Acknowledgements. Each Grantor hereby acknowledges that:

      (a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Loan Documents to which it is a party;

      (b) neither the Agent nor any Lender has any fiduciary relationship with or duty to any
Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and
the relationship between the Grantors, on the one hand, and the Agent and Lenders, on the other
hand, in connection herewith or therewith is solely that of debtor and creditor; and

      (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by
virtue of the transactions contemplated hereby among the Lenders or among the Grantors and the
Lenders.

      8.14 Additional Grantors. Each Subsidiary of the Borrowers that is required to become a party to this Agreement
pursuant to Section 6.01(i) of the Credit Agreement shall become a Grantor for all purposes of this
Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of
Annex 1 hereto.

      8.15 Releases. (a) At such time as the Advances, the Reimbursement Obligations and
the other Obligations (other than Obligations in respect of Specified Cash Management Agreements,
Specified Swap Agreements and indemnity obligations not yet due and payable) shall have been paid
in full, the Commitments have been terminated and no Letters of Credit shall be outstanding, the
Collateral shall be released from the Liens created hereby, and this Agreement and all obligations
(other than those expressly stated to survive such termination) of the Agent and each Grantor
hereunder shall terminate, all without delivery of any instrument or performance of any act by any
party, and all rights to the Collateral shall revert to the Grantors. At the request and sole
expense of any Grantor following any such termination, the Agent shall deliver to such Grantor any
Collateral held by the Agent hereunder, and execute and deliver to such Grantor such documents as
such Grantor shall reasonably request to evidence such termination.

      (b) In the event the Collateral is released pursuant to Section 9.13(c) of the Credit
Agreement, the Collateral shall be released from the Liens created hereby, and all obligations of
the Agent and the Grantors (other than those expressly stated to survive termination of this
Agreement) pursuant to Sections 3, 4, 5, 6 (other than 6.4) and 7 of this Agreement shall
terminate, all without delivery of any instrument or performance of any act by any party, and all
rights to the Collateral shall revert to the Grantors. At the request and sole expense of any
Grantor following any such release and termination, the Agent shall deliver to such Grantor any
Collateral held by the Agent hereunder, and execute and deliver to such Grantor such documents as
such Grantor shall reasonably request to evidence such release and termination.

      (c) If any of the Collateral shall be sold, transferred or otherwise disposed of by any
Grantor in a transaction permitted by the Credit Agreement, then the Collateral shall be released
from the Liens created hereby without delivery of any instrument or performance of any act by any
party, and all rights

 

 

 18 

to the Collateral shall revert to such Grantor or its transferee, as the case
may be, and the Agent, at the request and sole expense of such Grantor, shall execute and deliver
to such Grantor all releases or other documents reasonably necessary or desirable to evidence the
release of the Liens created hereby on such Collateral. At the request and sole expense of the
Borrowers, the Agent shall release any Grantor from its obligations hereunder, including, without
limitation, its obligations pursuant to Section 2 hereof, and shall execute and deliver to the
Borrowers all releases or other documentation reasonably necessary or desirable to evidence such
release, in the event that all the Capital Stock of such Grantor shall be sold, transferred or
otherwise disposed of in a transaction permitted by the Credit Agreement and/or in the event that
such Grantor shall dispose of all or substantially all of its assets and shall cease to own any
Inventory or Credit Card Accounts Receivable.

      8.16 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

 

 19 

          IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Collateral Agreement
to be duly executed and delivered as of the date first above written.

	 	 	 	 	 
	 	SEARS HOLDINGS CORPORATION

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	SEARS, ROEBUCK AND CO.

 	 
	 	By:  	/s/ Michael Coyne
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	SEARS ROEBUCK ACCEPTANCE CORP.

 	 
	 	By:  	/s/ Keith E. Trost
 	 
	 	 	Title:  President 	 
	 	 	 	 
	 
	 	KMART HOLDING CORPORATION

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	KMART MANAGEMENT CORPORATION

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	KMART CORPORATION

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 

 

 

	 	 	 	 	 

 20 

	 	 	 	 	 
	 	A&E FACTORY SERVICE, LLC

 	 
	 	By:  	/s/ Georgeann Georges
 	 
	 	 	Title: President 	 
	 	 	 	 
	 
	 	A&E HOME DELIVERY, LLC

 	 
	 	By:  	/s/ David P. Chameli
 	 
	 	 	Title:  Secretary 	 
	 	 	 	 
	 
	 	A&E LAWN & GARDEN, LLC

 	 
	 	By:  	/s/ Georgeann Georges
 	 
	 	 	Title:  President 	 
	 	 	 	 
	 
	 	A&E SIGNATURE SERVICE, LLC

 	 
	 	By:  	/s/ Georgeann Georges
 	 
	 	 	Title:  President 	 
	 	 	 	 
	 
	 	CALIFORNIA BUILDER APPLIANCES, INC. d/b/a MCPHAIL’S

 	 
	 	By:  	/s/ Beryl J. Buley
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	FLORIDA BUILDER APPLIANCES, INC.

 	 
	 	By:  	/s/ Beryl J. Buley
 	 
	 	 	Title: 	 
	 	 	 	 

 

 

	 	 	 	 	 

 21 

	 	 	 	 	 
	 	KLC, INC.

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	KMART.COM LLC (f/k/a BLUELIGHT.COM LLC)

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	KMART STORES OF ILLINOIS LLC

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	KMART OF NORTH CAROLINA LLC

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	KMART OF PENNSYLVANIA L.P.

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	KMART OF TEXAS L.P.

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 

 

 

	 	 	 	 	 

 22 

	 	 	 	 	 
	 	KMART STORES OF TEXAS LLC

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	KMART OF WASHINGTON LLC

 	 
	 	By:  	/s/ Allen R. Ravas
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	LAND’S END INC.

 	 
	 	By:  	/s/ Mindy Meads
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	ORCHARD SUPPLY HARDWARE STORES CORPORATION

 	 
	 	By:  	/s/ Beryl J. Buley
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	PRIVATE BRANDS, LTD.

 	 
	 	By:  	/s/ Roger Detter
 	 
	 	 	Title: President 	 
	 	 	 	 
	 
	 	SEARS ROEBUCK DE PUERTO RICO, INC.

 	 
	 	By:  	/s/ Carson T. Wells Jr.
 	 
	 	 	Title: President 	 
	 	 	 	 

 

 

	 	 	 	 	 

 23 

	 	 	 	 	 
	 	SEARS HOME IMPROVEMENT PRODUCTS, INC.

 	 
	 	By:  	/s/ Mark Good
 	 
	 	 	Title:  President 	 
	 	 	 	 
	 
	 	SOE, LLC

 	 
	 	By:  	/s/ Gerald Coghlan
 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	STARWEST, LLC

 	 
	 	By:  	/s/ Gerald Coghlan
 	 
	 	 	Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00085-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00085-of-00352.parquet"}]]