Sears Hometown & Outlet Stores, Inc. (Form: 10-Q, Received: 09/10/2012 16:00:01)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

U NITED S TATES

S ECURITIES A ND E XCHANGE C OMMISSION

W ASHINGTON , D.C. 20549

FORM 10-Q

x	Q UARTERLY R EPORT P URSUANT T O S ECTION 13 O R 15(d) O F T HE

S ECURITIES E XCHANGE A CT O F 1934

F OR T HE Q UARTERLY P ERIOD E NDED J ULY 28, 2012

O R

¨	T RANSITION R EPORT P URSUANT T O S ECTION 13 O R 15(d) O F T HE

S ECURITIES E XCHANGE A CT O F 1934

Commission file number 001-35641

SEARS HOMETOWN AND OUTLET STORES, INC.

(Exact name of registrant as specified in its charter)


D ELAWARE		80-0808358
(State of Incorporation)		(I.R.S. Employer Identification No.)

3333 B EVERLY R OAD , H OFFMAN E STATES , I LLINOIS		60179
(Address of principal executive offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (847) 286-2500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of September 7, 2012, the registrant had 23,100,000 common shares, $0.01 par value, outstanding.

SEARS HOMETOWN AND OUTLET STORES

INDEX TO QUARTERLY REPORT ON FORM 10-Q

13 and 26 Weeks Ended July 28, 2012 and July 30, 2011


		Page

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Combined Statements of Income (Unaudited) for the 13 and 26 Weeks Ended July 28, 2012 and July 30, 2011		1
	Condensed Combined Balance Sheets (Unaudited) at July 28, 2012, July 30, 2011 and January 28, 2012		2
	Condensed Combined Statements of Cash Flows (Unaudited) for the 26 Weeks Ended July 28, 2012 and July 30, 2011		3
	Condensed Combined Statements of Divisional Equity (Unaudited) for the 26 Weeks Ended July 28, 2012 and July 30, 2011		4
	Notes to Condensed Combined Financial Statements (Unaudited)		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		25

Item 4.	Controls and Procedures		25

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings		25

Item 1A.	Risk Factors		25

Item 6.	Exhibits		25

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

CONDENSED COMBINED STATEMENTS OF INCOME (Unaudited)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


	13 Weeks Ended						26 Weeks Ended
thousands	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
NET SALES	$	644,464		$	629,576		$	1,265,542		$	1,214,208

COSTS AND EXPENSES
Cost of sales and occupancy		484,478			493,012			946,857			952,274
Selling and administrative		124,073			115,108			245,977			225,406
Depreciation		2,228			2,327			4,533			4,681

Total costs and expenses		610,779			610,447			1,197,367			1,182,361

Operating income		33,685			19,129			68,175			31,847
Interest expense		—			(1,186	)		(669	)		(1,625	)
Other income		988			74			1,214			137

Income before income taxes		34,673			18,017			68,720			30,359
Income tax expense		(13,606	)		(7,092	)		(27,060	)		(12,019	)

NET INCOME	$	21,067		$	10,925		$	41,660		$	18,340

See Notes to Condensed Combined Financial Statements.

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

CONDENSED COMBINED BALANCE SHEETS


	(Unaudited)						Pro Forma (Unaudited)
thousands	July 28, 2012		July 30, 2011		January 28, 2012		July 28, 2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	564	$	737	$	694	$	564
Accounts receivable		12,300		5,524		9,006		12,300
Merchandise inventories		404,036		411,126		393,658		404,036
Prepaid expenses and other current assets		2,051		6,653		2,163		2,051

Total current assets		418,951		424,040		405,521		418,951
PROPERTY AND EQUIPMENT, net		57,548		56,590		59,996		57,548
GOODWILL		167,000		167,000		167,000		167,000
OTHER ASSETS		26,343		13,644		19,321		26,343

TOTAL ASSETS	$	669,842	$	661,274	$	651,838	$	669,842

LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Merchandise payables	$	22,760	$	17,729	$	17,156	$	22,760
Accrued expenses		78,236		72,491		75,235		78,236
Current portion of capital lease obligations		1,711		2,203		2,061		1,711
Deferred income taxes		17,595		14,060		13,733		17,595

Total current liabilities		120,302		106,483		108,185		120,302
LONG-TERM DEBT		—		—		—		100,000
CAPITAL LEASE OBLIGATIONS		1,170		2,926		1,937		1,170
OTHER LONG-TERM LIABILITIES		3,809		3,361		3,610		3,809
COMMITMENTS AND CONTINGENCIES (Note 7)

TOTAL LIABILITIES		125,281		112,770		113,732		225,281
DIVISIONAL EQUITY		544,561		548,504		538,106		444,561

TOTAL LIABILITIES AND DIVISIONAL EQUITY	$	669,842	$	661,274	$	651,838	$	669,842

See Notes to Condensed Combined Financial Statements.

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	26 Weeks Ended
thousands	July 28, 2012			July 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	41,660		$	18,340
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,533			4,681
Change in operating assets and liabilities:
Accounts receivable		(10,464	)		(999	)
Merchandise inventories		(10,377	)		(16,520	)
Merchandise payables		5,604			1,195
Store closing accruals		(1,021	)		1,440
Customer deposits		3,120			1,129
Deferred income taxes		4,210			576
Other operating assets		1,196			(3,672	)
Other operating liabilities		943			448

Net cash provided by operating activities		39,404			6,618

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(3,373	)		(4,196	)

Net cash used in investing activities		(3,373	)		(4,196	)

CASH FLOWS FROM FINANCING ACTIVITIES
Transfers to Sears Holdings Corporation		(35,205	)		(1,419	)
Payments of capital lease obligations		(956	)		(1,080	)

Net cash used in financing activities		(36,161	)		(2,499	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(130	)		(77	)

CASH AND CASH EQUIVALENTS—Beginning of period		694			814

CASH AND CASH EQUIVALENTS—End of period	$	564		$	737

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	41		$	1,625

See Notes to Condensed Combined Financial Statements.

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

CONDENSED COMBINED STATEMENTS OF DIVISIONAL EQUITY (Unaudited)


thousands	Divisional Equity
Balance at January 29, 2011	$	531,583
Net income		18,340
Net transfer to Sears Holdings Corporation		(1,419	)

Balance at July 30, 2011	$	548,504

Balance at January 28, 2012	$	538,106
Net income		41,660
Net transfer to Sears Holdings Corporation		(35,205	)

Balance at July 28, 2012	$	544,561

See Notes to Condensed Combined Financial Statements.

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1—BACKGROUND AND BASIS OF PRESENTATION

Background

Sears Hometown and Outlet Stores or “the Company,” is a national retailer primarily focused on selling home appliances, hardware, tools and lawn and garden equipment. The Company and its dealers and franchisees operate approximately 1,230 stores across all 50 states and Puerto Rico, Guam and Bermuda.

Description of the Business and the Separation

On February 23, 2012, Sears Holdings Corporation (“Sears Holdings”) announced its intention to separate its Sears Hometown and Hardware and Sears Outlet businesses (the “Separation”) through a rights offering which is expected to be completed in the third quarter of 2012 (the “rights offering”). In connection with the Separation, on August 31, 2012 Sears Holdings contributed certain assets, liabilities, businesses and employees related to its Sears Hometown and Hardware and Sears Outlet businesses to Sears Hometown and Outlet Stores, Inc, (“SHO”). SHO was formed on April 23, 2012 as a wholly owned subsidiary of Sears Holdings, and prior to the contribution had not conducted business as a separate company and had no material assets or liabilities. See Note 9 to our Condensed Combined Financial Statements included herein.

Additionally, intercompany balances due to/from Sears Holdings, which includes amounts from merchandise purchases, are expected to be contributed to equity for all periods presented. No interest was charged by Sears Holdings on the intercompany balances during the 13 and 26 weeks ended July 28, 2012 or July 30, 2011.

Basis of Presentation

These interim unaudited condensed combined financial statements represent the Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings and have been derived from the consolidated financial statements and accounting records of Sears Holdings, principally representing the historical results of operations and the historical basis of assets and liabilities of the Company’s business. As business operations of Sears Holdings, we do not maintain our own legal, tax, and certain other corporate support functions. In connection with the Separation, Sears Holdings and SHO entered into a services agreement to provide SHO with certain support services under the terms described in Note 4. The costs and allocations charged to the Company by Sears Holdings do not necessarily reflect the costs of obtaining the services from unaffiliated third parties or of the Company providing the applicable services itself. The Company believes that the methods by which Sears Holdings allocates its costs are reasonable and are based on prorated estimates of costs expected to be incurred by Sears Holdings. The Company further believes that the existing arrangements, as reflected in these financial statements, are not materially different from the arrangements that will be effective upon the Separation. The condensed combined financial statements contained herein may not be indicative of the Company’s financial position, operating results and cash flows in the future, or what they would have been if it had been a stand-alone company during all periods presented.

These interim unaudited condensed combined financials statements do not include all of the information and footnotes required in annual combined financial statements prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full fiscal year. These interim financial statements and related notes should be read in conjunction with the audited combined financial statements, including notes thereto in the Company’s Registration Statement on Form S-1 (Registration No. 333-181051), as amended, filed with the Securities and Exchange Commission (the “Registration Statement”).

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

In connection with the Separation, we expect to enter into an asset-based senior secured revolving credit facility, or the “Senior ABL Facility,” with a group of financial institutions. The Senior ABL Facility is expected to provide (subject to availability under a borrowing base) for aggregate maximum borrowings of $250 million. Up to $75 million of the revolving credit facility is expected to be available for the issuance of letters of credit and up to $25 million is expected to be available for swingline loans. The Senior ABL Facility is also expected to allow revolving commitment increases in an aggregate principal amount of up to $100 million.

The accompanying unaudited pro forma condensed combined balance sheet as of July 28, 2012 is presented to give effect to this dividend. Additionally, in order to fund on a pro forma basis such subsequent distribution, the unaudited pro forma balance sheet also reflects pro forma incremental borrowing as of July 28, 2012 of $100 million.

NOTE 2—ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES

Accrued expenses and other long-term liabilities consist of the following:


thousands	July 28, 2012		July 30, 2011		January 28, 2012
Customer deposits	$	34,987	$	28,093	$	31,868
Sales and other taxes		13,534		12,965		14,229
Accrued expenses		13,622		11,023		12,376
Warranty accrual		11,765		16,854		11,765
Payroll and related items		6,957		5,477		6,406
Store closing cost accrual		1,180		1,440		2,201

Total accrued expenses and other long-term liabilities	$	82,045	$	75,852	$	78,845

NOTE 3—INCOME TAXES

In connection with the Separation, we entered into a Tax Sharing Agreement with Sears Holdings which will govern the rights and obligations of the parties with respect to pre-Separation and post-Separation tax matters. Under the Tax Sharing Agreement, Sears Holdings will be responsible for any federal, state or foreign income tax liability relating to tax periods ending on or before the Separation. For all periods after the Separation, the Company will be responsible for any federal, state or foreign tax liability. Current income taxes payable for any federal, state or foreign income tax returns is reported in the period incurred.

We account for uncertainties in income taxes according to accounting standards for uncertain tax positions. The Company is present in a large number of taxable jurisdictions and, at any point in time, can have audits underway at various stages of completion in one or more of these jurisdictions. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite the belief that the underlying tax positions are fully supportable. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law, and closings of statutes of limitation. Such adjustments are reflected in the tax provision as appropriate. Pursuant to the Tax Sharing Agreement, Sears Holdings will be responsible for any unrecognized tax benefits through the date of the Separation. For the 13 and 26 weeks ended July 28, 2012 and July 30, 2011, no unrecognized tax benefits have been identified and reflected in the financial statements.

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of income tax expense. As no unrecognized tax benefits have been identified and reflected in the condensed combined financial statements, no interest or penalties related to unrecognized tax benefits are reflected in the condensed combined balance sheets or statements of income.

NOTE 4—RELATED PARTY AGREEMENTS

ESL Investments, Inc. and its affiliates, including Edward S. Lampert, or, collectively, “ESL,” beneficially owns approximately 62% of the outstanding common stock of Sears Holdings as of the date hereof. Mr. Lampert, on behalf of himself and investment funds affiliated with ESL for which he has the power to direct new investments, has advised Sears Holdings that he and the investment funds affiliated with ESL for which he has the power to direct new investments intend to exercise their subscription rights and their respective over-subscription privilege in full, such that they will purchase the maximum number of shares allocated to them under the over-subscription privilege, subject to the successful completion of the Separation transactions, though they have not entered into any agreement to do so. As a result, we expect that ESL will hold more than 50% of our common stock, and if that occurs we expect to qualify and elect to be a “controlled company” under the NASDAQ Marketplace rules following the completion of the rights offering. This election would allow us to rely on exemptions from certain corporate governance requirements otherwise applicable to NASDAQ-listed companies.

In connection with the Separation, we entered into various agreements with Sears Holdings which, among other things, (1) govern the principal transactions relating to the rights offering and certain aspects of our relationship with Sears Holdings following the Separation, (2) establish terms under which subsidiaries of Sears Holdings will provide us with services, and (3) establish terms pursuant to which subsidiaries of Sears Holdings will obtain merchandise for us. The terms of these agreements were agreed to in the context of a parent-subsidiary relationship and in the overall context of the Separation. The Company believes that the methods by which Sears Holdings allocated its costs are reasonable and are based on prorated estimates of costs expected to be incurred by Sears Holdings. The Company further believes that the existing arrangements, as reflected in our condensed combined financial statements, are not materially different from the arrangements that will be effective upon the Separation. See Note 9 to our Condensed Combined Financial Statements included herein.

A summary of the nature of related party transactions is as follows:

•

We obtain a significant amount of our merchandise inventories from Sears Holdings, leveraging the benefit of the Sears Holdings purchasing organization. We have also entered into certain agreements with Sears Holdings for logistics, handling, warehouse and transportation services, the charges for which are based on inventory units. We pay a royalty related to the sale of Kenmore, Craftsman and DieHard products and fees for participation in the Shop Your Way Rewards program.

•

Sears Hometown and Outlet Stores receive commissions from Sears Holdings for the sale of merchandise made through www.sears.com, extended service contracts, delivery and handling services and credit revenues.

•

Sears Holdings provides the Company with shared corporate services. These shared services include accounting and finance, human resources, information technology and real estate. Expenses for these shared corporate services are allocated to the Company based on actual usage or a pro rata charge based upon sales, head count or square footage. The Company was allocated shared corporate expense of $4.0 million and $7.9 million for the 13 and 26 weeks ended July 28, 2012, respectively, and $4.4 million and $9.7 million for the 13 and 26 weeks ended July 30, 2011, respectively.

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the transactions with Sears Holdings included in the Company’s Condensed Combined Financial Statements:


	13 Weeks Ended				26 Weeks Ended
	July 28,		July 30,		July 28,		July 30,
thousands	2012		2011		2012		2011
Combined Statements of Income
Net sales	$	64,618	$	49,805	$	126,503	$	97,386
Purchase of inventory		418,070		430,562		820,229		828,278
Services and occupancy		26,130		34,224		55,919		68,473

NOTE 5—STORE CLOSING CHARGES AND SEVERANCE COSTS

In accordance with accounting standards governing costs associated with exit or disposal activities, expenses related to future rent payments for which the Company no longer intends to receive any economic benefit are accrued for when we cease to use the leased space and have been reduced for any income that the Company believes can be realized through sub-leasing the leased space. During the second quarter of 2012, we closed 7 stores we previously announced would close and recorded charges of $1 million for the related lease obligations in our Sears Hometown and Hardware segment. We did not record any charges related to closed store lease obligations during the second quarter of 2011.

The Company made the decision to close 13 stores in our Sears Hometown and Hardware segment in the second quarter of 2011. Store closing activity recorded during the 26-week periods ended July 28, 2012 and July 30, 2011, and the remaining store closing cost accruals at July 28, 2012 and July 30, 2011, were as follows:


thousands	Markdowns (1)			Severance Costs (2)			Lease Termination Costs (2)			Other Costs (2)			Accelerated Depreciation (3)			Total
Balance at January 28, 2012	$	8,147		$	150		$	56		$	1,995		$	—		$	10,348
Store closing costs		—			—			797			—			—			797
Payments/utilizations		(8,066	)		(135	)		(56	)		(1,627	)		—			(9,884	)

Balance at July 28, 2012	$	81		$	15		$	797		$	368		$	—		$	1,261


thousands	Markdowns (1)			Severance Costs (2)			Lease Termination Costs (2)			Other Costs (2)			Accelerated Depreciation (3)			Total
Balance at January 29, 2011	$	—		$	—		$	—		$	—		$	—		$	—
Store closing costs		3,170			180			—			1,260			49			4,659
Payments/utilizations		(130	)		—			—			—			(49	)		(179	)

Balance at July 30, 2011	$	3,040		$	180		$	—		$	1,260		$	—		$	4,480

(1)	Recorded within Cost of sales and occupancy on the Condensed Combined Statements of Income.

(2)	Recorded within Selling and administrative on the Condensed Combined Statements of Income.

(3)	Recorded within Depreciation on the Condensed Combined Statements of Income.

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 6—SUMMARY OF SEGMENT DATA

Our two reportable segment classifications are based on our business formats as described in Note 1. The Sears Hometown and Hardware reportable segment consists of the aggregation of the Sears Hometown and Sears Hardware business formats. The Sears Outlet format represents both an operating and reportable segment. These segments are evaluated by our Chief Operating Decision Maker to make decisions about resource allocation and to assess performance. Each of these segments derives its revenues from the sale of merchandise and related services to customers, primarily in the United States. The merchandise categories include appliances, lawn and garden, tools and paint and other.


	13 Weeks Ended July 28, 2012
thousands	Sears Hometown and Hardware		Sears Outlet		Total
Net sales
Appliances	$	302,648	$	107,989	$	410,637
Lawn and garden		109,064		6,694		115,758
Tools and paint		51,934		2,167		54,101
Other		44,730		19,238		63,968

Total		508,376		136,088		644,464

Costs and expenses
Cost of sales and occupancy		387,321		97,157		484,478
Selling and administrative		96,836		27,237		124,073
Depreciation		791		1,437		2,228

Total		484,948		125,831		610,779

Operating income	$	23,428	$	10,257	$	33,685

Total assets	$	548,067	$	121,775	$	669,842

Capital expenditures	$	265	$	1,179	$	1,444


	13 Weeks Ended July 30, 2011
thousands	Sears Hometown and Hardware		Sears Outlet		Total
Net sales
Appliances	$	277,546	$	102,636	$	380,182
Lawn and garden		131,605		8,670		140,275
Tools and paint		51,654		2,126		53,780
Other		44,439		10,900		55,339

Total		505,244		124,332		629,576

Costs and expenses
Cost of sales and occupancy		403,985		89,027		493,012
Selling and administrative		90,926		24,182		115,108
Depreciation		994		1,333		2,327

Total		495,905		114,542		610,447

Operating income	$	9,339	$	9,790	$	19,129

Total assets	$	542,570	$	118,704	$	661,274

Capital expenditures	$	503	$	2,163	$	2,666

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)


	26 Weeks Ended July 28, 2012
thousands	Sears Hometown and Hardware		Sears Outlet		Total
Net sales
Appliances	$	570,846	$	226,755	$	797,601
Lawn and garden		224,430		10,143		234,573
Tools and paint		103,819		4,711		108,530
Other		89,138		35,700		124,838

Total		988,233		277,309		1,265,542

Costs and expenses
Cost of sales and occupancy		749,907		196,950		946,857
Selling and administrative		193,250		52,727		245,977
Depreciation		1,626		2,907		4,533

Total		944,783		252,584		1,197,367

Operating income	$	43,450	$	24,725	$	68,175

Total assets	$	548,067	$	121,775	$	669,842

Capital expenditures	$	614	$	2,759	$	3,373


	26 Weeks Ended July 30, 2011
thousands	Sears Hometown and Hardware		Sears Outlet		Total
Net sales
Appliances	$	531,140	$	208,938	$	740,078
Lawn and garden		246,545		12,115		258,660
Tools and paint		104,303		3,979		108,282
Other		86,107		21,081		107,188

Total		968,095		246,113		1,214,208

Costs and expenses
Cost of sales and occupancy		777,939		174,335		952,274
Selling and administrative		178,711		46,695		225,406
Depreciation		2,000		2,681		4,681

Total		958,650		223,711		1,182,361

Operating income	$	9,445	$	22,402	$	31,847

Total assets	$	542,570	$	118,704	$	661,274

Capital expenditures	$	928	$	3,268	$	4,196

NOTE 7—COMMITMENTS AND CONTINGENCIES

We are subject to various legal and governmental proceedings out of the ordinary course of business, the outcome of which, individually or in the aggregate, in the opinion of management, would not have a material adverse effect on our business, financial position, or results of operations.

SEARS HOMETOWN AND OUTLET STORES

(Combined Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings Corporation)

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 8—RECENT ACCOUNTING PRONOUNCEMENTS

Testing Goodwill for Impairment

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which provides, subject to certain conditions, the option to perform a qualitative, rather than quantitative, assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This update was effective and adopted by the Company in the first quarter of 2012 and did not have a material impact on the Company’s condensed combined financial position, results of operations or cash flows.

Disclosures about Fair Value Measurements

In May 2011, the FASB issued an accounting standards update which amends the definition of fair value measurement principles and disclosure requirements to eliminate differences between U.S. GAAP and International Financial Reporting Standards. The update requires new quantitative and qualitative disclosures about the sensitivity of recurring Level 3 measurement disclosures, as well as disclosures of transfers between Level 1 and Level 2 of the fair value hierarchy. This update was effective and adopted by the Company in the first quarter of 2012 and did not have a material impact on the Company’s condensed combined financial position, results of operations or cash flows.

NOTE 9—SUBSEQUENT EVENTS

In connection with the Separation, on August 8, 2012 we entered into various agreements with Sears Holdings which, among other things, (1) govern the principal transactions relating to the Separation and aspects of our relationship with Sears Holdings following the Separation, (2) establish terms under which subsidiaries of Sears Holdings will provide us with services following the Separation and (3) establish terms pursuant to which subsidiaries of Sears Holdings will obtain merchandise for us, collectively, the “separation transactions.” These final agreements are not materially different from the previous arrangements that are reflected in these Condensed Combined Financial Statements.

On August 31, 2012, Sears Holdings contributed the assets and liabilities of its Sears Hometown and Hardware and Sears Outlet businesses to SHO. In addition, SHO effected a 231,000 for one stock split of its common stock. As a result, as of August 31, 2012 SHO had 23.1 million common shares outstanding.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the audited combined financial statements, including the notes thereto, included in the Registration Statement, reflecting the combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings.

Executive Overview

We are a national retailer primarily focused on selling home appliances, hardware, tools and lawn and garden equipment. As of July 28, 2012, we and our dealers and franchisees operated 1,228 stores across all 50 states and Puerto Rico, Guam and Bermuda.

In addition to merchandise, we provide our customers with access to a full suite of services, including home delivery and handling and extended service contracts.

We operate through two segments—the Sears Hometown and Hardware segment and the Sears Outlet segment. Our Sears Hometown and Hardware stores are designed to provide our customers with in-store and online access to a wide selection of national brands of home appliances, tools, lawn and garden equipment, sporting goods, consumer electronics and household goods, depending on the particular store. Our Sears Outlet stores are designed to provide our customers with in-store and online access to purchase new, one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked and scratched and dented products across a broad assortment of merchandise categories, including home appliances, lawn and garden equipment, apparel, mattresses, televisions, sporting goods and tools, and at prices that are significantly lower than manufacturers’ suggested retail prices.

As of July 28, 2012, the Sears Hometown and Hardware segment consists of 1,105 stores as follows:

•

940 Sears Hometown Stores—Primarily independently owned stores, predominantly located in smaller communities and offering appliances, consumer electronics, lawn and garden equipment, and hardware. Most of our Sears Hometown Stores carry proprietary Sears brand products, such as Kenmore, Craftsman, and DieHard, as well as a wide assortment of other national brands.

•

88 Sears Hardware Stores—Neighborhood hardware stores that carry Craftsman brand tools and lawn and garden equipment, DieHard brand batteries and a wide assortment of other national brands and other home improvement products. 85 of these locations also offer a selection of Kenmore and other national brands of home appliances.

•

77 Sears Home Appliance Showrooms—Innovative stores that have a simple, primarily appliance showroom design that are strategically positioned in metropolitan areas.

As of July 28, 2012, our Hometown and Hardware stores and Home Appliance Showrooms operate through 941 independently owned and dealer-operated stores, 104 independently owned and franchisee-operated stores and 60 Company-operated stores. The business model and economic structure of the independently owned and dealer-operated stores, independently owned and franchisee-operated stores and Company-owned stores are substantially similar. The Company requires all of the stores to operate according to the Company’s standards. Stores must display the required merchandise, offer all required products and services and use the Company’s point of sale system. Also, the Company has the right to approve advertising, promotional and marketing materials and imposes certain advertising requirements on the owners. The Company establishes selling prices of the merchandise and establishes a common commission structure for independently owned stores. Because the merchandise is procured and owned by the Company, we maintain general inventory risk before the completion of the customer purchase, and upon return by the customer, if any. In addition, because each transaction is rung on the Company’s point of sale system, we maintain the credit risk. Store owners are paid a commission for the merchandise they sell and the services they provide.

Independent owners predominately exercise control over the day-to-day operations of the store, including supervising management and employees and making capital decisions.

The primary difference between independently owned stores and Company-owned stores is that the Company is responsible for occupancy and payroll costs associated with Company-owned stores. Independently owned store owners are responsible for the occupancy costs in their stores and the payroll of their employees.

As of July 28, 2012, the Sears Outlet segment consists of 123 Sears Outlet stores. These locations offer new, one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked and scratched and dented products, including home appliances, lawn and garden equipment, apparel, mattresses, televisions, sporting goods and tools at prices that are significantly lower than manufacturers’ suggested retail prices.

Of the 1,228 stores as of July 28, 2012, we intend to close one Sears Hardware Store in the second half of 2012.

Impacts from Our Separation from Sears Holdings

Our business currently consists of the Sears Hometown and Hardware and Sears Outlet businesses. Sears Holdings has determined to separate SHO by distributing, at no cost, rights to purchase all of our common stock to the stockholders of Sears Holdings. Assuming the rights offering is subscribed in full, immediately following completion of the rights offering Sears Holdings stockholders will own 100% of the outstanding shares of our common stock. In addition, we expect that ESL will beneficially own at least approximately 62% of our outstanding common stock following completion of the rights offering. After completion of the rights offering, we will operate as a publicly traded company independent from Sears Holdings, which will have a range of impacts on our operations:

General Administrative and Separation Costs . Historically, we have used the corporate functions of Sears Holdings for a variety of services including treasury, accounting, tax, legal, and other shared services, which include the costs of payroll, employee benefits and other payroll related costs. Sears Holdings also contributes to other corporate functions such as senior management and centrally managed employee benefit arrangements. We were allocated $19.6 million in 2011, which includes $4.4 million and $9.7 million allocated in the second quarter and first half of 2011, respectively, of shared services costs incurred by Sears Holdings. We were also allocated $4.0 million and $7.9 million of shared services costs incurred by Sears Holdings in the second quarter and first half of 2012, respectively. We believe that the assumptions and methodologies underlying the allocation of these expenses from Sears Holdings are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been or will be incurred by us when we operate as a publicly traded company independent from Sears Holdings.

We will also incur increased costs as a result of becoming a publicly traded company independent from Sears Holdings. As an independent public company, we expect to incur incremental costs to support our businesses, including management personnel, legal, finance, and human resources as well as certain costs associated with being a public company. These additional annual operating charges are estimated to be approximately $8.0 million to $9.0 million. We believe cash flows from operations will be sufficient to fund these additional corporate expenses.

In addition, we estimate one-time information technology costs related to the Separation to be approximately $6.0 million to $7.0 million. These one-time costs include the segregation of Company data contained within information technology systems of Sears Holdings and the application of security requirements to protect the segregated data and give employees of the Company secured access to the Company data within Sears Holdings’ information technology systems. A portion of these expenditures may be capitalized and amortized over their useful lives and others will be expensed as incurred, depending on their nature.

aspects of our relationship with Sears Holdings following the Separation, (2) establish terms under which subsidiaries of Sears Holdings will provide us with services following the Separation and (3) establish terms pursuant to which subsidiaries of Sears Holdings will obtain merchandise for us, collectively, the “separation transactions.” These final agreements are not materially different from the previous arrangements that are reflected in these Condensed Combined Financial Statements.

Results of Operations

The following table sets forth items derived from our combined results of operations for the 13 and 26 weeks ended July 28, 2012 and July 30, 2011.


	13 Weeks Ended						26 Weeks Ended
thousands	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
NET SALES	$	644,464		$	629,576		$	1,265,542		$	1,214,208

COSTS AND EXPENSES
Cost of sales and occupancy		484,478			493,012			946,857			952,274

Gross margin dollars		159,986			136,564			318,685			261,934
Margin rate		24.8	%		21.7	%		25.2	%		21.6	%
Selling and administrative		124,073			115,108			245,977			225,406
Selling and administrative expense as a percentage of net sales		19.3	%		18.3	%		19.4	%		18.6	%
Depreciation		2,228			2,327			4,533			4,681

Total costs and expenses		610,779			610,447			1,197,367			1,182,361

Operating income		33,685			19,129			68,175			31,847
Interest expense		—			(1,186	)		(669	)		(1,625	)
Other income		988			74			1,214			137

Income before income taxes		34,673			18,017			68,720			30,359
Income tax expense		(13,606	)		(7,092	)		(27,060	)		(12,019	)

NET INCOME	$	21,067		$	10,925		$	41,660		$	18,340

References to comparable store sales amounts within the following discussion include sales for all stores operating for a period of at least 12 full months, including remodeled and expanded stores, but excluding store relocations and stores that have undergone format changes. Comparable store sales amounts have also been adjusted for the change in the unshipped sales reserves recorded at the end of each reporting period.

In addition to our net income determined in accordance with GAAP, for purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, or “Adjusted EBITDA,” which is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our business, as well as executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Adjusted EBITDA should not be considered as a substitute for GAAP measurements.

While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

•

EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and

•

Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results.

The following table presents a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP measure for each of the periods indicated:


	13 Weeks Ended						26 Weeks Ended
thousands	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Net income	$	21,067		$	10,925		$	41,660		$	18,340
Income tax expense		13,606			7,092			27,060			12,019
Other income		(988	)		(74	)		(1,214	)		(137	)
Interest expense		—			1,186			669			1,625

Operating income		33,685			19,129			68,175			31,847
Depreciation		2,228			2,327			4,533			4,681
Store closing charges and severance costs (1)		797			4,610			797			4,610

Adjusted EBITDA	$	36,710		$	26,066		$	73,505		$	41,138

(1)	See Note 5 to our Condensed Combined Financial Statements included herein.

13-Week Period ended July 28, 2012 Compared to the 13-Week Period Ended July 30, 2011

Net Sales

Net sales in the second quarter of 2012 increased $14.9 million, or 2.4%, to $644.5 million from the second quarter of 2011 and was driven primarily by new stores (net of closures), apparel liquidation revenues, increased initial franchise fees and delivery income partially offset by a 1.2% reduction in comparable store sales. The comparable store sales decrease of 1.2%, comprised of a decrease of 0.7% at Sears Hometown and Hardware and a 3.3% decrease at Sears Outlet, was driven primarily by declines in lawn and garden due to drought conditions experienced throughout the country, consumer electronics resulting from a de-emphasis of the category and appliances, in the Outlet stores, due to lower receipts of “sold as-is” goods. These declines were partially offset by an increase in mattresses, tools, apparel and appliances, in the Hometown and Hardware stores, due to increased inventory in large capacity refrigeration.

Gross Margin

Gross margin was $160.0 million, or 24.8% of net sales, in the second quarter of 2012, as compared to $136.6 million, or 21.7% of net sales, in the second quarter of 2011. The 310 basis point increase in gross margin rate was primarily driven by improved delivery margin generated from less free-delivery offers, increased initial franchise fees, lower occupancy costs resulting from the conversion of company-operated stores to franchisee-operated stores and a higher balance of sales in higher margin categories such as apparel and mattresses partially offset by lower receipts in Outlet of higher margin “sold as-is” home appliances.

Selling and Administrative Expenses

Selling and administrative expenses increased to $124.1 million, or 19.3% of net sales, in the second quarter of 2012 from $115.1 million, or 18.3% of net sales, in the prior year quarter. The increase was primarily due to an increase in the number of stores, increased payroll at Sears Outlet and an increase in owner commissions at Sears Hometown and Hardware. The increase in owner commissions is mainly related to the conversion of company-operated stores to franchisee-operated stores, partially offset by a decrease in payroll and benefits.

Operating Income

We recorded operating income of $33.7 million and $19.1 million in the second quarter of 2012 and 2011, respectively. The $14.6 million increase in operating income was driven by the increase in net sales and the above-noted increase in gross margin rate partially offset by an increase in selling and administrative expenses.

Income Taxes

Income tax expense of $13.6 million and $7.1 million was recorded in the second quarter of 2012 and 2011, respectively. The effective tax rate was 39.2% and 39.4% in the second quarter of 2012 and 2011, respectively.

Net Income

We recorded net income of $21.1 million for the second quarter of 2012 as compared to $10.9 million for the prior year quarter. The increase in net income was primarily attributable to the factors discussed above.

26-Week Period ended July 28, 2012 Compared to the 26-Week Period Ended July 30, 2011

Net Sales

Net sales in the first half of 2012 increased $51.3 million, or 4.2%, to $1.3 billion from the first half of 2011. Comparable store sales were flat to last year. Net sales increased primarily as a result of new stores (net of closures), apparel liquidation revenues, increased initial franchise fees and delivery income. The flat comparable store sales, comprised of a decrease of 0.3% at Sears Hometown and Hardware and a 1.2% increase at Sears Outlet, was driven primarily by declines in lawn and garden due to drought conditions experienced throughout the country, consumer electronics resulting from a de-emphasis of the category and appliances, in the Outlet stores, due to lower receipts of “sold as-is” goods. These declines were primarily offset by increases in mattresses, tools, apparel and appliances, in the Hometown and Hardware stores, due to increased inventory in large capacity refrigeration.

Gross Margin

Gross margin was $318.7 million, or 25.2% of net sales, in the first half of 2012, as compared to $261.9 million, or 21.6% of net sales, in the first half of 2011. The 360 basis point increase in gross margin rate was primarily driven by lower occupancy expenses from the conversion of company-operated stores to franchisee-operated stores, initial franchise fees, lower free-delivery promotional expense, better inventory management, and a higher balance of sales in higher margin categories such as apparel and mattresses partially offset by lower receipts in Outlet of higher margin “sold as-is” home appliances.

Selling and Administrative Expenses

Selling and administrative expenses increased to $246.0 million, or 19.4% of net sales, in the first half of 2012 from $225.4 million, or 18.6% of net sales, in the prior year first half. The increase was primarily due to higher Outlet comparable store sales, an increase in the number of stores and increased owner commissions, primarily related to the conversion of company-operated stores to franchisee-operated stores, partially offset by a decrease in payroll and benefits.

Operating Income

We recorded operating income of $68.2 million and $31.8 million in the first half of 2012 and 2011, respectively. The $36.4 million increase in operating income was driven by the increase in net sales and the above-noted increase in gross margin rate partially offset by an increase in selling and administrative expenses.

Income Taxes

Income tax expense of $27.1 million and $12.0 million was recorded in the first half of 2012 and 2011, respectively. The effective tax rate was 39.4% and 39.6% in the first half of 2012 and 2011, respectively.

Net Income

We recorded net income of $41.7 million and $18.3 million for the first half of 2012 and 2011, respectively. The increase in net income was primarily attributable to the factors discussed above.

Business Segment Results

Sears Hometown and Hardware

Sears Hometown and Hardware results and key statistics were as follows:


	13 Weeks Ended						26 Weeks Ended
thousands, except for number of stores	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Net sales	$	508,376		$	505,244		$	988,233		$	968,095
Comparable store sales %		(0.7	)%		(5.6	)%		(0.3	)%		(6.0	)%
Cost of sales and occupancy		387,321			403,985			749,907			777,939

Gross margin dollars		121,055			101,259			238,326			190,156
Margin rate		23.8	%		20.0	%		24.1	%		19.6	%
Selling and administrative		96,836			90,926			193,250			178,711
Selling and administrative expense as a percentage of net sales		19.0	%		18.0	%		19.6	%		18.5	%
Depreciation		791			994			1,626			2,000

Total costs and expenses		484,948			495,905			944,783			958,650

Operating income	$	23,428		$	9,339		$	43,450		$	9,445

Total Sears Hometown and Hardware stores								1,105			1,114

13-Week Period ended July 28, 2012 Compared to the 13-Week Period Ended July 30, 2011

Net Sales

Sears Hometown and Hardware net sales increased $3.1 million, or 0.6%, to $508.4 million in the second quarter of 2012 from $505.2 million in the second quarter of 2011. The increase was primarily due to increased initial franchise fees and delivery income partially offset by a 0.7% reduction in comparable store sales. The comparable store sales decrease was driven primarily by declines in lawn and garden resulting from drought conditions experienced throughout the country and consumer electronics resulting from a de-emphasis of the category, partially offset by an increase in appliances due to increased inventory in large capacity refrigeration.

Gross Margin

Gross margin was $121.1 million, or 23.8% of net sales in the second quarter of 2012, as compared to $101.3 million, or 20.0% of net sales, in the prior year quarter. The 380 basis point improvement in gross margin rate over the prior year quarter was driven by lower occupancy expenses from the conversion of company-operated stores to franchisee-operated stores, lower free-delivery promotional expense, and increased initial franchise fees.

Selling and Administrative Expenses

Selling and administrative expenses increased to $96.8 million, or 19.0% of net sales, in the second quarter of 2012 from $90.9 million, or 18.0% of net sales, in the prior year quarter. Selling and administrative expense

for 2012 increased due to an increase in owner commissions primarily related to the conversion of company-operated stores to franchisee-operated stores, partially offset by a decrease in payroll and benefits.

Operating Income

We recorded operating income of $23.4 million and $9.3 million in the second quarter of 2012 and 2011, respectively. The overall increase in operating income of $14.1 million was driven by the increase in net sales and the above-noted increase in gross margin rate partially offset by an increase in selling and administrative expenses.

26-Week Period ended July 28, 2012 Compared to the 26-Week Period Ended July 30, 2011

Net Sales

Sears Hometown and Hardware net sales increased $20.1 million, or 2.1%, to $988.2 million in the first half of 2012 from $968.1 million in the first half of 2011. The increase was primarily due to new stores (net of closures), increased initial franchise fees and delivery income partially offset by a 0.3% reduction in comparable store sales. The comparable store sales decrease was driven primarily by declines in lawn and garden due to drought conditions experienced throughout the country and consumer electronics resulting from a de-emphasis of the category, partially offset by an increase in appliances.

Gross Margin

Gross margin was $238.3 million, or 24.1% of net sales in the first half of 2012, as compared to $190.2 million, or 19.6% of net sales, in the prior year first half. The 450 basis point improvement in gross margin rate over the prior year first half was driven by lower occupancy expenses from the conversion of company-operated stores to franchisee-operated stores, higher initial franchise fees, lower free-delivery promotional expense and better inventory management.

Selling and Administrative Expenses

Selling and administrative expenses increased to $193.3 million, or 19.6% of net sales, in the first half of 2012 from $178.7 million, or 18.5% of net sales, in the prior year first half. Selling and administrative expense for 2012 increased due to higher owner commissions expense, primarily related to the conversion of company-operated stores to franchisee-operated stores, partially offset by a decrease in payroll and benefits.

Operating Income

We recorded operating income of $43.5 million and $9.4 million in the first half of 2012 and 2011, respectively. The overall increase in operating income of $34.0 million was driven by the increase in net sales and the above-noted increase in gross margin rate partially offset by an increase in selling and administrative expenses.

Sears Outlet

Sears Outlet results and key statistics were as follows:


	13 Weeks Ended						26 Weeks Ended
thousands, except for number of stores	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Net sales	$	136,088		$	124,332		$	277,309		$	246,113
Comparable store sales %		(3.3	)%		7.2	%		1.2	%		4.9	%
Cost of sales and occupancy		97,157			89,027			196,950			174,335

Gross margin dollars		38,931			35,305			80,359			71,778
Margin rate		28.6	%		28.4	%		29.0	%		29.2	%
Selling and administrative		27,237			24,182			52,727			46,695
Selling and administrative expense as a percentage of net sales		20.0	%		19.4	%		19.0	%		19.0	%
Depreciation		1,437			1,333			2,907			2,681

Total costs and expenses		125,831			114,542			252,584			223,711

Operating income	$	10,257		$	9,790		$	24,725		$	22,402

Total Sears Outlet stores								123			108

13-Week Period ended July 28, 2012 Compared to the 13-Week Period Ended July 30, 2011

Net Sales

Sears Outlet net sales increased $11.8 million, or 9.5%, to $136.1 million in the second quarter of 2012 from $124.3 million in the second quarter of 2011. The increase was primarily due to new store openings and apparel liquidation revenues partially offset by a 3.3% decrease in comparable store sales. Since the second quarter of 2011, we opened 15 new Sears Outlet stores (net of closures) which resulted in an increase in net sales of approximately $12.4 million. The decrease in comparable store sales for 2012 was primarily driven by sales decreases in the home appliances, lawn and garden and consumer electronics categories partially offset by increases in the mattresses, tools and apparel categories. Decreases in these categories were primarily driven by lower receipts of “sold as-is” goods in home appliances, a de-emphasis in the consumer electronics category and drought conditions unfavorably impacting lawn and garden sales. Assortment expansion in tools and mattresses, sales increases in stores that carry apparel and an increase in the number of stores that carry apparel contributed to sales increases in these categories.

Gross Margin

Gross margin was $38.9 million, or 28.6% of net sales in the second quarter of 2012, as compared to $35.3 million, or 28.4% of net sales in the prior year quarter. Total gross margin dollars increased $3.6 million in the second quarter of 2012 due to the increase in net sales and by the above-noted increase in gross margin rate. Margin rate increased 20 basis points in the second quarter of 2012 compared to the prior year quarter primarily due to a higher balance of sales in higher margin categories such as apparel and mattresses partially offset by lower receipts of higher margin “sold as-is” home appliances and higher occupancy costs.

Selling and Administrative Expenses

Selling and administrative expenses increased to $27.2 million in the second quarter of 2012 from $24.2 million in the prior year quarter due to a higher number of Sears Outlet stores. Selling and administrative expenses as a percentage of net sales increased to 20.0% of net sales in the second quarter of 2012 from 19.4% of net sales in the second quarter of 2011 primarily due to a higher store payroll rate.

Operating Income

We recorded operating income of $10.3 million and $9.8 million in the second quarter of 2012 and 2011, respectively. The increase in operating income of $0.5 million was driven by the increase in net sales and the above-noted increase in gross margin rate partially offset by an increase in selling and administrative expenses.

26-Week Period ended July 28, 2012 Compared to the 26-Week Period Ended July 30, 2011

Net Sales

Sears Outlet net sales increased $31.2 million, or 12.7%, to $277.3 million in the first half of 2012 from $246.1 million in the first half of 2011. The increase was primarily due to new store openings, apparel liquidation revenues and a 1.2% increase in comparable store sales. The increase in comparable store sales for 2012 was primarily driven by sales increases in apparel, mattresses and tools categories partially offset by decreases in home appliances, consumer electronics and lawn and garden categories. Assortment expansion in tools and mattresses, sales increases in stores that carry apparel and an increase in the number of stores that carry apparel contributed to sales increases in these categories. Lower receipts of “sold as-is” goods contributed to the comparable store sales decrease in home appliances, a de-emphasis of consumer electronics impacted sales in that category, and drought conditions unfavorably impacted lawn and garden sales.

Gross Margin

Gross margin was $80.4 million, or 29.0% of net sales in the first half of 2012, as compared to $71.8 million, or 29.2% of net sales in the prior year first half. Total gross margin dollars increased $8.6 million in the first half of 2012 to $80.4 million due to the increase in net sales partially offset by the above-noted decline in gross margin rate. Margin rate decreased 20 basis points in the first half of 2012 compared to the prior year first half primarily due to lower receipts of higher margin “sold as-is” home appliances partially offset by a higher balance of sales in higher margin categories such as apparel and mattresses.

Selling and Administrative Expenses

Selling and administrative expenses increased to $52.7 million in the first half of 2012 from $46.7 million in the prior year first half due to comparable store sales growth and a higher number of Sears Outlet stores. Selling and administrative expenses as a percentage of net sales of 19.0% in the first half of 2012 was flat compared to the first half of 2011.

Operating Income

We recorded operating income of $24.7 million and $22.4 million in the first half of 2012 and 2011, respectively. The increase in operating income of $2.3 million was driven by the increase in net sales partially offset by the above-noted decrease in gross margin rate and an increase in selling and administrative expenses.

Analysis of Financial Condition

Cash Balances

We had cash balances of $0.6 million as of July 28, 2012, $0.7 million as of July 30, 2011 and $0.7 million as of January 28, 2012.

For the first half of 2012, we financed our operations and investments primarily with cash generated from operations. Our primary need for liquidity is to fund inventory purchases and capital expenditures and for general corporate purposes.

Cash Flows from Operating Activities

For the first half of 2012, we financed our operations and investments primarily with cash generated from operations. Cash provided by operating activities was $39.4 million in the first half of 2012 as compared to $6.6 million in the first half of 2011. The improvement in operating cash flows predominately relates to improvements in net income.

Merchandise inventories were $404.0 million at July 28, 2012 and $411.1 million at July 30, 2011. Merchandise inventories for Sears Hometown and Hardware stores decreased from $330.3 million at July 30, 2011 to $322.0 million at July 28, 2012 primarily due to fewer locations compared to the prior year and inventory productivity improvements. Merchandise inventories for Sears Outlet stores increased from $80.8 million at July 30, 2011 to $82.0 million at July 28, 2012 primarily due to the increase in the number of Sears Outlet stores.

We obtain our merchandise through agreements with Sears Holdings or through vendors. In the first half of 2012, merchandise acquired from subsidiaries of Sears Holdings, including Kenmore, Craftsman, DieHard and other products, accounted for approximately 89% of total purchases of all inventory from all vendors. The loss of or a reduction in the amount of merchandise made available to us by Sears Holdings could have a material adverse effect on our business and results of operations.

In addition, our vendor arrangements generally are not long-term agreements (other than the Merchandising Agreement) and none of them guarantee the availability of merchandise in the future. Our growth strategy depends to a significant extent on the willingness and ability of our vendors to supply us with sufficient inventory. As a result, our success depends on maintaining good relations with our existing vendors and developing relationships with new vendors. If we fail to strengthen our relations with our existing vendors or to enhance the quality of merchandise they supply us, or if we cannot maintain or acquire new vendors of favored brand name merchandise, our ability to obtain a sufficient amount and variety of merchandise at acceptable prices may be limited, which would have a negative impact on our competitive position. In addition, we may not be able to develop relationships with new vendors, and products from alternative sources, if any, may be of a lesser quality and more expensive than those we currently purchase.

Cash Flows from Investing Activities

Cash used in investing activities was $3.4 million for the first half of 2012 compared to $4.2 million for the first half of 2011. Cash used in investing activities in both periods was for purchases of property and equipment.

Cash Flows from Financing Activities

Cash used in financing activities was $36.2 million for the first half of 2012 compared to $2.5 million for the first half of 2011. The increase of $33.7 million in cash used in financing activities in 2012 from 2011 was due to the increase in repayments to Sears Holdings.

Financing Arrangements

As of the date of the Separation, we expect to have $100 million outstanding under the Senior ABL Facility which will be used to pay a cash dividend to Sears Holdings immediately prior to the Separation. In addition, we expect to have $3 million to $4 million of letters of credit outstanding under the facility. The Senior ABL Facility is also expected to allow revolving commitment increases in an aggregate principal amount of up to $100 million.

The anticipated principal terms of the Senior ABL Facility are summarized below.

Senior ABL Facility

Maturity; Amortization and Prepayments

The Senior ABL Facility is expected to mature on the earlier of (i) the five year anniversary of the closing date of the credit facility and (ii) six months prior to the expiration of the Services Agreement or certain other material contracts entered into with Sears Holdings or its subsidiaries in connection with the Separation, unless such agreements are extended to a date later than that set forth in clause (i) or terminated on a basis reasonably satisfactory to the administrative agent under the Senior ABL Facility.

The Senior ABL Facility is expected to be subject to mandatory prepayment in amounts equal to the amount by which the outstanding extensions of credit exceed the lesser of the borrowing base and the commitments then in effect.

Guarantees; Security

The obligations under the Senior ABL Facility are expected to be guaranteed by us and each of our existing and future direct and indirect wholly owned domestic subsidiaries (subject to certain exceptions). The Senior ABL Facility and the guarantees thereunder are expected to be secured by a first priority security interest in certain assets of the borrowers and guarantors consisting primarily of accounts receivable, inventory, cash, cash equivalents, deposit accounts and securities accounts, as well as certain other assets (other than intellectual property) ancillary to any of the foregoing and all proceeds of any of the foregoing, including cash proceeds and the proceeds of applicable insurance.

Interest; Fees

The interest rates per annum applicable to the loans under the Senior ABL Facility are expected to be based on a fluctuating rate of interest measured by reference to, at the borrowers’ election, either (1) an adjusted London inter-bank offered rate (LIBOR) plus a borrowing margin or (2) an alternate base rate plus a borrowing margin, with the borrowing margin subject to adjustment based on the average excess availability under the facility for the preceding fiscal quarter.

Customary fees are expected to be payable in respect of the Senior ABL Facility, including letter of credit fees and commitment fees.

Covenants

The Senior ABL Facility is expected to include a number of covenants that, among other things, would limit or restrict our ability and the ability of the borrowers and the other guarantors to, subject to certain exceptions, incur additional indebtedness (including guarantees), grant liens, make investments, make dividends or distributions with respect to our capital stock (other than the up to $100 million dividend to Sears Holdings prior to the Separation), make prepayments on other indebtedness, engage in mergers or change the nature of our or their business. In addition, after the first anniversary of the closing date of the Senior ABL Facility, upon excess availability falling below a certain level, we expect to be required to comply with a minimum fixed charge coverage ratio.

The Senior ABL Facility is also expected to contain certain affirmative covenants, including financial and other reporting requirements.

Events of Default

The Senior ABL Facility is expected to include customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross default to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments and change of control.

Uses and Sources of Liquidity

We believe that our existing cash and cash equivalents, cash flows from our operating activities and, to the extent necessary, availability under the Senior ABL Facility will be sufficient to meet our anticipated liquidity needs for at least the next 12 months. As of July 28, 2012, we had cash and cash equivalents of $0.6 million. As a result, we expect to fund our ongoing operations through cash generated by operating activities and availability under the expected Senior ABL Facility. The adequacy of our available funds will depend on many factors, including the macroeconomic environment and the operating performance of our stores.

Capital lease obligations as of July 28, 2012 and July 30, 2011 were $2.9 million and $5.1 million, respectively.

As of the date of this report, Sears Holdings’ domestic credit facility is (1) secured, in part, by a first lien on the inventory and credit card receivables directly or indirectly owned by SHO and the subsidiaries of Sears Holdings that will become wholly owned subsidiaries of SHO prior to the completion of the Separation and (2) guaranteed by SHO and the entities that will become wholly owned subsidiaries of SHO prior to the Separation. Prior to the completion of the Separation, this lien and these guarantee obligations will be released.

Off-Balance Sheet Arrangements

As of July 28, 2012, we had no off-balance sheet arrangements as defined in item 303(a)(4) of Regulation S-K as promulgated by the SEC.

Recent Accounting Pronouncements

See Part I, Item 1, “Financial Statements—Notes to Condensed Combined Financial Statements,” Note 8 – “Recent Accounting Pronouncements,” for information regarding new accounting pronouncements.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements made in this Quarterly Report on Form 10-Q contain forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives.

Statements preceded or followed by, or that otherwise include, the words “believes,” “expects,” “anticipates,” “intends,” “project,” “estimates,” “plans,” “forecast,” “is likely to” and similar expressions or future or conditional verbs such as “will,” “may,” “would,” “should” and “could” are generally forward-looking in nature and not historical facts. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.

The following factors, among others, could cause our actual results, performance or achievements to differ from those set forth in the forward-looking statements:

•

our continued reliance on Sears Holdings for most products and services that are important to the successful operation of our business;

•

our continuing dependence on Sears Holdings subsequent to the Separation, and our potential need to depend on Sears Holdings beyond the expiration of certain of our agreements with Sears Holdings;

•

our ability to offer merchandise and services that our customers want, including those under the Kenmore, Craftsman and DieHard brands;

•

our ability to successfully manage our inventory levels and implement initiatives to improve inventory management and other capabilities;

•

competitive conditions in the retail industry;

•

worldwide economic conditions and business uncertainty, the availability of consumer and commercial credit, changes in consumer confidence, tastes, preferences and spending, and changes in vendor relationships;

•

the inability of our historical financial statements to be indicative of our future performance, as a result of the Separation and operating as a standalone public company;

•

the inability of our historical financial statements to be indicative of our future performance, as a result of the consolidation of the Sears Hometown and Hardware and Sears Outlet businesses into a single business entity;

•

the inability of our past performance generally, as reflected on our historical financial statements, to be indicative of our future performance;

•

the impact of increased costs due to a decrease in our purchasing power following the Separation and other losses of benefits associated with being a subsidiary of Sears Holdings;

•

our agreements related to the rights offering and separation transactions and our continuing relationship with Sears Holdings were negotiated while we were a subsidiary of Sears Holdings and we may have received better terms from an unaffiliated third party;

•

anticipated limitations and restrictions in the agreements governing our indebtedness and our ability to service our indebtedness;

•

our ability to obtain additional financing on acceptable terms;

•

our dependence on existing dealers and franchisees to operate our stores profitably and in a manner consistent with our concepts and standards;

•

our dependence on sources outside the United States for significant amounts of our merchandise;

•

impairment charges for goodwill or fixed-asset impairment for long-lived assets;

•

our ability to attract, motivate and retain key executives and other employees;

•

the impact of increased costs associated with being a public company;

•

our ability to maintain effective internal controls as a public company;

•

low trading volume of our common stock due to limited liquidity or a lack of analyst coverage; and

•

the impact on our common stock and our overall performance as a result of our principal stockholders’ ability to exert substantial control over us.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in our other filings with the Securities and Exchange Commission and our other public announcements. While we believe that our forecasts and assumptions are reasonable, we caution that actual results may differ materially. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Consequently, actual events and results may vary significantly from those included in or contemplated or implied by our forward-looking statements. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to publicly update or review any forward-looking statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or circumstances or otherwise.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We will be subject to interest rate risk associated with our Senior ABL Facility, which will bear interest at a variable rate. Assuming our Senior ABL Facility were fully drawn in principal amount equal to $250 million, each one percentage point change in interest rates would result in a $2.5 million change in annual cash interest expense on our Senior ABL Facility.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the 13 weeks ended July 28, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As of the date hereof, we are not party to any litigation which we consider material to our operations.

Notwithstanding the above, we are from time to time subject to various legal claims, including those alleging wage and hour violations, employment discrimination, unlawful employment practices, Americans with Disabilities Act claims, product liability claims as a result of the sale of certain products, as well as various legal and governmental proceedings. Litigation is inherently unpredictable and any proceedings, claims or regulatory actions against us, whether meritorious or not, may be time consuming, result in significant legal expenses, require significant amounts of management time, result in the diversion of significant operational resources, require changes in our methods of doing business that could be costly to implement, reduce our net sales, increase our expenses, require us to make substantial payments to settle claims or satisfy judgments, require us to cease conducting certain operations or offering certain products in certain areas or generally, and otherwise harm our business, results of operations, financial condition and cash flows, perhaps materially.

Item 1A. Risk Factors

You should carefully consider the risks described in “Risk Factors” beginning on page 30 of our Registration Statement on Form S-1/A filed on September 6, 2012 (File No. 333-181051). These risks could materially affect our business, consolidated results of operations or financial condition. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Cautionary Statement Regarding Forward-Looking Statements” above and the risks of our businesses described elsewhere in this Quarterly Report on Form 10-Q.

Item 6. Exhibits

The Exhibits listed in the accompanying “Exhibit Index” have been filed as part of this Quarterly Report on Form 10-Q.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Sears Hometown and Outlet Stores, Inc.

By:		/ S / S TEVEN D. B ARNHART
Name:		Steven D. Barnhart
Title:		Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Date: September 10, 2012

Exhibit Index


Exhibit Number		Document Description

3.1*		Certificate of Incorporation of Sears Hometown and Outlet Stores, Inc.

3.2*		Certificate of Amendment of Certificate of Incorporation of Sears Hometown and Outlet Stores, Inc.

3.3*		Bylaws of Sears Hometown and Outlet Stores, Inc.

4.1(1)		Form of Common Stock Certificate

10.1(1)		Separation Agreement between Sears Holdings and Sears Hometown and Outlet Stores, Inc., dated as of August 8, 2012

10.2*		Store License Agreement between Sears, Roebuck and Co. and Sears Authorized Hometown Stores, LLC

10.3*		Store License Agreement between Sears, Roebuck and Co. and Sears Home Appliance Showrooms, LLC

10.4*		Store License Agreement between Sears, Roebuck and Co. and Sears Outlet Stores, LLC

10.5*		Trademark License Agreement between Sears, Roebuck and Co. and Sears Hometown and Outlet Stores, Inc.

10.6*†		Merchandising Agreement between Sears, Roebuck and Co., Kmart Corporation and Sears Holdings Corporation and Sears Hometown and Outlet Stores, Inc., Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C.

10.7*		Services Agreement between Sears Holdings Management Corporation and Sears Hometown and Outlet Stores, Inc.

10.8*†		Retail Establishment Agreement between Sears Holdings Management Corporation and Sears Hometown and Outlet Stores, Inc.

10.9*		Tax Sharing Agreement between Sears Holdings and Sears Hometown and Outlet Stores, Inc.

10.10*		Employee Transition and Administrative Services Agreement between Sears, Roebuck and Co., Sears Hometown and Outlet Stores, Inc., Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C.

10.11(1)		Sears Hometown and Outlet Stores, Inc. Umbrella Incentive Program

10.12(1)		Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan

10.13(1)		Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program

10.14(1)		Sears Hometown and Outlet Stores, Inc. 2012 Stock Plan

10.15(2)		Form of Executive Severance Agreement

10.16(3)		Form of Executive Severance/Non-Compete Agreement

10.17(1)		Executive Severance Agreement dated and effective as of August 6, 2012 between Sears Holdings Corporation and its affiliates and subsidiaries and Steven D. Barnhart

10.18(1)		Offer letter between Sears Hometown and Outlet Stores, Inc. and W. Bruce Johnson dated August 28, 2012

10.19(1)		Offer letter between Sears Hometown and Outlet Stores, Inc. and William A. Powell dated August 28, 2012

10.20(1)		Offer letter between Sears Hometown and Outlet Stores, Inc. and John E. Ethridge dated August 28, 2012

E-1


Exhibit Number		Document Description

10.21(1)		Offer letter between Sears Hometown and Outlet Stores, Inc. and Charles J. Hansen, dated August 28, 2012

10.22(1)		Offer letter between Sears Hometown and Outlet Stores, Inc. and Steven D. Barnhart, dated August 28, 2012

10.23(1)		Offer letter between Sears Hometown and Outlet Stores, Inc. and Becky Iliff, dated August 28, 2012

10.24(1)		Director Compensation Policy of Sears Hometown and Outlet Stores, Inc.

21.1(4)		Subsidiaries of Sears Hometown and Outlet Stores, Inc.

31.1*		Certification of Chief Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*		Certification of Chief Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1*		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.

(1)	Incorporated by reference to the Company’s Form S-1/A filed on August 31, 2012 (File No. 333-181051)

(2)	Incorporated by reference to Exhibit 10.26 to Sears Holdings Corporation’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012 (File No. 000-51217)

(3)	Incorporated by reference to Exhibit 10.5 to Sears Holdings Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 29, 2005 (File No. 000-51217)

(4)	Incorporated by reference to the Company’s Form S-1/A filed on August 23, 2012 (File No. 333-181051)

†	Certain provisions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.

E-2

Exhibit 3.1

C ERTIFICATE OF I NCORPORATION

S EARS H OMETOWN AND O UTLET S TORES , I NC .

I, the undersigned, for the purposes of incorporating and organizing a corporation under the General Corporation Law of the State of Delaware (the “General Corporation Law”), do execute this Certificate of Incorporation and do hereby certify as follows:

FIRST. The name of the corporation is Sears Hometown and Outlet Stores, Inc.

SECOND. The address of the corporation’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.

THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.

FOURTH. The total number of shares of stock which the corporation shall be authorized to issue is one hundred (100) shares. All such shares are to be common stock, par value of $.01 per share and are to be of one class.

FIFTH. The incorporator of the corporation is Deann M. Bogner, whose mailing address is 3333 Beverly Road, Hoffman Estates, Illinois 60179.

SIXTH. Unless and except to the extent that the by-laws of the corporation shall so require, the election of directors of the corporation need not be by written ballot.

SEVENTH. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the corporation is expressly authorized to make, alter and repeal the by-laws of the corporation.

EIGHTH. A. The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the corporation or, while a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in Section C of this Article EIGHTH, the corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors of the corporation.

B. The corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article EIGHTH or otherwise.

C. If a claim for indemnification under this Article EIGHTH (following the final disposition of such proceeding) is not paid in full within sixty days after the corporation has received a claim therefor by the Covered Person, or if a claim for any advancement of expenses under this Article EIGHTH is not paid in full within thirty days after the corporation has received a statement or statements requesting such amounts to be advanced, the Covered Person shall thereupon (but not before) be entitled to file suit to recover the unpaid amount of such claim. If successful in whole or in part, the Covered Person shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action, the corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.

D. The rights conferred on any Covered Person by this Article EIGHTH shall not be exclusive of any other rights which such Covered Person may have or hereafter acquire under any statute, provision of this certificate of incorporation, the by-laws, agreement, vote of stockholders or disinterested directors or otherwise.

E. The corporation’s obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.

F. Any right to indemnification or to advancement of expenses of any Covered Person arising hereunder shall not be eliminated or impaired by an amendment to or repeal of this Article EIGHTH after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought.

G. This Article EIGHTH shall not limit the right of the corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.

NINTH. A director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal.

TENTH. The corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of any nature conferred upon stockholders, directors or any other persons by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article.

ELEVENTH. The corporation shall not be subject to the provisions of Section 203 of the General Corporation Law.

The undersigned incorporator hereby acknowledges that the foregoing certificate of incorporation is her act and deed on this the 23 ^rd day of April, 2012.

/s/ Deann M. Bogner

Deann M. Bogner

Incorporator

Exhibit 3.2

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

SEARS HOMETOWN AND OUTLET STORES, INC.

SEARS HOMETOWN AND OUTLET STORES, INC., a corporation duly organized and existing under the General Corporation Law of the State of Delaware (as amended from time to time, the “ DGCL ”), hereby certifies as follows:

1. The present name of the corporation is Sears Hometown and Outlet Stores, Inc. (the “ Corporation ”).

2. The Corporation was originally formed as Sears Hometown and Outlet Stores, Inc., a Delaware corporation, by means of an original Certificate of Incorporation filed on April 23, 2012.

3. The Corporation’s Certificate of Incorporation is hereby amended pursuant to Section 242 of the DGCL, by deleting Article Fourth thereof in its entirety and replacing it with the following new Article Fourth:

“FOURTH. The total number of shares of the capital stock which the corporation shall be authorized to issue is 400,000,000 shares of common stock, par value $0.01 per share. Upon the filing and effectiveness (the “ Effective Time ”), pursuant to the General Corporation Law, of the certificate of amendment of the corporation’s certificate of incorporation containing this sentence, each share of common stock of the corporation, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time shall be automatically reclassified as and converted into 231,000 shares of common stock of the corporation, par value $0.01 per share, without any further action of the corporation or the holder thereof.”

4. This Certificate of Amendment of the Certificate of Incorporation of the Corporation has been duly adopted in accordance with the provisions of Sections 228 and 242 of the DGCL, the Board of Directors of the Corporation having adopted resolutions setting forth such amendment, declaring its advisability, and directing that it be submitted to the sole stockholder of the Corporation for its approval; and the sole stockholder having consented in writing to the adoption of such amendment.

IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed this Certificate of Amendment on the 31st day of August, 2012.


S EARS H OMETOWN AND O UTLET S TORES , I NC .

By:		/s/ Charles J. Hansen
		Charles J. Hansen
		Vice President, General Counsel and Secretary

Exhibit 3.3

B Y -L AWS

S EARS H OMETOWN AND O UTLET S TORES , I NC .

a Delaware corporation

ARTICLE I

Meetings of Stockholders

Section 1.1. Annual Meetings . If required by applicable law, an annual meeting of stockholders shall be held for the election of directors at such date, time and place, if any, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. The Board of Directors may postpone, reschedule or cancel any annual meeting of stockholders previously scheduled by the Board of Directors.

Section 1.2. Special Meetings . Special meetings of stockholders may be called at any time by the Board of Directors or upon the written request of one or more record holders of shares of stock of the corporation representing in the aggregate not less than twenty percent (20%) of the total number of shares of stock outstanding and entitled to vote on the matter or matters to be brought before the proposed special meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. The Board of Directors may postpone, reschedule or cancel any special meeting of stockholders previously scheduled by the Board of Directors.

Section 1.3. Notice of Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a notice of the meeting shall be given that shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the certificate of incorporation or these bylaws, the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at the meeting as of the record date for determining the stockholders entitled to notice of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation.

Section 1.4. Adjournments . Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any

business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record as of the record date so fixed for notice of such adjourned meeting.

Section 1.5. Quorum . Except as otherwise provided by law, the certificate of incorporation or these bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of a majority in voting power of the outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the stockholders so present may, by a majority in voting power thereof, adjourn the meeting from time to time in the manner provided in Section 1.4 of these bylaws until a quorum shall attend. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the corporation or any subsidiary of the corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

Section 1.6. Organization . Meetings of stockholders shall be presided over by the Chairman of the Board of Directors or, in his or her absence, by the Chief Executive Officer or, in his or her absence, by the President or, in his or her absence, by a Vice President or, in the absence of the foregoing persons, by a chairman designated by the Board of Directors or, in the absence of such designation, by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

Section 1.7. Voting; Proxies . Except as otherwise provided by or pursuant to the provisions of the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the corporation a revocation of the proxy or a new proxy bearing a later date. Voting at meetings of stockholders need not be by written ballot. At all meetings of stockholders for the election of directors at which a quorum is present a plurality of the votes cast shall be sufficient to elect. All other elections and questions presented to the stockholders at a meeting at which a quorum is present shall, unless otherwise provided by the certificate of incorporation, these bylaws, the rules or regulations of any stock exchange applicable to the corporation, or applicable law or pursuant to any regulation

applicable to the corporation or its securities, be decided by the affirmative vote of the holders of a majority in voting power of the shares of stock of the corporation which are present in person or by proxy and entitled to vote thereon.

Section 1.8. Fixing Date for Determination of Stockholders of Record .

(a) In order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.

(b) In order that the corporation may determine the stockholders entitled to express consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date for determining stockholders entitled to express consent to corporate action in writing without a meeting is fixed by the Board of Directors, (i) when no prior action of the Board of Directors is required by law, the record date for such purpose shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with applicable law, and (ii) if prior action by the Board of Directors is required by law, the record date for such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not be more than sixty (60) days prior to such other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

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Section 1.9. List of Stockholders Entitled to Vote . The officer who has charge of the stock ledger shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided, however, if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting at least ten (10) days prior to the meeting (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 1.9 or to vote in person or by proxy at any meeting of stockholders.

Section 1.10. Action by Written Consent of Stockholders . Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which minutes of proceedings of stockholders are recorded. Delivery made to the corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall, to the extent required by law, be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the corporation.

Section 1.11. Inspectors of Election . The corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to

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act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspectors’ count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election.

Section 1.12. Conduct of Meetings . The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the person presiding over any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding person of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

Section 1.13. Notice of Stockholder Business and Nominations .

(A) Annual Meetings of Stockholders . (1) Nominations of persons for election to the Board of Directors of the corporation and the proposal of other business to be considered by the

stockholders may be made at an annual meeting of stockholders only (a) pursuant to the corporation’s notice of meeting (or any supplement thereto), (b) by or at the direction of the Board of Directors or any committee thereof or (c) by any stockholder of the corporation who was a stockholder of record of the corporation at the time the notice provided for in this Section 1.13 is delivered to the Secretary of the corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.13.

(2) For any nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this Section 1.13, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation and any such proposed business (other than the nominations of persons for election to the Board of Directors) must constitute a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the ninetieth (90 ^th ) day, nor earlier than the close of business on the one hundred twentieth (120 ^th ) day, prior to the first anniversary of the preceding year’s annual meeting (provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred twentieth (120 ^th ) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90 ^th ) day prior to such annual meeting or the tenth (10 ^th ) day following the day on which public announcement of the date of such meeting is first made by the corporation). In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election as a director (i) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations promulgated thereunder, and (ii) such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the bylaws of the corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation’s books, and of such beneficial owner, (ii) the class or series and number of shares of capital stock of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (iii) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder and/or such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, including, in the case of a nomination, the nominee, (iv) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests,

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options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder’s notice by, or on behalf of, such stockholder and such beneficial owners, whether or not such instrument or right shall be subject to settlement in underlying shares of capital stock of the corporation, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to securities of the corporation, (v) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, (vi) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (b) otherwise to solicit proxies or votes from stockholders in support of such proposal or nomination, and (vii) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder. The foregoing notice requirements of this Section 1.13 shall be deemed satisfied by a stockholder with respect to business other than a nomination if the stockholder has notified the corporation of his, her or its intention to present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the corporation to solicit proxies for such annual meeting. The corporation may require any proposed nominee to furnish such other information as the corporation may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the corporation.

(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Section 1.13 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation at the annual meeting is increased effective after the time period for which nominations would otherwise be due under paragraph (A)(2) of this Section 1.13 and there is no public announcement by the corporation naming the nominees for the additional directorships at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 1.13 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10 ^th ) day following the day on which such public announcement is first made by the corporation.

(B) Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation’s notice of meeting (1) by or at the direction of the Board of Directors or any committee thereof or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder of record

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at the time the notice provided for in this Section 1.13 is delivered to the Secretary of the corporation, who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set forth in this Section 1.13. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the corporation’s notice of meeting, if the stockholder’s notice required by paragraph (A)(2) of this Section 1.13 shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth (120 ^th ) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90 ^th ) day prior to such special meeting or the tenth (10 ^th ) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

(C) General . (1) Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, only such persons who are nominated in accordance with the procedures set forth in this Section 1.13 shall be eligible to be elected at an annual or special meeting of stockholders of the corporation to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.13. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty (a) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.13 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such stockholder’s nominee or proposal in compliance with such stockholder’s representation as required by clause (A)(2)(c)(vi) of this Section 1.13) and (b) if any proposed nomination or business was not made or proposed in compliance with this Section 1.13, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 1.13, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the corporation. For purposes of this Section 1.13, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.

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(2) For purposes of this Section 1.13, “public announcement” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or other national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.

(3) Notwithstanding the foregoing provisions of this Section 1.13, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section 1.13; provided, however, that any references in these bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 1.13 (including paragraphs (A)(1)(c) and (B) hereof), and compliance with paragraphs (A)(1)(c) and (B) of this Section 1.13 shall be the exclusive means for a stockholder to make nominations or submit other business (other than, as provided in the penultimate sentence of (A)(2), business other than nominations brought properly under and in compliance with Rule 14a-8 of the Exchange Act, as may be amended from time to time). Nothing in this Section 1.13 shall be deemed to affect any rights (a) of stockholders to request inclusion of proposals or nominations in the corporation’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act or (b) of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the certificate of incorporation.

ARTICLE II

Board of Directors

Section 2.1. Number; Qualifications . Subject to the certificate of incorporation, the Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders.

Section 2.2. Election; Resignation; Vacancies; Removal . The Board of Directors shall initially consist of the persons named as directors in the certificate of incorporation or elected by the incorporator of the corporation, and each director so elected shall hold office until the first annual meeting of stockholders or until his or her successor is duly elected and qualified. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors each of whom shall hold office for a term of one year or until his or her successor is duly elected and qualified, subject to such director’s earlier death, resignation, disqualification or removal. Any director may resign at any time upon notice to the corporation. Unless otherwise provided by law or the certificate of incorporation, any newly created directorship or any vacancy occurring in the Board of Directors for any cause may be filled only by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he or she has replaced or until his or her successor is elected and qualified. Any director may be removed, with or without cause, from office at any time by the affirmative vote of the holders of not less than a majority of the shares of our common stock then outstanding and entitled to vote at an election of directors.

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Section 2.3. Regular Meetings . Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine.

Section 2.4. Special Meetings . Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chief Executive Officer, the Secretary, or by any two members of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting.

Section 2.5. Telephonic Meetings Permitted . Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting.

Section 2.6. Quorum; Vote Required for Action . At all meetings of the Board of Directors the directors entitled to cast a majority of the votes of the whole Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which the certificate of incorporation, these bylaws or applicable law otherwise provides, a majority of the votes entitled to be cast by the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

Section 2.7. Organization . Meetings of the Board of Directors shall be presided over by the Chairman of the Board of Directors or, in his or her absence, by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence, the chairman of the meeting may appoint any person to act as secretary of the meeting.

Section 2.8. Action by Unanimous Consent of Directors . Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the board or committee in accordance with applicable law.

ARTICLE III

Committees

Section 3.1. Committees . The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute

a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it.

Section 3.2. Committee Rules . Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these bylaws.

ARTICLE IV

Officers

Section 4.1. Officers . The officers of the corporation shall consist of a Chairman of the Board of Directors, a Chief Executive Officer, a Chief Financial Officer, a President, one or more Vice Presidents, a Secretary, a Treasurer, a Controller and such other officers as the Board of Directors may from time to time determine, each of whom shall be elected by the Board of Directors, each to have such authority, functions or duties, as set forth in these bylaws or as determined by the Board of Directors. Each officer shall be chosen by the Board of Directors and shall hold office for such term as may be prescribed by the Board of Directors and until such person’s successor shall have been duly chosen and qualified, or until such person’s earlier death, disqualification, resignation or removal.

Section 4.2. Removal, Resignation and Vacancies . Any officer of the corporation may be removed, with or without cause, by the Board of Directors, without prejudice to the rights, if any, of such officer under any contract to which it is a party. Any officer may resign at any time upon written notice to the corporation, without prejudice to the rights, if any, of the corporation under any contract to which such officer is a party. If any vacancy occurs in any office of the corporation, the Board of Directors may elect a successor to fill such vacancy for the remainder of the unexpired term and until a successor shall have been duly chosen and qualified.

Section 4.3. Chairman of the Board of Directors . The Chairman of the Board of Directors shall be deemed an officer of the corporation, subject to the control of the Board of Directors, and shall report directly to the Board of Directors.

Section 4.4. Chief Executive Officer . The Chief Executive Officer shall have general supervision and direction of the business and affairs of the corporation, shall be responsible for corporate policy and strategy, and shall report directly to the Chairman of the Board of Directors. Unless otherwise provided in these bylaws, all other officers of the corporation shall report directly to the Chief Executive Officer or as otherwise determined by the Chief Executive Officer. The Chief Executive Officer shall, if present and in the absence of the Chairman of the Board of Directors, preside at meetings of the stockholders and of the Board of Directors.

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Section 4.5. Chief Financial Officer . The Chief Financial Officer shall exercise all the powers and perform the duties of the office of the chief financial officer and in general have overall supervision of the financial operations of the corporation. The Chief Financial Officer shall, when requested, counsel with and advise the other officers of the corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.

Section 4.6. President . The President shall be the chief operating officer of the corporation, with general responsibility for the management and control of the operations of the corporation. The President shall have the power to affix the signature of the corporation to all contracts that have been authorized by the Board of Directors or the Chief Executive Officer. The President shall, when requested, counsel with and advise the other officers of the corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.

Section 4.7. Vice Presidents . The Vice President shall have such powers and duties as shall be prescribed by his or her superior officer or the Chief Executive Officer. A Vice President shall, when requested, counsel with and advise the other officers of the corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.

Section 4.8. Treasurer . The Treasurer shall supervise and be responsible for all the funds and securities of the corporation, the deposit of all moneys and other valuables to the credit of the corporation in depositories of the corporation, borrowings and compliance with the provisions of all indentures, agreements and instruments governing such borrowings to which the corporation is a party, the disbursement of funds of the corporation and the investment of its funds, and in general shall perform all of the duties incident to the office of the Treasurer. The Treasurer shall, when requested, counsel with and advise the other officers of the corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.

Section 4.9. Controller . The Controller shall be the chief accounting officer of the corporation. The Controller shall, when requested, counsel with any advise the other officers of the corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or the Chief Financial Officer or as the Board of Directors may from time to time determine.

Section 4.10. Secretary . The powers and duties of the Secretary are: (i) to act as Secretary at all meetings of the Board of Directors, of the committees of the Board of Directors and of the stockholders and to record the proceedings of such meetings in a book or books to be kept for that purpose; (ii) to see that all notices required to be given by the corporation are duly given and served; (iii) to act as custodian of the seal of the corporation and affix the seal or cause it to be affixed to all certificates of stock of the corporation and to all documents, the execution

of which on behalf of the corporation under its seal is duly authorized in accordance with the provisions of these bylaws; (iv) to have charge of the books, records and papers of the corporation and see that the reports, statements and other documents required by law to be kept and filed are properly kept and filed; and (v) to perform all of the duties incident to the office of Secretary. The Secretary shall, when requested, counsel with and advise the other officers of the corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.

Section 4.11. Additional Matters . The Chief Executive Officer and the Chief Financial Officer of the corporation shall have the authority to designate employees of the corporation to have the title of Vice President, Assistant Vice President, Assistant Treasurer or Assistant Secretary. Any employee so designated shall have the powers and duties determined by the officer making such designation. The persons upon whom such titles are conferred shall not be deemed officers of the corporation unless elected by the Board of Directors.

ARTICLE V

Stock

Section 5.1. Certificates . The shares of the corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Every holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the corporation certifying the number of shares owned by such holder in the corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue.

Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates . The corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

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ARTICLE VI

Indemnification and Advancement of Expenses

Section 6.1. Right to Indemnification . The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the corporation or, while a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3, the corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors of the corporation.

Section 6.2. Prepayment of Expenses . The corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided , however , that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article VI or otherwise.

Section 6.3. Claims . If a claim for indemnification under this Article VI (following the final disposition of such proceeding) is not paid in full within sixty days after the corporation has received a claim therefor by the Covered Person, or if a claim for any advancement of expenses under this Article VI is not paid in full within thirty days after the corporation has received a statement or statements requesting such amounts to be advanced, the Covered Person shall thereupon (but not before) be entitled to file suit to recover the unpaid amount of such claim. If successful in whole or in part, the Covered Person shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action, the corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.

Section 6.4. Nonexclusivity of Rights . The rights conferred on any Covered Person by this Article VI shall not be exclusive of any other rights which such Covered Person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

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Section 6.5. Other Sources . The corporation’s obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.

Section 6.6. Amendment or Repeal . Any right to indemnification or to advancement of expenses of any Covered Person arising hereunder shall not be eliminated or impaired by an amendment to or repeal of these bylaws after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought.

Section 6.7. Other Indemnification and Advancement of Expenses . This Article VI shall not limit the right of the corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.

ARTICLE VII

Miscellaneous

Section 7.1. Fiscal Year . The fiscal year of the corporation shall be determined by resolution of the Board of Directors.

Section 7.2. Seal . The corporate seal shall have the name of the corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors.

Section 7.3. Manner of Notice . Except as otherwise provided herein or permitted by applicable law, notices to directors and stockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, and except as prohibited by applicable law, any notice to stockholders given by the corporation under any provision of applicable law, the certificate of incorporation, or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any stockholder who fails to object in writing to the corporation, within sixty (60) days of having been given written notice by the corporation of its intention to send the single notice permitted under this Section 7.3, shall be deemed to have consented to receiving such single written notice. Notice to directors may be given by telecopier, telephone or other means of electronic transmission.

Section 7.4. Waiver of Notice of Meetings of Stockholders, Directors and Committees . Any waiver of notice, given by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a

meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in a waiver of notice.

Section 7.5. Form of Records . Any records maintained by the corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time.

Section 7.6. Amendment of Bylaws . These bylaws may be altered, amended or repealed, and new bylaws made, by the Board of Directors, but the stockholders may make additional bylaws and may alter and repeal any bylaws whether adopted by them or otherwise.

Exhibit 10.2

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STORE LICENSE AGREEMENT

August 8, 2012

This STORE LICENSE AGREEMENT (“ Agreement ”), is between SEARS, ROEBUCK AND CO. , a New York corporation (“ Sears ”), and SEARS AUTHORIZED HOMETOWN STORES, LLC , a Delaware limited liability company (“ SAHS ”).

RECITALS

A. Sears Brands, L.L.C., an Illinois limited liability company (“ Sears Brands ”), owns the SEARS trademark (the “ SEARS Service Mark ”), the store names set forth on Exhibit A (the “ Store Names ”), the service marks set forth on Exhibit B (the “ Additional Sears Marks ”) and the domain names set forth on Exhibit C (the “ Domain Names ”);

B. Sears Brands has granted Sears Brands Business Unit Corporation, an Illinois corporation (“ SBBUC ”), an exclusive license to use (and to further sublicense the use of) the Marks (as defined in Section 4.1 below) within in the territory defined in Exhibit D hereto (the “ Territory ”);

C. SBBUC has granted Sears an exclusive license to use (and to further sublicense the use of) the Marks (as defined in Section 4.1 below) throughout the world, excluding Canada;

D. Sears and SAHS are parties to the Merchandising Agreement dated as of the Effective Date among (1) Sears, Kmart Corporation, Sears Holdings Corporation (“ SHC ”) and (2) Sears Hometown and Outlet Stores, Inc. (“ SHO ”), SAHS and Sears Outlet Stores, L.L.C. (the “ Merchandising Agreement ”); and

E. SAHS desires to obtain a license to operate, and authorize Dealers and Franchisees (as defined in Section 1.4 below) to operate, stores offering certain consumer products and related services in the Territory under the Store Names and to use the Store Names in connection with the operation of such stores, and Sears desires to grant to SAHS such license, subject to the terms of this Agreement.

NOW THEREFORE , in consideration of the mutual covenants in this Agreement, Sears and SAHS agree as follows:

ARTICLE I

LICENSE AND SCOPE

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terminated earlier, at 5:00 p.m. (Central Time) on the 17 ^th anniversary of the Effective Date (the “ Term ”). The calendar day that becomes the Effective Date will be inserted on Appendix 1.1 after the Effective Date has occurred.

1.2 Grant of License in the Store Names . Subject to all the terms and conditions of this Agreement, Sears hereby grants to SAHS, for and during the Term, an exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to operate, and authorize Dealers and Franchisees to operate, retail stores and stores-within-a-store using the Store Names at locations in the Territory (the “ Stores ”) through which all HTS Products and the related services offered by, or with authorization from, SAHS as of the Effective Date (the “ Services ”) will be offered and sold. Sears also grants to SAHS an exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to use the Stores Names to promote the HTS Products and Services by all Digital Methods. Sears grants SAHS the right to use the Store Names to sell the Seller-Branded Products (as defined in the Merchandising Agreement) by all Seller Digital Methods. Subject to the next sentence, Sears may terminate SAHS’s rights in this Section 1.2 to sell by Seller Digital Methods upon 24-months’ prior written notice. Upon termination in accordance with the preceding sentence of SAHS’s rights to sell by Seller Digital Methods, Sears will grant SAHS a license to allow SAHS to (a) market all Seller-Branded Products by all then-current and future means, methods, and channels outside of the Territory if such marketing would not violate any Existing Contractual Obligation in effect immediately prior to the date of such license, and (b) sell all Seller-Branded Products by all Digital Methods in the Territory and all Seller-Branded Product outside of the Territory if the sale would not violate any Existing Contractual Obligation in effect immediately prior to the date of such license. The license described in the preceding sentence will include terms that are usual and customary for licenses of this type for comparable circumstances and a duration that is the same as the remaining duration of the last of the License Agreements to terminate in accordance with its terms. “ Dealer ” means an unrelated third-party owner authorized to operate a Store. “ License Agreements ” means the following, each dated August 8, 2012: the Store License Agreement between Sears Outlet Stores, L.L.C. and Sears; the Store License Agreement between Sears Home Appliance Showrooms, LLC and Sears; and the Trademark License Agreement between SHO and Sears (the “ Trademark License Agreement ”). “ Digital Methods ,” “ Existing Contractual Obligation ,” “ Franchisee ,” “ HTS Products ,” “ Seller-Branded Products, ” and “ Seller Digital Methods ” each is defined in the Merchandising Agreement.

1.3 Grant of License in the Additional Sears Marks . Subject to all the terms and conditions of this Agreement, Sears hereby grants to SAHS, for and during the Term, a non-exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to use, and authorize Dealers and Franchisees to use, the Additional Sears Marks solely within the Territory in connection with the marketing, offering and performance of Services provided under the Additional Sears Marks.

1.4 Grant of License in the Domain Names . Subject to all the terms and conditions of this Agreement, Sears hereby grants to SAHS, for and during the Term, an exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to use the Domain Names

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on the websites identified by the Domain Names (the “ Websites ”) and in connection with promotion of the Stores, the marketing and sale of the Seller-Branded Products, and the marketing and sale of the Services.

1.5 Further Sublicense . SAHS has the right to sublicense the SEARS Service Mark, the Store Names and the Additional Sears Marks to Dealers and Franchisees for the operation of Stores. For each New HTS Store (as defined Section 9 of the Merchandising Agreement), SAHS and the Dealer or Franchisee for such New HTS Store shall enter into an Authorizing Agreement. SAHS shall not enter into an Authorizing Agreement with a Sears Competitor or as Sears Competitor Affiliate (as defined in Section 10.3 below). SAHS shall make no change to any form Authorizing Agreement existing as of the Effective Date if such change would reasonably be expected to have a material adverse effect on the business, prospects, finances or reputation of Sears or the goodwill of the Marks. “ Authorizing Agreement ” means an agreement authorizing a Dealer or Franchisee to operate a Store and includes SAHS’s franchise agreements and dealer agreements.

1.6 SAHS Non-Competition . Neither SAHS nor any Affiliate of SAHS shall engage, assist, own any beneficial interest, or otherwise participate, in any direct or indirect capacity, in any development, ownership, operation, leasing, joint venture, licensing, sponsorship, financing, consultation or similar relationship with respect to any Sears Competitor (as defined in Section 10.3 below). “ Affiliate ” shall mean any entity that, at the applicable time, directly or indirectly controls, is controlled with or by or is under common control with, a party. Notwithstanding the foregoing, only subsidiaries of Sears Holdings Corporation will be deemed to be Affiliates of Sears for purposes of this Agreement, and only subsidiaries of Sears Hometown and Outlet Stores, Inc. will be deemed to be Affiliates of SAHS for purposes of this Agreement. SAHS shall not perform any act that would be materially adverse to Sears’ legitimate business interests as reflected in this Agreement.

1.7 Restrictions on Sales . SAHS acknowledges that it is bound by the terms and conditions of Section 12(a)(iii)(B) of the Merchandising Agreement.

1.8 Sears Non-Competition . Sears acknowledges that it is bound by the terms and conditions of Section 9(c) of the Merchandising Agreement.

ARTICLE II

CERTAIN OBLIGATIONS OF SAHS

2.1 Site Selection . SAHS shall be responsible for the selection of suitable sites for the Stores. SAHS acknowledges that it is bound by the terms and conditions of Section 9(b) of the Merchandising Agreement.

2.2 Promotion and Goodwill; Standards of Conduct. SAHS shall use its commercially reasonable efforts to promote the Stores, the Websites, the HTS Products and the

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Services in the Territory and to promote and maintain goodwill toward Sears, the Stores and the Websites. In all dealings with customers, prospective customers, suppliers and the public, SAHS shall adhere to the highest standards of honesty, integrity, fair dealing and ethical conduct. Sears may require SAHS to terminate for cause any Dealer or Franchisee that (a) has taken any action that causes SAHS to be in non-compliance with a material term of this Agreement, or (b) fails to maintain the high quality and reputation of the Marks, in each case described in clauses (a) and (b) after SAHS has received written notice from Sears, and a reasonable opportunity to cause the Dealer or Franchisee to cure, the non-compliance or failure to maintain continues.

2.3 Compliance with Law.

a. Anti-Corruption and Anti-Bribery . SAHS acknowledges that The Foreign Corrupt Practices Act of 1977, 15 U.S.C. §§78dd-1, et. seq. (the “ FCPA ”) applies to SAHS’s business relationship with Sears and that national or regional anti-corruption or anti-bribery laws may apply to either SAHS or SAHS’s business relationship with Sears (together with the FCPA, the “ Anti-Corruption Laws ”). SAHS represents and warrants that (i) SAHS and its Personnel do and shall comply with all applicable Anti-Corruption Laws; (ii) SAHS has not conducted, and shall not conduct, business with any individual or entity listed by the U.S. Government on any U.S. Government watch lists, including the U.S. Office of Foreign Assets Control security watch lists.; and (iii) all Personnel shall receive periodic training on compliance with the Anti-Corruption Laws. No later than January 1 ^st of each year and as otherwise requested by Company, SAHS shall certify in a form satisfactory to Sears that this Section 2.4a remains true, accurate and correct. SAHS shall fully cooperate with Sears in any ethics and compliance investigation, including any investigations related to the Anti-Corruption Laws, and with any governmental inquiry or investigation related to the Anti-Corruption Laws, and unless prohibited from doing so, will promptly notify Sears of any such investigation. “ Personnel ” means the officers, directors, employees, agents, suppliers, licensors, licensees, contractors, subcontractors, and other representatives, from time to time, of (i) the applicable entity, (ii) as to Sears, its Affiliates, and (iii) as to SAHS, its Affiliates.

b. SAHS shall comply with all applicable laws, regulations, standards and decrees of any governmental authorities in the Territory in connection with its performance under this Agreement, including but not limited to commercial electronic mail communication laws and export control and anti-boycott laws, and shall obtain all governmental approvals, permits, licenses and other authorizations necessary or appropriate for SAHS to perform their obligations under this Agreement.

2.4 Expenses. Unless otherwise expressly provided in this Agreement, any and all expenses, costs and charges incurred by SAHS in the performance of any of its obligations under this Agreement shall be borne and paid for by SAHS, without any right of contribution or reimbursement from Sears.

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ARTICLE III

STORE OPERATIONS AND PROMOTION

3.1 Store Names.

a. Use of Store Name . SAHS shall operate, and authorize Dealers and Franchisees to operate, the Stores only under the Store Names written in styles and typefaces and accompanied by logos and symbols only as specifically authorized by Sears in writing. Sears hereby approves the logos used by SAHS as of the Effective Date. SAHS shall use the full Store Name on all stationery, business cards, signage, sales receipts, vehicles for Store use, Store fronts, advertising and correspondence with or to customers and potential customers of the Store unless otherwise authorized by Sears in writing. SAHS may use any of the Store Names (but not the SEARS Service Mark alone) as SAHS’s company name or fictitious business name on checks, check blanks and bank accounts used solely for the operation of the Stores. Notwithstanding the foregoing, SAHS may use the SEARS Service Mark alone (i.e., not as part of a Store Name) as an abbreviated version of the Store Name only on the primary signage-outside the Store and the inventory of in-store signage and point of purchase material in the possession of SAHS, Dealers or Franchisees on the Effective Date, provided, however, that SAHS shall post, and shall require Dealers and Franchisees to post, signs as required by Section 3.1(b) below.

b. Additional Statement . All printed material bearing a Store Name and all printed advertising of the Stores or the Website shall also expressly state in the appropriate language: “«Store Name» are independently owned and operated under license from Sears, Roebuck and Co.” and “The SEARS mark is a service mark of Sears Brands, LLC.” In addition, SAHS shall post, and shall require authorized Dealers and Franchisees to post, a clear and conspicuous sign on the front of every Store stating in the appropriate language: “«Store Name». Independently owned and operated by «DBA» [Store owner’s name or legal entity under which owner is doing business]”.

3.2 Operating Standards. SAHS shall comply, and ensure that Dealers and Franchisees comply, with all commercially reasonable written operating policies and procedures adopted by Sears or Sears Brands from time to time upon 60-days’ advance written notice to SAHS (the “ Operating Standards ”). SAHS acknowledges that any Operating Standards documents provided to SAHS are to be used solely by SAHS, Dealers and Franchisees in performing the obligations under this Agreement.

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3.3 Advertising . SAHS shall be bound by the terms and conditions of Section 12(a)(iii)(E) of the Merchandising Agreement with respect to the Marks.

3.4 Electronic Mail . With respect to its own email communications SAHS will comply with the CAN-SPAM Act (the “ Act ”) as the Sender or Designated Sender (as defined in the Act and associated rules promulgated by FTC under the Act), to the exclusion of all others, which email communication will be distinguished from email communications from Sears and its Affiliates, as follows: (a) SAHS will send its email communications a domain name that clearly indicates SAHS or one of its Affiliates is the sender (such as searshometownandoutlet.com or searshomtownstores.com); (b) SAHS will use SEARS HOMETOWN AND OUTLET STORES on the FROM line; (c) SAHS will not use the Sears logo without including “Hometown Stores,” “Home Appliance Showroom,” or “Outlet” in SAHS’s logos and branding; and (d) SAHS will use in the footer of each email communication the following text for an unsubscribe link: “Click here to unsubscribe from receiving promotional email from Sears Hometown and Outlet Stores, Inc. (“SAHS”). Please note that SAHS is not associated with Sears, Roebuck and Co., Sears Holdings, or any of their subsidiaries.”

ARTICLE IV

MARKS

4.1 Ownership . Except as otherwise expressly provided in this Agreement, Sears Brands reserves all rights in and to: (a) the Store Names, (b) the SEARS Service Mark, (c) the Additional Sears Marks and (d) the Domain Names. The Store Names, SEARS Service Mark, Additional Sears Marks and the Domain Names are referred to collectively in this Agreement as the “ Marks .” SAHS acknowledges that the goodwill associated with the Marks has inherent value. Any and all use of any Marks inures to the benefit of Sears Brands, and this Agreement does not confer on SAHS any goodwill or ownership interests in any Marks. SAHS shall have no rights in any of the Marks other than the limited right to use, and authorize Dealers and Franchisees to use, the Marks solely to market and sell the HTS Products and Services in the Stores and through the Digital Methods in accordance with the terms of this Agreement.

4.2 Use of Marks . SAHS shall comply at all times with any instructions provided in writing by Sears from time to time regarding use of any Store Name and all other Marks. SAHS shall use the Marks only as expressly authorized in this Agreement and shall take all necessary steps to preserve the goodwill, prestige and reputation associated with the Marks. SAHS acknowledges that Sears may, from time to time, issue additional guidelines or instructions regarding the use of the Marks, and SAHS shall comply with any such guidelines and instructions. SAHS further acknowledges that upon expiration or termination of this Agreement, no monetary value shall be attributable to any goodwill associated with the use of the Marks by SAHS. Upon expiration or termination of this Agreement, SAHS shall remove any Mark from any corporate, fictitious or trade name or from any prefix, suffix or other modifying trademarks, logos, words, terms, designs or symbols. SAHS shall obtain such licenses, permits and authorizations relating to its use of the Marks as may be necessary or advisable under the laws of the Territory.

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4.3 Quality Control.

a. Quality Control Obligation . SAHS acknowledges that the reputation of Sears is based on the sale of high quality products and services offered under the Marks. SAHS shall only use the Marks in connection with high-quality HTS Products and Services. The Products (as defined in the Merchandising Agreement) shall be deemed to meet the standards prescribed in the preceding sentence. SAHS shall cooperate and comply in good faith with all commercially reasonable quality control measures undertaken by or at the request of Sears in order to preserve or protect the integrity of the Marks. Sears recognizes that SAHS has used the Marks for many years in connection with the operation of the Stores and the Websites and during that period has used the Marks in connection with HTS Products and Services found to be of acceptable quality. Sears further recognizes that SAHS has in place, SAHS shall maintain throughout the Term, an effective system for evaluating, monitoring and ensuring continuing quality of the HTS Products and Services and for evaluating and monitoring the Dealers and Franchisees.

b. Notice of Non-Compliance . If Sears determines that SAHS, or any of its Dealers or Franchisees, is not in compliance with this Section 4.3, Sears may notify SAHS of such non-compliance (“ Notice of Non-Compliance ”). A Notice of Non-Compliance from Sears shall be in writing and shall set forth with sufficient particularity a description of the nature of the non-compliance and any requested action for curing such non-compliance. Additionally, SAHS shall promptly notify Sears of any non-compliance on the part of SAHS or any of its Dealers or Franchisees. Upon SAHS’s receipt of a Notice of Non-Compliance, or Sears’ receipt of a voluntary notice of non-compliance, SAHS shall promptly correct the issues identified in such notice (“ Quality Issues ”), by enacting the cure mechanisms contained in Sections 4.3b.(i) through 4.3b.(iv).

(i) Cure Plan . SAHS shall use reasonable efforts to cure or otherwise resolve all Quality Issues as soon as possible. In the event that the Quality Issues identified in a Notice of Non-Compliance cannot be cured or otherwise resolved with thirty (30) days from receipt of such notice, SAHS shall submit to Sears a written plan to correct such Quality Issues (“ Cure Plan ”) within sixty (60) days after receipt of such Notice of Non-Compliance. For Quality Issues identified by SAHS in a voluntary notice of non-compliance, such Cure Plan shall accompany SAHS’s notice.

(ii) Cure Plan Approval . After SAHS submits its Cure Plan to Sears, the parties shall appoint a representative to promptly review and discuss in good faith the proposed Cure Plan.

(iii) Initial Cure Period . Once Sears, in its sole but good faith discretion, has approved the Cure Plan (“ Cure Plan Approval ”), SAHS shall have a 120 day cure period, or a longer period as approved by Sears on a case-by-case basis in its sole but good faith discretion (“ Initial Cure Period ”) from Cure Plan Approval to correct the Quality Issues.

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(iv) Additional Cure Period . If the Quality Issues are not capable of being cured, or the Cure Plan is not capable of being completely executed, within the Initial Cure Period or the quality Issues otherwise remain uncured after the expiration of the Initial Cure Period, Sears and SAHS shall each appoint a representative to promptly negotiate in good faith additional or other cure plans (“Additional Cure Plan”) for a different or additional cure period (“Additional Cure Period”) that may be reasonably necessary to correct such Quality Issues. If the parties are unable to agree on an Additional Cure Plan or Additional Cure Period, Sears shall, in its sole but good faith discretion, determine such Additional Cure Plan or Additional Cure Period.

(v) Effect of Non-Compliance . If the Quality Issues have not been cured to Sears’ satisfaction or the Quality Issues remain otherwise uncured after the time period provided for in the Initial Cure Period and any Additional Cure Period(s), such Quality Issues shall be deemed uncured (“ Uncured Quality Issues ”). In that case, SAHS shall cease use of the Marks on or in connection with the HTS Products, Services or activities that are the subject of the Uncured Quality Issues as soon as reasonably practicable but in no event later than six (6) months after such Quality Issues are determined to be Uncured Quality Issues with regard to use for marketing materials and one (1) year with regard to all use on SAHS’s HTS Products or Services.

4.4 Avoidance of Adverse Actions . SAHS shall refrain from taking any action that would jeopardize or impair the ownership, legality and/or enforceability of any of the Marks. In addition, SAHS shall not use, advertise, promote, or register any trademark, service mark, trade name or domain name that is confusingly similar to any of the Marks or any contraction or abbreviation thereof.

4.5 Infringement . SAHS shall notify Sears, within ten (10) days after SAHS becomes aware thereof, of: (a) any use or registration of any word or phrase, symbol, logo or design, or any combination of any of the foregoing that might constitute infringement of any of the Marks, (b) any claim of any rights in any Mark or in any confusingly similar trademark or service mark, and (c) any action, publication or statement that might be adverse or detrimental to Sears’ or Sears Brands’ rights in the Marks or that might dilute or impair the value of any of the Marks. Sears and/or Sears Brands shall have the exclusive right to bring or defend all actions or proceedings relating to the Marks, and SAHS shall cooperate fully with Sears and Sears Brands in the prosecution or defense of such actions. Neither Sears nor Sears Brands shall have any obligation to bring any action relating to the Marks, and failure by Sears and/or Sears Brands to bring any action relating to the Marks shall not be construed as a breach of this Agreement or waiver of any right reserved by Sears or Sears Brands. SAHS shall execute all documents, testify truthfully and provide evidence in connection with any action or proceeding relating to the Marks as may be reasonably required by Sears or Sears Brands.

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4.6 Change in Scope . SAHS may request in writing an expansion of the scope of the licenses granted under this Agreement to include new trademarks, service marks or other proprietary designations; new products or services; new retail formats or business models; and/or new jurisdictions. Sears may approve or reject such expansion request in its sole discretion. If Sears approves such expansion request, Sears reserves the right to charge a royalty for the expanded rights.

4.7 Co-Branding . SAHS shall not co-brand the Marks with any other third party trademark or service mark without Sears’ prior written consent. Sears hereby authorizes SAHS to co-brand SEARS HOMETOWN STORE with the FLEXI COMPRAS service mark owned by Flexi Compras Corporation.

ARTICLE V

DEFENSE AND INDEMNIFICATION

5.1 Defense and Indemnification by SAHS . SAHS shall defend, indemnify and hold harmless Sears and Sears Brands and their respective directors, officers, employees, Affiliates, agents and contractors from and against any and all alleged and actual claims, liabilities, damages, penalties, losses, actions, lawsuits, proceedings, costs or expenses (including, but not limited to court costs and attorneys’ fees), (collectively “ Claims ”), even though such Claims may be false, fraudulent or groundless, arising out of or in connection with any death of or injury to any person, damage to any property, or any loss suffered by a third party which results or is claimed to have resulted, in whole or in part, from:

a. the operation of the Stores, including but not limited to merchandise sold, work done, services rendered, products used therein and condition of Store premises, equipment and/or vehicles;

b. any other act or omission of SAHS, SAHS’s Affiliates, Dealers, Franchisees and the Personnel of each of them in connection with performance under this Agreement, including, but not limited to the advertising, storage, shipment, transport, delivery, installation, adaptation, conversion, warranty, repair or servicing of any HTS Product;

c. any violation by SAHS (or its Affiliates, Dealers and Franchisees, or the Personnel of each of them) of any Anti-Corruption Law;

d. any actual or alleged infringement of any copyright, patent or claim of patent rights, or any trademark, service mark, trade name or other identifying mark, slogan or proprietary trade dress, other than the Marks;

e. latent or patent defect in any HTS Product not purchased by SAHS from Sears or its Affiliates;

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f. any actual or alleged failure of the Stores, the Websites or any of the HTS Products not purchased from Sears or its Affiliates to comply with any law, statute, ordinance, administrative order, rule, or regulation in force in the Territory;

g. SAHS’s use of any Mark other than in accordance with the terms of this Agreement; and

h. any lack of validity or enforceability of this Agreement caused by SAHS.

SAHS shall use counsel satisfactory to Sears and Sears Brands in the defense of any such claims, and in the event of any actual or potential conflict of interest between Sears and SAHS in the defense of any such claim, Sears may engage its own counsel at SAHS’s expense. SAHS shall not enter into any settlement with respect to any such claims without the prior written consent of Sears and without obtaining a release of all claims against Sears and Sears in a form approved in writing by Sears. This Section 5.1 shall survive any termination or expiration of this Agreement. The parties acknowledge all indemnification obligations for Claims relating to HTS Products purchased by SAHS from Sears or its Affiliates are governed by Section 14 of the Merchandising Agreement.

5.2 Defense and Indemnification by Sears . Sears shall defend, indemnify and hold harmless SAHS and its respective directors, officers, employees, Affiliates, agents and contractors from and against any and all Claims arising out of any death of or injury to any person, damage to any property, or loss suffered which results or is claimed to have resulted, in whole or in part, from:

a. claims by third parties that SAHS’s use of the Marks in accordance with this Agreement constitutes trademark, service mark or trade dress infringement, dilution, unfair competition, misappropriation or false/misleading advertising;

b. any third party claims as to the lack of validity or enforceability of (i) the registrations of the Marks or (ii) Sears’ or its Affiliates’ ownership rights in the Marks; and

c. any lack of validity or enforceability of this Agreement caused by Sears.

SAHS shall not, however, be entitled to recover for SAHS’s own lost profits. This Section 5.2 shall survive any termination or expiration of this Agreement.

ARTICLE VI

RECORDKEEPING; INSPECTION AND AUDIT RIGHTS

6.1 Records . SAHS shall maintain and preserve, at SAHS’s sole expense, full, complete and accurate books, records and accounts for a period of two (2) years after the date of

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their preparation or such longer period as may be required by the Operating Standards or any applicable law in the Territory. Such records may be compiled on computer discs and shall include but are not necessarily limited to: copies of all Authorizing Agreements, Dealer and Franchisee lists, employee records, sales, invoices, cash receipts, service records, purchase records, accounts payable, cash disbursement records, inventory records, general ledgers, itemized bank deposit slips and bank statements, corporate records (include minute books), copies of sales tax returns and copies of SAHS’s income tax returns, records relating to Anti-Corruption Law compliance.

6.2 Inspection and Audit Rights . To determine whether SAHS is complying with this Agreement Sears (or any party designated by Sears) shall have the right at any reasonable time and with at least twenty (20) days prior notice to SAHS to: (a) inspect the Stores, including areas beyond the sales floor, and any locations where any Services are offered or performed; (b) inspect all HTS Products offered by SAHS not purchased from Sears or its Affiliates; (c) observe SAHS’s sales practices and SAHS’s employees or agents in the performance of their duties; and (d) inspect all of SAHS’s books and records. Upon at least twenty (20) days prior notice to SAHS, Sears (or a party designated by Sears) shall have the right to inspect, audit and copy any or all of the records described in Section 6.1 above. SAHS shall cooperate fully in any such inspection or audit.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

7.1 SAHS Representations and Warranties . SAHS represents and warrants to Sears that:

a. Company Status . SAHS is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary power and authority to enter into and perform its obligations under this Agreement, to carry on its business and to own and lease properties as required for SAHS’s full performance under this Agreement.

b. Authorization of Signatory . The person executing this Agreement on behalf of SAHS has been duly authorized to perform such actions on behalf of SAHS.

c. No Violations. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein: (a) will not violate SAHS’s Certificate of Organization, Limited Liability Company Agreement or any other charter document of SAHS; (b) will not constitute or create a violation of or default under, or result in the creation or imposition of any lien, security interest or encumbrance under, any contract, agreement, loan, note, mortgage, security agreement, deed to secure debt, guaranty, lease (capital or operating) or any other document, instrument or arrangement; and (c) will not violate or contravene any judicial or administrative decree, rule or order to which SAHS is a party or by which SAHS or any of their respective properties or businesses may be bound.

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d. No Adverse Proceedings . There is no arbitration, litigation, administrative proceeding, proposed legislation, government investigation or any other suit, action or proceeding pending against SAHS as of the Effective Date that would adversely affect the ability of SAHS to enter into or perform their obligations under this Agreement or would have a material adverse effect on the business, prospects, finances or reputation of SAHS, if determined adversely to any of them. Further, neither SAHS is the subject of any pending bankruptcy, insolvency, receivership or similar proceeding, nor is it a party to, subject to, or in default in any material respect under, any writ, injunction, decree judgment, award, determination, directive or demand of any arbitrator, court or governmental agency or instrumentality.

e. No Defaults . SAHS is not in default under any deed of trust, mortgage, lease, security agreement, note, preferred stock, bond, indenture, guaranty or other instrument or security issued by SAHS.

f. Accuracy of Information . All information provided by SAHS in connection with this Agreement is true, correct and complete.

7.2 Sears Representations and Warranties . Sears represents and warrants to SAHS that:

a. Company Status . Sears is a corporation, duly organized, validly existing and in good standing under the laws of the State of New York and has all necessary power and authority to enter into and perform its obligations under this Agreement, to carry on its business and to own and lease properties as required for Sears’ full performance under this Agreement.

b. Authorization of Signatory . The person executing this Agreement on behalf of Sears has been duly authorized to perform such actions on behalf of Sears.

c. No Violations . The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein: (a) will not violate Sears’ Articles of Incorporation, by-laws or any other charter document of Sears; (b) will not constitute or create a violation of or default under, or result in the creation or imposition of any lien, security interest or encumbrance under, any contract, agreement, loan, note, mortgage, security agreement, deed to secure debt, guaranty, lease (capital or operating) or any other document, instrument or arrangement; and (c) will not violate or contravene any judicial or administrative decree, rule or order to which Sears is a party or by which Sears or any of their respective properties or businesses may be bound.

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of Sears to enter into or perform their obligations under this Agreement or would have a material adverse effect on the business, prospects, finances or reputation of Sears, if determined adversely to any of them. Further, neither Sears is the subject of any pending bankruptcy, insolvency, receivership or similar proceeding, nor is it a party to, subject to, or in default in any material respect under, any writ, injunction, decree judgment, award, determination, directive or demand of any arbitrator, court or governmental agency or instrumentality.

e. No Defaults . Sears is not in default under any deed of trust, mortgage, lease, security agreement, note, preferred stock, bond, indenture, guaranty or other instrument or security issued by Sears.

f. Accuracy of Information . All information provided by Sears in connection with this Agreement is true, correct and complete.

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ARTICLE VIII

NO IMPLIED WARRANTIES; LIMITATION OF LIABILITY

8.1 Disclaimer of Warranty . Except as expressly set forth herein (and except as may be required by law), Sears expressly disclaims all representations and warranties, expressed or implied, in connection with the Marks and this Agreement, including, without limitation, the implied warranties of merchantability and fitness for a particular purpose. All materials provided hereunder are provided “as is” and “with all faults.”

8.2 Limitation of Liability . Sears shall not be liable to SAHS or its Affiliates, directors, officers, customers or employees for any indirect, special, consequential, incidental, or punitive damages, losses, or expenses (including, without limitation, lost or anticipated revenues, profits, or savings relating to the same) arising from any claim relating directly or indirectly to this Agreement, whether a claim for such damages is based on warranty, contract, tort (including, without limitation, negligence or strict liability), even if an authorized representative of Sears has been advised of the likelihood or possibility of the same.

ARTICLE IX

TERMINATION

9.1 Termination upon Cessation of Use . Sears may terminate this Agreement effectively immediately upon 10-days’ advance written notice to SAHS if SHO for 12 consecutive months has operated, or has authorized its dealers and Franchisees to operate, any retail store or store-within-a-store using a store name other than a Store Name.

9.2 Termination for Breach.

a. Subject to the next sentence, (a) Sears or SAHS may terminate this Agreement in the event of a material breach of this Agreement by the other Party if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within 30 days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Party’s delivery of notice to the breaching Party.

b. Sears may terminate this Agreement effectively immediately upon 10-days’s advance written notice to SAHS if a Stockholding Change occurs.

9.3 Termination in Response to Termination of Other Separation Agreements . Sears or SAHS may terminate this Agreement (whichever party is entitled to terminate, the “ Terminating Party ”) effective immediately upon 30-days’ advance written notice to the other

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party if (a) the Terminating Party or any of its Affiliates terminates the Separation Agreement as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Separation Agreement, (b) the Terminating Party or any of its Affiliates terminates any of the License Agreements in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the License Agreement, (c) the Terminating Party or any of its Affiliates terminates the Merchandising Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Merchandising Agreement, or (d) the Terminating Party or any of its Affiliates terminates the Shop Your Way Rewards Retail Establishment Agreement dated August 8, 2012 between SHO and Sears Holdings Management Corporation (the “ SYW Agreement ”) in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the SYW Agreement.

9.4 Termination if Renewals Do Not Occur . If SHO does not elect to extend the Term of the Merchandising Agreement for the First Renewal Period or the Second Renewal Period (as those terms are defined in the Merchandising Agreement), Sears may terminate this Agreement effective immediately upon 10-days’ advance written notice to SAHS.

9.5 Consequences of Termination . Upon any expiration or termination of this Agreement for any reason whatsoever, the following provisions shall apply:

a. Termination of License . The licenses granted under Sections 1.1, 1.2 and 1.3 shall immediately and automatically terminate and SAHS shall cease using the Store Name, all other Marks and all Confidential Information of Sears immediately upon such termination or expiration, except as otherwise expressly authorized under this Section 9.3 or by Sears in writing. SAHS shall take all necessary action to change the Store Names and its fictitious business name and/or registered trade name to omit the SEARS Service Mark and all other words that may be confusingly similar to the SEARS Service Mark or any other Mark. SAHS shall return to Sears immediately upon such termination or expiration the Operating Standards document and all copies thereof together with all documentation prepared by or on behalf of SAHS that is derived from or based on such documents or any other Confidential Information of Sears. Within sixty (60) days after the date of any termination or expiration of this Agreement, SAHS shall furnish Sears with evidence reasonably satisfactory to Sears demonstrating SAHS’s compliance with the foregoing obligations.

b. Representation . After the date of such expiration or termination, SAHS shall not represent or hold itself out as a retailer authorized by Sears or one of its Affiliates or otherwise engage in any practices which might make it appear that SAHS is still authorized to operate any Store or use any Mark.

c. No Compensation . SAHS acknowledges and agrees that no indemnities or compensation of any kind shall be due to SAHS as a result of the termination or expiration of this Agreement. In particular, SAHS waives any claim it may have or acquire against Sears for

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any expenses incurred by it in preparing for and pursuing its operation of the Stores, including but not limited to the engagement of any employees or contractors; the rental, purchase, furnishing or remodeling of any facilities; the rental, purchase or other acquisition of equipment; and the development, purchase and/or dissemination of any advertisements or promotional materials.

d. Liability for Pre-Termination Actions . Nothing herein shall be construed to relieve SAHS of any obligation with respect to HTS Products purchased, liabilities incurred or other activities undertaken in connection with the Stores prior to the date of such expiration or termination, including but not limited to SAHS’s defense and indemnity obligations, and such obligations shall survive any such termination or expiration.

e. Consent to Termination Provisions . Both parties expressly and unconditionally agree that each and every cause of termination under this Agreement is contracted to freely and constitute a breach of the essential obligations of this Agreement by the party in breach.

ARTICLE X

RELATIONSHIP; ASSIGNABILITY

10.1 Relationship . Sears and SAHS are acting as independent contractors under this Agreement, and SAHS is not an employee or agent of Sears. Nothing herein is intended to make either party a general or special agent, legal representative, subsidiary, joint venturer, partner, franchiser or franchisee, fiduciary, employee or servant of the other for any purpose. SAHS is not authorized or empowered (i) to act as an agent for Sears; (ii) to enter into agreements, transact business or incur obligations for or on behalf of Sears; (iii) to accept legal service of process for or on behalf of Sears; or (iv) to bind Sears in any manner whatsoever. SAHS shall not do or omit to do anything that might imply or indicate that SAHS is an agent, representative, branch, division, or Affiliate of Sears or that Sears or its Affiliates in any manner either directly or indirectly, own, control or operate any of the Stores or the Websites or are in any way responsible for SAHS’s acts or obligations.

10.2 Assignability . SAHS acknowledges that its rights and duties under this Agreement are personal and that Sears has entered into this Agreement and granted the license in reliance upon Sears’ perceptions of the character, business skill, aptitude and financial capacity of SAHS. Accordingly, SAHS shall not assign its rights or duties under this Agreement without Sears’ prior written consent.

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outstanding securities entitled to vote in, or carrying the right to direct the voting with respect to, directly or indirectly and by whatever means the election of the board of directors of SAHS or any of its subsidiaries. “ Sears Competitor ” means, solely for purposes of this Agreement and for no other purpose, Amazon.com, Inc., Best Buy Co., Inc., hhgregg, Inc., The Home Depot, Inc., Lowe’s Companies, Inc., Target Corporation, Tractor Supply Co., Wal-Mart Stores, Inc., each other retailer that competes in any material respect with Sears’ major home appliance business or Sears’ power lawn and garden business, and the Sears Competitor Affiliates of each of them. “ Sears Competitor Affiliates ” means each individual or entity that directly or indirectly, and by whatever means, controls, is under common control with, or is controlled by, a Sears Competitor.

ARTICLE XI

LICENSE OPERATING COMMITTEE; DISPUTE RESOLUTION

11.1 License Operating Committee . Subject to the last sentence of this Section 11.1, Sears and SAHS will form a committee (the “ License Operating Committee ”) that will address all day-to-day operational and other issues that may arise with respect to this Agreement and all Disputes (as defined in Section 11.2 below). The License Operating Committee will discuss all of these issues and will attempt to resolve informally all Disputes in accordance with Section 11.2b. The License Operating Committee will consist of three employees of each party as designated by the party. The initial employee designees are listed on Appendix 11.1 . Each party may replace one or more of its designees at any time upon notice to the other Party. Each party will promptly fill all of its License Operating Committee vacancies as they arise by notice to the other party. Unless the members of the License Operating Committee unanimously agree otherwise, the License Operating Committee will meet at least once every calendar month during the Term on the dates determined by the members of the License Operating Committee. If the members of the Merchandise Operating Committee cannot agree on a date or a time for a particular monthly meeting the meeting will occur at 1:00 p.m. Central Time on the second Thursday of the month at the offices of SHC, 3333 Beverly Road, Hoffman Estates, IL 60179 B6-D. At all times one of the members of the License Operating Committee will serve as the License Operating Committee’s Chairperson. The Chairperson will rotate among the License Operating Committee members on a monthly basis. The initial Chairperson is listed on Appendix 11.1 and the other License Operating Committee members each will serve thereafter as Chairperson, on a monthly basis, rotating between Sears’ members and SAHS’s members. The Chairperson (i) will request that License Operating Committee members provide meeting agenda items and (ii) will distribute to members, at least two business days in advance of each License Operating Committee meeting, an agenda for the meeting. If in accordance with the Trademark License Agreement a “License Operating Committee” has been formed and is operating (the “ TLOC ”), then (a) Sears and SAHS will not be required to form the License Operating Committee in accordance with this Section 11.1 and (b) the TLOC will serve at the License Operating Committee for all purposes of this Agreement.

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11.2 Dispute Resolution.

a. License Operating Committee’s Attempt to Resolve Dispute . If a Dispute arises, neither party may cease to perform any of its obligations in this Agreement in accordance with their terms or take any formal legal action (such as seeking to terminate this Agreement, seeking mediation in accordance with Section 11.2c, or instituting or seeking any judicial or other legal action, relief, or remedy with respect to or arising out of this Agreement) unless the party has first (i) delivered a notice of dispute (the “ Dispute Notice ”) to all of the members of the License Operating Committee and (ii) complied with the terms and conditions of this Section 11. At the first monthly meeting of the License Operating Committee following the delivery of the Dispute Notice (the “ Dispute Resolution Meeting ”) the License Operating Committee will attempt to resolve all of the Disputes that are the subject of the Dispute Notice. Each party will cause its designees on the License Operating Committee to negotiate in good faith to resolve all Disputes in a timely manner. If by the 10 ^th calendar day following the Dispute Resolution Meeting the License Operating Committee has not resolved all of the Disputes (the “ Resolution Failure Date ”) the parties will proceed to mediate the unresolved Disputes (“ Unresolved Disputes ”) in accordance with Section 11.2c.

b. Dispute Defined . Subject to the next sentence, “ Dispute ” means each claim, controversy, dispute, and disagreement between (i) on the one hand, SAHS or any of its Affiliates, or any of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, and (ii) on the other hand, Sears or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a party’s performance, or failure to perform, one or more of its obligations in this Agreement. Disputes do not include claims, controversies, disputes or disagreements with respect to compliance with Article IV or payment obligations with respect to amounts due in accordance with the terms and conditions of this Agreement that are not reasonably in dispute.

c. Mediation of Unresolved Disputes . Sears and SAHS will in good faith attempt to resolve all Unresolved Disputes by non-binding mediation. Sears and SAHS will negotiate in good faith to determine the mediator, the mediator’s compensation and related costs, and the applicable rules for the mediation. If by the 15th day following the Resolution Failure Date Sears and SAHS have been unable to settle an Unresolved Dispute the obligations of Sears and SAHS in this Section 11 will end with respect to the Unresolved Dispute.

ARTICLE XII

GENERAL PROVISIONS

12.1 Confidential Information . The parties acknowledge that in the course of performing under this Agreement they may be exposed to Confidential Information owned by the other party. “ Confidential Information ” shall include, but is not limited to, all confidential and proprietary information, marketing, trade secrets, know-how, development data, customer information, information about the methods, operations, financial position of a party and other information and knowledge which are not commonly known and which could be used by others

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to the competitive disadvantage of the party that owns such Confidential Information. All Confidential Information disclosed to any other party under this Agreement shall remain the exclusive property of the disclosing party.

a. Non-disclosure of Confidential Information . Each party shall (i) use its best efforts to protect the confidential nature of Confidential Information disclosed to it, including notifying its Affiliates, subsidiaries, sublicensees, distributors or anyone else with whom a party works to achieve the purposes of this Agreement of the confidential nature of such Confidential Information, (ii) prior to receiving any such Confidential Information, use its best efforts to have the Dealers, Franchisees or anyone else with whom a party works to achieve the purposes of this Agreement sign a confidentiality agreement containing restrictions on the use and disclosure of such Confidential Information no less restrictive than those contained herein, (iii) except as provided in this Agreement or as required by law or court order, not disclose to third parties or copy any Confidential Information or allow any third party access to such Confidential Information without first obtaining the disclosing party’s written consent, and (iv) not use, or permit others to use, any Confidential information disclosed to it except for the purposes set forth herein.

SAHS shall not, without the prior written permission of Sears, which permission shall be given, if at all, in Sears’ sole discretion (i) directly or indirectly utilize Confidential Information in its own business, (ii) manufacture or sell any product that is based in whole or in part on such Confidential Information, or (iii) disclose such Confidential Information to any third party.

SAHS shall cause each of the Dealers and Franchisees to agree in writing to be bound by the provisions of this Section 12.1a.

b. Compelled Disclosure . In the event a party is required by law or court order to disclose any Confidential Information of the disclosing party, that party shall: (i) notify the disclosing party in writing as soon as possible, but in no event less than thirty (30) calendar days prior to any such disclosure; (ii) cooperate with the disclosing party to preserve the confidentiality of such Confidential Information consistent with applicable law; and (iii) use its best efforts to limit any such disclosure to the minimum disclosure necessary to comply with such law or court order.

12.2 Force Majeure. Neither party hereto shall be liable for any failure, inability, or delay of performance under this Agreement if such failure, inability or delay results directly from the acts of any government (including its laws, rules, orders, ordinances, and regulations), currency and/or exchange controls, accidents, fires, insurrection, wars, strikes, floods, winds, or other natural disasters, sabotage, breakdown of machinery, failure in sources of supply, or any other cause beyond the reasonable control of such party.

12.3 Construction . All headings and titles used to identify the sections of this Agreement are for the convenience of the parties and shall not be used in construing or interpreting the provisions of this Agreement.

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12.4 Entire Agreement . This Agreement, together with all Exhibits hereto (which are incorporated herein by this reference), is intended as the complete, final and exclusive statement of the terms of this Agreement between SAHS and Sears with regard to the subject matter hereof, and supersedes all prior oral and written agreements, understandings, commitments, negotiations and practices between the parties relating to such subject matter. Nothing in this Agreement is intended, nor shall be deemed, to confer any rights or remedies upon any person or entity not a party to this Agreement.

12.5 Amendments . Except as otherwise expressly provided in this Agreement, no modification or amendment of this Agreement shall be effective unless made in a writing executed by an authorized representative of each party hereto.

12.6 Remedies; Injunctive Relief . The rights and remedies provided herein shall be cumulative and in addition to any other rights and remedies otherwise available at law or in equity. Notwithstanding any other provision of this Agreement, each party acknowledges that any breach by a party of Article IV or Section 12.1 of this Agreement may cause the non-breaching party and its Affiliates irreparable harm for which the non-breaching party and its Affiliates have no adequate remedies at law. Accordingly, each party and its Affiliates, without complying with Section 11.2c and without the necessity to post a bond or other security, are entitled to seek injunctive relief for any such breach in any state or federal court in Chicago, Illinois, USA, and each party consents to the exclusive jurisdiction and venue in the state and federal courts in Chicago, Illinois, USA for injunctive relief purposes. Each party waives all claims for damages by reason of the wrongful issuance of an injunction and acknowledges that its only remedy in that case is the dissolution of that injunction.

12.7 Non-Waivers . Any waiver of Sears’ rights or remedies under this Agreement shall be effective only if made in writing signed by an authorized officer of Sears. Neither any failure or delay by Sears in exercising any right or remedy, nor any single or partial exercise or waiver of any right shall preclude any other or further exercise thereof by Sears or the exercise of any other right or remedy by Sears.

12.8 Severability . If any provision hereof is held invalid or unenforceable by a court of competent jurisdiction, such invalidity shall not affect the validity or operation of any other provision and such invalid provision shall be deemed to be severed from the Agreement.

12.9 Survivability . Each term of this Agreement that would, by its nature, survive the termination or expiration of this Agreement will so survive, including the obligation of either Party to pay all amounts accrued hereunder and including Article V (Defense and Indemnification), Section 6.1 (Records), Article VIII (No Implied Warranties; Limitation of Liability), Article IX (Termination), and Section 12.1 (Confidential Information).

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12.10 Notices . All notices required or permitted to be given hereunder shall be given in writing and shall be sent by prepaid first class registered air mail, express courier, personal delivery, or facsimile to the following addresses:

Sears shall be addressed at :

Sears, Roebuck and Co.

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attn: SVP and President, Marketing

Facsimile: (847) 286-2735

With a copy to :

Sears Holdings Management Corporation

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attn: General Counsel

Facsimile: (847) 286-2471

SAHS shall be addressed at :

Sears Authorized Hometown Stores, LLC

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attn.: President

Facsimile: (847) 286-7197

With a copy to :

Sears Hometown and Outlet Stores, Inc.

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attn: General Counsel

In the case of notice by facsimile transmission, notice shall be confirmed immediately by prepaid courier service. All notices shall be effective upon receipt when delivered at the address so specified; provided, however, that any notice sent by mail or courier shall be deemed to have been received ten (10) days after dispatch, and any notice sent by facsimile transmission shall be deemed to have been received when such facsimile is confirmed electronically. Any party may change the address to which notices are to be sent by so notifying the other party in writing in the manner provided herein.

12.11 Counterparts . This Agreement may be executed in multiple counterparts and by facsimile, each of which shall be deemed to be an original, and all such counterparts shall constitute but one instrument.

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12.12 Good Faith and Fair Dealing . SAHS and Sears each shall exercise Good Faith in the performance of its obligations in this Agreement. “ Good Faith ” means honesty in fact and the observance of reasonable commercial standards of fair dealing in accordance with Applicable Law.

12.13 Condition Precedent to the Effectiveness of this Agreement . This Agreement shall not become effective until it has been approved by the Audit Committee of the Board of Directors of SHC.

12.14 Governing Law; Jurisdiction; Waiver of Jury Trial.

a. Governing Law . This Agreement shall be construed in accordance with, and governed by, the federal laws of the United States, including but not limited to the Lanham Act, and the internal laws of the State of Illinois other than its conflict of laws principles and the Illinois Franchise Disclosure Act. This Agreement shall not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.

b. Jurisdiction . Each of the Parties submits, for itself and its property, to the exclusive jurisdiction of all Illinois state courts and federal courts of the United States of America sitting in Cook County, Illinois, and all appellate courts to each thereof, in all actions and proceedings arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of all judgments relating thereto, and each of the Parties (i) shall commence all such actions and proceedings only in such courts, (ii) shall cause all claims in respect of all such actions and proceedings to be heard and determined in such Illinois state court or, to the extent permitted by law, in such federal court, (iii) waives, to the fullest extent it may legally and effectively do so, all objections that it may now or hereafter have to the laying of venue of all such actions and proceedings in any such Illinois state or federal court, and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such actions and proceedings in all such Illinois state and federal courts. A final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 12.10. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by law.

c. Waiver of Jury Trial . Each Party acknowledges that each controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, it irrevocably and unconditionally waives all rights it may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party certifies and acknowledges that (i) it understands and has considered the implications of such waivers, (ii) it makes such waivers voluntarily, and (iii) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 12.14.

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SEARS, ROEBUCK AND CO. By Sears Holdings Management Corporation, its Agent		SEARS AUTHORIZED HOMETOWN STORES, LLC

By:	/s/ William Phelan	By:	/s/ W. Bruce Johnson
William Phelan		W. Bruce Johnson
Senior Vice President-Finance		President

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EXHIBIT A

TO LICENSE AGREEMENT

STORE NAMES

Country

Mark

Status

Reg./App.
No.

Reg./App.
Date

Goods / Services

United States

SEARS APPLIANCE & HARDWARE

Registered

4,008,504

8/9/2011

Retail store services and dealerships featuring appliances, electronics, hardware/tools, and lawn and garden equipment

United States

SEARS AUTHORIZED HOMETOWN STORES

Registered

4,056,660

11/15/2011

Retail store services and dealerships featuring appliances, electronics, hardware, tools, and lawn and garden equipment

United States

SEARS HARDWARE STORE

Pending

85/576,053

03/21/12

Retail store services and dealerships featuring appliances, electronics, hardware/tools, and lawn and garden equipment

United States

SEARS HOMETOWN STORE

Registered

3,850,796

9/21/2010

Retail store services and dealerships featuring appliances, electronics, hardware/tools, and lawn and garden equipment

United States

SEARS MATTRESS

N/A

Retail store services

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Country	Mark	Status	Reg./App. No.	Reg./App. Date	Goods / Services
Bermuda	SEARS HOMETOWN STORE	Pending			Retail store services and dealerships featuring appliances, electronics, hardware/tools, and lawn and garden equipment

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EXHIBIT B

TO LICENSE AGREEMENT

ADDITIONAL SEARS MARKS


Country	Mark	Status	Reg./App. No.	Reg./App. Date	Goods / Services
United States	PRICE MATCH PLUS	N/A	N/A	N/A	Price match policy

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EXHIBIT C

TO LICENSE AGREEMENT

DOMAIN NAMES

www.searshometownstores.com

www.searshardwarestores.com

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EXHIBIT D

TO LICENSE AGREEMENT

TERRITORY

50 United States, its territories and possessions, including Puerto Rico

Bermuda

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APPENDIX 1.1

TO LICENSE AGREEMENT

EFFECTIVE DATE

The Effective Date referred to in Section 1.1 is September , 2012.

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APPENDIX 11.1

TO LICENSE AGREEMENT

LICENSE OPERATING COMMITTEE

SAHS

Keri Durkin

Brandon Gartman

Guy Reda

Sears

Allyson Olsen

Paul Palich

Roger Teal

Initial Chairperson: Allyson Olsen

Exhibit 10.3

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STORE LICENSE AGREEMENT

August 8, 2012

This STORE LICENSE AGREEMENT (“ Agreement ”), is between SEARS ROEBUCK AND CO. , a New York corporation (“ Sears ”), and SEARS HOME APPLIANCE SHOWROOMS, LLC , a Delaware limited liability company (“ SHAS ”).

RECITALS

C. SBBUC has granted Sears an exclusive license to use (and to further sublicense the use of) the Marks (as defined in Section 4.1 below) throughout the world, excluding Canada;

D. Sears and SHAS’ Affiliates are parties to the Merchandising Agreement dated as of the Effective Date among (1) Sears, Kmart Corporation, Sears Holdings Corporation (“ SHC ”) and (2) Sears Hometown and Outlet Stores, Inc. (“ SHO ”), Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C. (the “ Merchandising Agreement ”); and

E. SHAS desires to obtain a license to operate, and authorize Franchisees (as defined in Section 1.4 below) to operate, stores offering certain consumer products and related services in the Territory under the Store Names and to use the Store Names in connection with the operation of such stores, and Sears desires to grant to SHAS such license, subject to the terms of this Agreement.

NOW THEREFORE , in consideration of the mutual covenants in this Agreement, Sears and SHAS agree as follows:

ARTICLE I

LICENSE AND SCOPE

1.1 Duration. The term of this Agreement will begin immediately following the “Rights Closing Effective Time” specified in the Separation Agreement (the “ Separation Agreement ”) to be executed and delivered by SHO and Sears Holdings Corporation (the date on which the Rights Closing Effective Time occurs, the “ Effective Date ”) and will end, unless terminated earlier, at 5:00 p.m. (Central Time) on the 17 ^th anniversary of the Effective Date (the “ Term ”). The calendar day that becomes the Effective Date will be inserted on Appendix 1.1 after the Effective Date has occurred.

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1.2 Grant of License in the Store Names . Subject to all the terms and conditions of this Agreement, Sears hereby grants to SHAS, for and during the Term, an exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to operate, and authorize Dealers and Franchisees to operate, retail stores and stores-within-a-store using the Store Names at locations in the Territory (the “ Stores ”) through which all HTS Products and the related services offered by, or with authorization from, SHAS as of the Effective Date (the “ Services ”) will be offered and sold. Sears also grants to SHAS an exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to use the Stores Names to promote the HTS Products and Services by all Digital Methods. Sears grants SHAS the right to use the Store Names to sell the Seller-Branded Products (as defined in the Merchandising Agreement) by all Seller Digital Methods. Subject to the next sentence, Sears may terminate SHAS’s rights in this Section 1.2 to sell by Seller Digital Methods upon 24-months’ prior written notice. Upon termination in accordance with the preceding sentence of SHAS’s rights to sell by Seller Digital Methods, Sears will grant SHAS a license to allow SHAS to (a) market all Seller-Branded Products by all then-current and future means, methods, and channels outside of the Territory if such marketing would not violate any Existing Contractual Obligation in effect immediately prior to the date of such license, and (b) sell all Seller-Branded Products by all Digital Methods in the Territory and all Seller-Branded Product outside of the Territory if the sale would not violate any Existing Contractual Obligation in effect immediately prior to the date of such license. The license described in the preceding sentence will include terms that are usual and customary for licenses of this type for comparable circumstances and a duration that is the same as the remaining duration of the last of the License Agreements to terminate in accordance with its terms. “ Dealer ” means an unrelated third-party owner authorized to operate a Store. “ License Agreements ” means the following, each dated August 8, 2012: the Store License Agreement between Sears Outlet Stores, L.L.C. and Sears; the Store License Agreement between Sears Authorized Hometown Stores, LLC and Sears; and the Trademark License Agreement between SHO and Sears (the “ Trademark License Agreement ”). “ Digital Methods ,” “ Existing Contractual Obligation ,” “ Franchisee ,” “ HTS Products ,” “ Seller-Branded Products, ” and “ Seller Digital Methods ” each is defined in the Merchandising Agreement.

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1.3 Grant of License in the Additional Sears Marks . Subject to all the terms and conditions of this Agreement, Sears hereby grants to SHAS, for and during the Term, a non-exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to use, and authorize Franchisees to use, the Additional Sears Marks solely within the Territory in connection with the marketing, offering and performance of Services provided under the Additional Sears Marks.

1.4 Grant of License in the Domain Names . Subject to all the terms and conditions of this Agreement, Sears hereby grants to SHAS, for and during the Term, an exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to use the Domain Names on the websites identified by the Domain Names (the “ Websites ”) in connection with promotion of the Stores, the marketing and sale of the Seller-Branded Products, and the marketing and sale of the Services.

1.5 Further Sublicense . SHAS has the right to sublicense the SEARS Service Mark, the Store Names and the Additional Sears Marks to Franchisees for the operation of Stores. For each New HTS Store (as defined Section 9 of the Merchandising Agreement), SHAS and the Franchisee for such New HTS Store shall enter into an Authorizing Agreement. SHAS shall not enter into an Authorizing Agreement with a Sears Competitor or as Sears Competitor Affiliate (as defined in Section 10.3 below). SHAS shall make no change to any form Authorizing Agreement existing as of the Effective Date if such change would reasonably be expected to have a material adverse effect on the business, prospects, finances or reputation of Sears or the goodwill of the Marks. “ Authorizing Agreement ” means an agreement authorizing a Franchisee to operate a Store and includes SHAS’s franchise agreements.

1.6 SHAS Non-Competition . Neither SHAS nor any Affiliate of SHAS shall engage, assist, own any beneficial interest, or otherwise participate, in any direct or indirect capacity, in any development, ownership, operation, leasing, joint venture, licensing, sponsorship, financing, consultation or similar relationship with respect to any Sears Competitor (as defined in Section 10.3 below). “ Affiliate ” shall mean any entity that, at the applicable time, directly or indirectly controls, is controlled with or by or is under common control with, a party. Notwithstanding the foregoing, only subsidiaries of Sears Holdings Corporation will be deemed to be Affiliates of Sears for purposes of this Agreement, and only subsidiaries of Sears Hometown and Outlet Stores, Inc. will be deemed to be Affiliates of SHAS for purposes of this Agreement. SHAS shall not perform any act that would be materially adverse to Sears’ legitimate business interests as reflected in this Agreement.

1.7 Restrictions on Sales . SHAS shall be bound by the terms and conditions of Section 12(a)(iii)(B) of the Merchandising Agreement with respect to the Marks as if SHAS were a party to the Merchandising Agreement.

1.8 Sears Non-Competition . Sears acknowledges that it is bound by the terms and conditions of Section 9(c) of the Merchandising Agreement.

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ARTICLE II

CERTAIN OBLIGATIONS OF SHAS

2.1 Site Selection . SHAS shall be responsible for the selection of suitable sites for the Stores. SHAS acknowledges that it is bound by the terms and conditions of Section 9(b) of the Merchandising Agreement.

2.2 Promotion and Goodwill; Standards of Conduct . SHAS shall use its best efforts to promote the Stores, the Websites, the HTS Products and the Services in the Territory and to promote and maintain goodwill toward Sears, the Stores and the Websites. In all dealings with customers, prospective customers, suppliers and the public, SHAS shall adhere to the highest standards of honesty, integrity, fair dealing and ethical conduct. Sears may require SHAS to terminate for cause any Dealer or Franchisee that (a) has taken any action that causes SHAS to be in non-compliance with a material term of this Agreement, or (b) fails to maintain the high quality and reputation of the Marks, in each case described in clauses (a) and (b) after SHAS has received written notice from Sears, and a reasonable opportunity to cause the Dealer or Franchisee to cure, the non-compliance or failure to maintain continues.

2.3 Compliance with Law .

a. Anti-Corruption and Anti-Bribery . SHAS acknowledges that The Foreign Corrupt Practices Act of 1977, 15 U.S.C. §§78dd-1, et. seq. (the “ FCPA ”) applies to SHAS’s business relationship with Sears and that national or regional anti-corruption or anti-bribery laws may apply to either SHAS or SHAS’s business relationship with Sears (together with the FCPA, the “ Anti-Corruption Laws ”). SHAS represents and warrants that (i) SHAS and its Personnel do and shall comply with all applicable Anti-Corruption Laws; (ii) SHAS has not conducted, and shall not conduct, business with any individual or entity listed by the U.S. Government on any U.S. Government watch lists, including the U.S. Office of Foreign Assets Control security watch lists.; and (iii) all Personnel shall receive periodic training on compliance with the Anti-Corruption Laws. No later than January 1 ^st of each year and as otherwise requested by Company, SHAS shall certify in a form satisfactory to Sears that this Section 2.4a remains true, accurate and correct. SHAS shall fully cooperate with Sears in any ethics and compliance investigation, including any investigations related to the Anti-Corruption Laws, and with any governmental inquiry or investigation related to the Anti-Corruption Laws, and unless prohibited from doing so, will promptly notify Sears of any such investigation. “ Personnel ” means the officers, directors, employees, agents, suppliers, licensors, licensees, contractors, subcontractors, and other representatives, from time to time, of (i) the applicable entity, (ii) as to Sears, its Affiliates, and (iii) as to SHAS, its Affiliates.

b. SHAS shall comply with all applicable laws, regulations, standards and decrees of any governmental authorities in the Territory in connection with its performance under this Agreement, including but not limited to commercial electronic mail communication laws and export control and anti-boycott laws, and shall obtain all governmental approvals, permits, licenses and other authorizations necessary or appropriate for SHAS to perform their obligations under this Agreement.

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2.5 Expenses . Unless otherwise expressly provided in this Agreement, any and all expenses, costs and charges incurred by SHAS in the performance of any of its obligations under this Agreement shall be borne and paid for by SHAS, without any right of contribution or reimbursement from Sears.

ARTICLE III

STORE OPERATIONS AND PROMOTION

3.1 Store Names .

a. Use of Store Name . SHAS shall operate, and authorize Franchisees to operate, the Stores only under the Store Names written in styles and typefaces and accompanied by logos and symbols only as specifically authorized by Sears in writing. Sears hereby approves the logos used by SHAS as of the Effective Date. SHAS shall use the full Store Name on all stationery, business cards, signage, sales receipts, vehicles for Store use, Store fronts, advertising and correspondence with or to customers and potential customers of the Store unless otherwise authorized by Sears in writing. SHAS may use any of the Store Names (but not the SEARS Service Mark alone) as SHAS’s company name or fictitious business name on checks, check blanks and bank accounts used solely for the operation of the Stores. Notwithstanding the foregoing, SHAS may use the SEARS Service Mark alone (i.e., not as part of a Store Name) as an abbreviated version of the Store Name only on the primary signage-outside the Store and the inventory of in-store signage and point of purchase material in the possession of SHAS or Franchisees on the Effective Date, provided, however, that SHAS shall post, and shall require Franchisees to post, signs as required by Section 3.1(b) below.

b. Additional Statement . All printed material bearing a Store Name and all printed advertising of the Stores or the Website shall also expressly state in the appropriate language: “«Store Name» are independently owned and operated under license from Sears, Roebuck and Co.” and “The SEARS mark is a service mark of Sears Brands, LLC.” In addition, SHAS shall post, and shall require Franchisees to post, a clear and conspicuous sign on the front of every Store stating in the appropriate language: “«Store Name». Independently owned and operated by «DBA» [Store owner’s name or legal entity under which owner is doing business]”.

3.2 Operating Standards . SHAS shall comply, and ensure that Franchisees comply, with all commercially reasonable written operating policies and procedures adopted by Sears or Sears Brands from time to time upon 60-days’ advance written notice to SHAS (the “ Operating Standards ”). SHAS acknowledges that any Operating Standards documents provided to SAHS are to be used solely by SHAS and Franchisees in performing the obligations under this Agreement.

3.3 Advertising . SHAS shall be bound by the terms and conditions of Section 12(a)(iii)(E) of the Merchandising Agreement with respect to the Marks as if SHAS were a party to the Merchandising Agreement.

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3.4 Electronic Mail Opt-Outs . With respect to its own email communications SHAS will comply with the CAN-SPAM Act (the “ Act ”) as the Sender or Designated Sender (as defined in the Act and associated rules promulgated by FTC under the Act), to the exclusion of all others, which email communication will be distinguished from email communications from Sears and its Affiliates, as follows: (a) SHAS will send its email communications a domain name that clearly indicates SHAS or one of its Affiliates is the sender (such as searshometownandoutlet.com or searshomtownstores.com); (b) SHAS will use SEARS HOMETOWN AND OUTLET STORES on the FROM line; (c) SHAS will not use the Sears logo without including “Hometown Stores,” “Home Appliance Showroom,” or “Outlet” in SHAS’s logos and branding; and (d) SHAS will use in the footer of each email communication the following text for an unsubscribe link: “Click here to unsubscribe from receiving promotional email from Sears Hometown and Outlet Stores, Inc. (“SHAS”). Please note that SHAS is not associated with Sears, Roebuck and Co., Sears Holdings, or any of their subsidiaries.”

ARTICLE IV

MARKS

4.1 Ownership . Except as otherwise expressly provided in this Agreement, Sears Brands reserves all rights in and to: (a) the Store Names, (b) the SEARS Service Mark, (c) the Additional Sears Marks and (d) the Domain Names. The Store Names, SEARS Service Mark, Additional Sears Marks and the Domain Names are referred to collectively in this Agreement as the “ Marks .” SHAS acknowledges that the goodwill associated with the Marks has inherent value. Any and all use of any Marks inures to the benefit of Sears Brands, and this Agreement does not confer on SHAS any goodwill or ownership interests in any Marks. SHAS shall have no rights in any of the Marks other than the limited right to use, and authorize Franchisees to use, the Marks solely to market and sell the HTS Products and Services in the Stores and through the Digital Methods in accordance with the terms of this Agreement.

4.2 Use of Marks . SHAS shall comply at all times with any instructions provided in writing by Sears from time to time regarding use of any Store Name and all other Marks. SHAS shall use the Marks only as expressly authorized in this Agreement and shall take all necessary steps to preserve the goodwill, prestige and reputation associated with the Marks. SHAS acknowledges that Sears may, from time to time, issue additional guidelines or instructions regarding the use of the Marks, and SHAS shall comply with any such guidelines and instructions. SHAS further acknowledges that upon expiration or termination of this Agreement, no monetary value shall be attributable to any goodwill associated with the use of the Marks by SHAS. Upon expiration or termination of this Agreement, SHAS shall remove any Mark from any corporate, fictitious or trade name or from any prefix, suffix or other modifying trademarks, logos, words, terms, designs or symbols. SHAS shall obtain such licenses, permits and authorizations relating to its use of the Marks as may be necessary or advisable under the laws of the Territory.

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4.3 Quality Control .

a. Quality Control Obligation . SHAS acknowledges that the reputation of Sears is based on the sale of high quality products and services offered under the Marks. SHAS shall only use the Marks in connection with high-quality HTS Products and Services. The Products (as defined in the Merchandising Agreement) shall be deemed to meet the standards prescribed in the preceding sentence. SHAS shall cooperate and comply in good faith with all commercially reasonable quality control measures undertaken by or at the request of Sears in order to preserve or protect the integrity of the Marks. Sears recognizes that SHAS has used the Marks for many years in connection with the operation of the Stores and the Websites and during that period has used the Marks in connection with HTS Products and Services found to be of acceptable quality. Sears further recognizes that SHAS has in place, SHAS shall maintain throughout the Term, an effective system for evaluating, monitoring and ensuring continuing quality of the HTS Products and Services and for evaluating and monitoring the Franchisees.

b. Notice of Non-Compliance . If Sears determines that SHAS, or any of its Franchisees, is not in compliance with this Section 4.3, Sears may notify SHAS of such non-compliance (“ Notice of Non-Compliance ”). A Notice of Non-Compliance from Sears shall be in writing and shall set forth with sufficient particularity a description of the nature of the non-compliance and any requested action for curing such non-compliance. Additionally, SHAS shall promptly notify Sears of any non-compliance on the part of SHAS or any of its Franchisees. Upon SHAS’s receipt of a Notice of Non-Compliance, or Sears’ receipt of a voluntary notice of non-compliance, SHAS shall promptly correct the issues identified in such notice (“ Quality Issues ”), by enacting the cure mechanisms contained in Sections 4.3b.(i) through 4.3b.(iv).

(i) Cure Plan . SHAS shall use reasonable efforts to cure or otherwise resolve all Quality Issues as soon as possible. In the event that the Quality Issues identified in a Notice of Non-Compliance cannot be cured or otherwise resolved with thirty (30) days from receipt of such notice, SHAS shall submit to Sears a written plan to correct such Quality Issues (“ Cure Plan ”) within sixty (60) days after receipt of such Notice of Non-Compliance. For Quality Issues identified by SHAS in a voluntary notice of non-compliance, such Cure Plan shall accompany SHAS’s notice.

(ii) Cure Plan Approval . After SHAS submits its Cure Plan to Sears, the parties shall appoint a representative to promptly review and discuss in good faith the proposed Cure Plan.

(iii) Initial Cure Period . Once Sears, in its sole but good faith discretion, has approved the Cure Plan (“ Cure Plan Approval ”), SHAS shall have a 120 day cure period, or a longer period as approved by Sears on a case-by-case basis in its sole but good faith discretion (“ Initial Cure Period ”) from Cure Plan Approval to correct the Quality Issues.

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Period, Sears and SHAS shall each appoint a representative to promptly negotiate in good faith additional or other cure plans (“ Additional Cure Plan ”) for a different or additional cure period (“ Additional Cure Period ”) that may be reasonably necessary to correct such Quality Issues. If the parties are unable to agree on an Additional Cure Plan or Additional Cure Period, Sears shall, in its sole but good faith discretion, determine such Additional Cure Plan or Additional Cure Period.

(v) Effect of Non-Compliance . If the Quality Issues have not been cured to Sears’ satisfaction or the Quality Issues remain otherwise uncured after the time period provided for in the Initial Cure Period and any Additional Cure Period(s), such Quality Issues shall be deemed uncured (“ Uncured Quality Issues ”). In that case, SHAS shall cease use of the Marks on or in connection with the HTS Products, Services or activities that are the subject of the Uncured Quality Issues as soon as reasonably practicable but in no event later than six (6) months after such Quality Issues are determined to be Uncured Quality Issues with regard to use for marketing materials and one (1) year with regard to all use on SHAS’s HTS Products or Services.

4.4 Avoidance of Adverse Actions . SHAS shall refrain from taking any action that would jeopardize or impair the ownership, legality and/or enforceability of any of the Marks. In addition, SHAS shall not use, advertise, promote, or register any trademark, service mark, trade name or domain name that is confusingly similar to any of the Marks or any contraction or abbreviation thereof.

4.5 Infringement . SHAS shall notify Sears, within ten (10) days after SHAS becomes aware thereof, of: (a) any use or registration of any word or phrase, symbol, logo or design, or any combination of any of the foregoing that might constitute infringement of any of the Marks, (b) any claim of any rights in any Mark or in any confusingly similar trademark or service mark, and (c) any action, publication or statement that might be adverse or detrimental to Sears’ or Sears Brands’ rights in the Marks or that might dilute or impair the value of any of the Marks. Sears and/or Sears Brands shall have the exclusive right to bring or defend all actions or proceedings relating to the Marks, and SHAS shall cooperate fully with Sears and Sears Brands in the prosecution or defense of such actions. Neither Sears nor Sears Brands shall have any obligation to bring any action relating to the Marks, and failure by Sears and/or Sears Brands to bring any action relating to the Marks shall not be construed as a breach of this Agreement or waiver of any right reserved by Sears or Sears Brands. SHAS shall execute all documents, testify truthfully and provide evidence in connection with any action or proceeding relating to the Marks as may be reasonably required by Sears or Sears Brands.

4.6 Change in Scope . SHAS may request in writing an expansion of the scope of the licenses granted under this Agreement to include new trademarks, service marks or other proprietary designations; new products or services; new retail formats or business models; and/or new jurisdictions. Sears may approve or reject such expansion request in its sole discretion. If Sears approves such expansion request, Sears reserves the right to charge a royalty for the expanded rights.

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4.7 Co-Branding . SHAS shall not co-brand the Marks with any other third party trademark or service mark without Sears’ prior written consent.

ARTICLE V

DEFENSE AND INDEMNIFICATION

5.1 Defense and Indemnification by SHAS .

SHAS shall defend, indemnify and hold harmless Sears and Sears Brands and their respective directors, officers, employees, Affiliates, agents and contractors from and against any and all alleged and actual claims, liabilities, damages, penalties, losses, actions, lawsuits, proceedings, costs or expenses (including, but not limited to court costs and attorneys’ fees), (collectively “ Claims ”), even though such Claims may be false, fraudulent or groundless, arising out of or in connection with any death of or injury to any person, damage to any property, or any loss suffered by a third party which results or is claimed to have resulted, in whole or in part, from:

a. the operation of the Stores, including but not limited to merchandise sold, work done, services rendered, products used therein and condition of Store premises, equipment and/or vehicles;

b. any other act or omission of SHAS, SHAS’s Affiliates, Franchisees and the Personnel of each of them in connection with performance under this Agreement, including, but not limited to the advertising, storage, shipment, transport, delivery, installation, adaptation, conversion, warranty, repair or servicing of any HTS Product;

c. any violation by SHAS (or its Affiliates and Franchisees, or the Personnel of each of them) of any Anti-Corruption Law;

e. latent or patent defect in any HTS Product not purchased by SHAS from Sears or its Affiliates;

g. SHAS’s use of any Mark other than in accordance with the terms of this Agreement; and

h. any lack of validity or enforceability of this Agreement caused by SHAS.

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SHAS shall use counsel satisfactory to Sears and Sears Brands in the defense of any such claims, and in the event of any actual or potential conflict of interest between Sears and SHAS in the defense of any such claim, Sears may engage its own counsel at SHAS’s expense. SHAS shall not enter into any settlement with respect to any such claims without the prior written consent of Sears and without obtaining a release of all claims against Sears and Sears in a form approved in writing by Sears. This Section 5.1 shall survive any termination or expiration of this Agreement. The parties acknowledge all indemnification obligations for Claims relating to HTS Products purchased by SHAS from Sears or its Affiliates are governed by Section 14 of the Merchandising Agreement.

5.2 Defense and Indemnification by Sears . Sears shall defend, indemnify and hold harmless SHAS and its respective directors, officers, employees, Affiliates, agents and contractors from and against any and all Claims arising out of any death of or injury to any person, damage to any property, or loss suffered which results or is claimed to have resulted, in whole or in part, from:

a. claims by third parties that SHAS’s use of the Marks in accordance with this Agreement constitutes trademark, service mark or trade dress infringement, dilution, unfair competition, misappropriation or false/misleading advertising;

b. any third party claims as to the lack of validity or enforceability of (i) the registrations of the Marks or (ii) Sears’ or its Affiliates’ ownership rights in the Marks; and

c. any lack of validity or enforceability of this Agreement caused by Sears.

SHAS shall not, however, be entitled to recover for SHAS’s own lost profits. This Section 5.2 shall survive any termination or expiration of this Agreement.

ARTICLE VI

RECORDKEEPING; INSPECTION AND AUDIT RIGHTS

6.1 Records . SHAS shall maintain and preserve, at SHAS’s sole expense, full, complete and accurate books, records and accounts for a period of two (2) years after the date of their preparation or such longer period as may be required by the Operating Standards or any applicable law in the Territory. Such records may be compiled on computer discs and shall include but are not necessarily limited to: copies of all Authorizing Agreements and Franchisee lists, employee records, sales, invoices, cash receipts, service records, purchase records, accounts payable, cash disbursement records, inventory records, general ledgers, itemized bank deposit slips and bank statements, corporate records (include minute books), copies of sales tax returns and copies of SHAS’s income tax returns, records relating to Anti-Corruption Law compliance.

6.2 Inspection and Audit Rights . To determine whether SHAS is complying with this Agreement Sears (or any party designated by Sears) shall have the right at any reasonable time and with at least twenty (20) days prior notice to SHAS to: (a) inspect the Stores, including areas

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beyond the sales floor, and any locations where any Services are offered or performed; (b) inspect all HTS Products offered by SHAS not purchased from Sears or its Affiliates; (c) observe SHAS’s sales practices and SHAS’s employees or agents in the performance of their duties; and (d) inspect all of SHAS’s books and records. Upon at least twenty (20) days prior notice to SHAS, Sears (or a party designated by Sears) shall have the right to inspect, audit and copy any or all of the records described in Section 6.1 above. SHAS shall cooperate fully in any such inspection or audit.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

7.1 SHAS Representations and Warranties . SHAS represents and warrants to Sears that:

a. Company Status . SHAS is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary power and authority to enter into and perform its obligations under this Agreement, to carry on its business and to own and lease properties as required for SHAS’s full performance under this Agreement.

b. Authorization of Signatory . The person executing this Agreement on behalf of SHAS has been duly authorized to perform such actions on behalf of SHAS.

c. No Violations . The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein: (a) will not violate SHAS’s Certificate of Organization, Limited Liability Company Agreement or any other charter document of SHAS; (b) will not constitute or create a violation of or default under, or result in the creation or imposition of any lien, security interest or encumbrance under, any contract, agreement, loan, note, mortgage, security agreement, deed to secure debt, guaranty, lease (capital or operating) or any other document, instrument or arrangement; and (c) will not violate or contravene any judicial or administrative decree, rule or order to which SHAS is a party or by which SHAS or any of their respective properties or businesses may be bound.

d. No Adverse Proceedings . There is no arbitration, litigation, administrative proceeding, proposed legislation, government investigation or any other suit, action or proceeding pending against SHAS as of the Effective Date that would adversely affect the ability of SHAS to enter into or perform their obligations under this Agreement or would have a material adverse effect on the business, prospects, finances or reputation of SHAS, if determined adversely to any of them. Further, neither SHAS is the subject of any pending bankruptcy, insolvency, receivership or similar proceeding, nor is it a party to, subject to, or in default in any material respect under, any writ, injunction, decree judgment, award, determination, directive or demand of any arbitrator, court or governmental agency or instrumentality.

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e. No Defaults . SHAS is not in default under any deed of trust, mortgage, lease, security agreement, note, preferred stock, bond, indenture, guaranty or other instrument or security issued by SHAS.

f. Accuracy of Information . All information provided by SHAS in connection with this Agreement is true, correct and complete.

7.2 Sears Representations and Warranties . Sears represents and warrants to SHAS that:

b. Authorization of Signatory . The person executing this Agreement on behalf of Sears has been duly authorized to perform such actions on behalf of Sears.

d. No Adverse Proceedings . There is no arbitration, litigation, administrative proceeding, proposed legislation, government investigation or any other suit, action or proceeding pending against Sears as of the Effective Date that would adversely affect the ability of Sears to enter into or perform their obligations under this Agreement or would have a material adverse effect on the business, prospects, finances or reputation of Sears, if determined adversely to any of them. Further, neither Sears is the subject of any pending bankruptcy, insolvency, receivership or similar proceeding, nor is it a party to, subject to, or in default in any material respect under, any writ, injunction, decree judgment, award, determination, directive or demand of any arbitrator, court or governmental agency or instrumentality.

f. Accuracy of Information . All information provided by Sears in connection with this Agreement is true, correct and complete.

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ARTICLE VIII

NO IMPLIED WARRANTIES; LIMITATION OF LIABILITY

8.2 Limitation of Liability . Sears shall not be liable to SHAS or its Affiliates, directors, officers, customers or employees for any indirect, special, consequential, incidental, or punitive damages, losses, or expenses (including, without limitation, lost or anticipated revenues, profits, or savings relating to the same) arising from any claim relating directly or indirectly to this Agreement, whether a claim for such damages is based on warranty, contract, tort (including, without limitation, negligence or strict liability), even if an authorized representative of Sears has been advised of the likelihood or possibility of the same.

ARTICLE IX

TERMINATION

9.1 Termination upon Cessation of Use . Sears may terminate this Agreement effectively immediately upon 10-days’ advance written notice to SHAS if SHO for 12 consecutive months has operated, or has authorized its dealers and Franchisees to operate, any retail store or store-within-a-store using a store name other than a Store Name.

9.2 Termination for Breach .

a. Subject to the next sentence, (a) Sears or SHAS may terminate this Agreement in the event of a material breach of this Agreement by the other Party if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within 30 days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Party’s delivery of notice to the breaching Party.

b. Sears may terminate this Agreement effective immediately upon 10-days’ advance written notice to SHAS if a Stockholding Change occurs.

9.3 Termination in Response to Termination of Other Separation Agreements . Sears or SHAS may terminate this Agreement (whichever party is entitled to terminate, the “ Terminating Party ”) effective immediately upon 30-days’ advance written notice to the other party if (a) the Terminating Party or any of its Affiliates terminates the Separation Agreement as a result of a material breach of, or a material default by, the other party or its Affiliates of their

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obligations in the Separation Agreement, (b) the Terminating Party or any of its Affiliates terminates any of the License Agreements in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the License Agreement, (c) the Terminating Party or any of its Affiliates terminates the Merchandising Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Merchandising Agreement, or (d) the Terminating Party or any of its Affiliates terminates the Shop Your Way Rewards Retail Establishment Agreement dated August 8, 2012 between SHO and Sears Holdings Management Corporation (the “ SYW Agreement ”) in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the SYW Agreement.

9.5 Consequences of Termination . Upon any expiration or termination of this Agreement for any reason whatsoever, the following provisions shall apply:

a. Termination of License . The licenses granted under Sections 1.1, 1.2 and 1.3 shall immediately and automatically terminate and SHAS shall cease using the Store Name, all other Marks and all Confidential Information of Sears immediately upon such termination or expiration, except as otherwise expressly authorized under this Section 9.3 or by Sears in writing. SHAS shall take all necessary action to change the Store Names and its fictitious business name and/or registered trade name to omit the SEARS Service Mark and all other words that may be confusingly similar to the SEARS Service Mark or any other Mark. SHAS shall return to Sears immediately upon such termination or expiration the Operating Standards document and all copies thereof together with all documentation prepared by or on behalf of SHAS that is derived from or based on such documents or any other Confidential Information of Sears. Within sixty (60) days after the date of any termination or expiration of this Agreement, SHAS shall furnish Sears with evidence reasonably satisfactory to Sears demonstrating SHAS’s compliance with the foregoing obligations.

b. Representation . After the date of such expiration or termination, SHAS shall not represent or hold itself out as a retailer authorized by Sears or one of its Affiliates or otherwise engage in any practices which might make it appear that SHAS is still authorized to operate any Store or use any Mark.

c. No Compensation . SHAS acknowledges and agrees that no indemnities or compensation of any kind shall be due to SHAS as a result of the termination or expiration of this Agreement. In particular, SHAS waives any claim it may have or acquire against Sears for any expenses incurred by it in preparing for and pursuing its operation of the Stores, including but not limited to the engagement of any employees or contractors; the rental, purchase, furnishing or remodeling of any facilities; the rental, purchase or other acquisition of equipment; and the development, purchase and/or dissemination of any advertisements or promotional materials.

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d. Liability for Pre-Termination Actions . Nothing herein shall be construed to relieve SHAS of any obligation with respect to HTS Products purchased, liabilities incurred or other activities undertaken in connection with the Stores prior to the date of such expiration or termination, including but not limited to SHAS’s defense and indemnity obligations, and such obligations shall survive any such termination or expiration.

e. Consent to Termination Provisions. Both parties expressly and unconditionally agree that each and every cause of termination under this Agreement is contracted to freely and constitute a breach of the essential obligations of this Agreement by the party in breach.

ARTICLE X

RELATIONSHIP; ASSIGNABILITY

10.1 Relationship . Sears and SHAS are acting as independent contractors under this Agreement, and SHAS is not an employee or agent of Sears. Nothing herein is intended to make either party a general or special agent, legal representative, subsidiary, joint venturer, partner, franchiser or franchisee, fiduciary, employee or servant of the other for any purpose. SHAS is not authorized or empowered (i) to act as an agent for Sears; (ii) to enter into agreements, transact business or incur obligations for or on behalf of Sears; (iii) to accept legal service of process for or on behalf of Sears; or (iv) to bind Sears in any manner whatsoever. SHAS shall not do or omit to do anything that might imply or indicate that SHAS is an agent, representative, branch, division, or Affiliate of Sears or that Sears or its Affiliates in any manner either directly or indirectly, own, control or operate any of the Stores or the Websites or are in any way responsible for SHAS’s acts or obligations.

10.2 Assignability . SHAS acknowledges that its rights and duties under this Agreement are personal and that Sears has entered into this Agreement and granted the license in reliance upon Sears’ perceptions of the character, business skill, aptitude and financial capacity of SHAS. Accordingly, SHAS shall not assign its rights or duties under this Agreement without Sears’ prior written consent.

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other retailer that competes in any material respect with Sears’ major home appliance business or Sears’ power lawn and garden business, and the Sears Competitor Affiliates of each of them. “ Sears Competitor Affiliates ” means each individual or entity that directly or indirectly, and by whatever means, controls, is under common control with, or is controlled by, a Sears Competitor.

ARTICLE XI

LICENSE OPERATING COMMITTEE; DISPUTE RESOLUTION

11.1 License Operating Committee . Subject to the last sentence of this Section 11.1, Sears and SHAS will form a committee (the “ License Operating Committee ”) that will address all day-to-day operational and other issues that may arise with respect to this Agreement and all Disputes (as defined in Section 11.2 below). The License Operating Committee will discuss all of these issues and will attempt to resolve informally all Disputes in accordance with Section 11.2b. The License Operating Committee will consist of three employees of each party as designated by the party. The initial employee designees are listed on Appendix 11.1 . Each party may replace one or more of its designees at any time upon notice to the other Party. Each party will promptly fill all of its License Operating Committee vacancies as they arise by notice to the other party. Unless the members of the License Operating Committee unanimously agree otherwise, the License Operating Committee will meet at least once every calendar month during the Term on the dates determined by the members of the License Operating Committee. If the members of the Merchandise Operating Committee cannot agree on a date or a time for a particular monthly meeting the meeting will occur at 1:00 p.m. Central Time on the second Thursday of the month at the offices of SHC, 3333 Beverly Road, Hoffman Estates, IL 60179 B6-D. At all times one of the members of the License Operating Committee will serve as the License Operating Committee’s Chairperson. The Chairperson will rotate among the License Operating Committee members on a monthly basis. The initial Chairperson is listed on Appendix 11.1 and the other License Operating Committee members each will serve thereafter as Chairperson, on a monthly basis, rotating between Sears’ members and SHAS’s members. The Chairperson (i) will request that License Operating Committee members provide meeting agenda items and (ii) will distribute to members, at least two business days in advance of each License Operating Committee meeting, an agenda for the meeting. If in accordance with the Trademark License Agreement a “License Operating Committee” has been formed and is operating (the “ TLOC ”), then (a) Sears and SHAS will not be required to form the License Operating Committee in accordance with this Section 11.1 and (b) the TLOC will serve at the License Operating Committee for all purposes of this Agreement.

11.2 Dispute Resolution .

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Section 11. At the first monthly meeting of the License Operating Committee following the delivery of the Dispute Notice (the “ Dispute Resolution Meeting ”) the License Operating Committee will attempt to resolve all of the Disputes that are the subject of the Dispute Notice. Each party will cause its designees on the License Operating Committee to negotiate in good faith to resolve all Disputes in a timely manner. If by the 10 ^th calendar day following the Dispute Resolution Meeting the License Operating Committee has not resolved all of the Disputes (the “ Resolution Failure Date ”) the parties will proceed to mediate the unresolved Disputes (“ Unresolved Disputes ”) in accordance with Section 11.2c.

b. Dispute Defined . Subject to the next sentence, “ Dispute ” means each claim, controversy, dispute, and disagreement between (i) on the one hand, SHAS or any of its Affiliates, or any of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, and (ii) on the other hand, Sears or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a party’s performance, or failure to perform, one or more of its obligations in this Agreement. Disputes do not include claims, controversies, disputes or disagreements with respect to compliance with Article IV or payment obligations with respect to amounts due in accordance with the terms and conditions of this Agreement that are not reasonably in dispute.

c. Mediation of Unresolved Disputes . Sears and SHAS will in good faith attempt to resolve all Unresolved Disputes by non-binding mediation. Sears and SHAS will negotiate in good faith to determine the mediator, the mediator’s compensation and related costs, and the applicable rules for the mediation. If by the 15 ^th day following the Resolution Failure Date Sears and SHAS have been unable to settle an Unresolved Dispute the obligations of Sears and SHAS in this Section 11 will end with respect to the Unresolved Dispute.

ARTICLE XII

GENERAL PROVISIONS

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efforts to have the Franchisees or anyone else with whom a party works to achieve the purposes of this Agreement sign a confidentiality agreement containing restrictions on the use and disclosure of such Confidential Information no less restrictive than those contained herein, (iii) except as provided in this Agreement or as required by law or court order, not disclose to third parties or copy any Confidential Information or allow any third party access to such Confidential Information without first obtaining the disclosing party’s written consent, and (iv) not use, or permit others to use, any Confidential information disclosed to it except for the purposes set forth herein.

SHAS shall not, without the prior written permission of Sears, which permission shall be given, if at all, in Sears’ sole discretion (i) directly or indirectly utilize Confidential Information in its own business, (ii) manufacture and/or sell any product that is based in whole or in part on such Confidential Information, or (iii) disclose such Confidential Information to any third party.

SHAS shall cause each of the Franchisees to agree in writing to be bound by the provisions of this Section 12.1a.

12.2 Force Majeure . Neither party hereto shall be liable for any failure, inability, or delay of performance under this Agreement if such failure, inability or delay results directly from the acts of any government (including its laws, rules, orders, ordinances, and regulations), currency and/or exchange controls, accidents, fires, insurrection, wars, strikes, floods, winds, or other natural disasters, sabotage, breakdown of machinery, failure in sources of supply, or any other cause beyond the reasonable control of such party.

12.4 Entire Agreement . This Agreement, together with all Exhibits hereto (which are incorporated herein by this reference), is intended as the complete, final and exclusive statement of the terms of this Agreement between SHAS and Sears with regard to the subject matter hereof, and supersedes all prior oral and written agreements, understandings, commitments, negotiations and practices between the parties relating to such subject matter. Nothing in this Agreement is intended, nor shall be deemed, to confer any rights or remedies upon any person or entity not a party to this Agreement.

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12.9 Survivability . Each term of this Agreement that would, by its nature, survive the termination or expiration of this Agreement will so survive, including the obligation of either Party to pay all amounts accrued hereunder and including Article V (Defense and Indemnification), Section 6.1(Records), Article VIII (No Implied Warranties; Limitation of Liability), Article IX (Termination), and Section 12.1 (Confidential Information).

Sears shall be addressed at :

Sears, Roebuck and Co.

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attn: SVP and President, Marketing

Facsimile: (847) 286-2735

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With a copy to :

Sears Holdings Management Corporation

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attn: General Counsel

Facsimile: (847) 286-2471

SHAS shall be addressed at :

Sears Home Appliance Showooms, LLC

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attn.: President

Facsimile: (847) 286-7197

12.12 Good Faith and Fair Dealing . SHAS and Sears each shall exercise Good Faith in the performance of its obligations in this Agreement. “ Good Faith ” means honesty in fact and the observance of reasonable commercial standards of fair dealing in accordance with Applicable Law.

12.13 Condition Precedent to the Effectiveness of this Agreement . This Agreement shall not become effective until it has been approved by the Audit Committee of the Board of Directors of SHC.

12.14 Governing Law; Jurisdiction; Waiver of Jury Trial .

(a) Governing Law . This Agreement shall be construed in accordance with, and governed by, the federal laws of the United States, including but not limited to the Lanham Act, and the internal laws of the State of Illinois other than its conflict of laws principles and the Illinois Franchise Disclosure Act. This Agreement shall not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.

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(b) Jurisdiction . Each of the Parties submits, for itself and its property, to the exclusive jurisdiction of all Illinois state courts and federal courts of the United States of America sitting in Cook County, Illinois, and all appellate courts to each thereof, in all actions and proceedings arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of all judgments relating thereto, and each of the Parties (i) shall commence all such actions and proceedings only in such courts, (ii) shall cause all claims in respect of all such actions and proceedings to be heard and determined in such Illinois state court or, to the extent permitted by law, in such federal court, (iii) waives, to the fullest extent it may legally and effectively do so, all objections that it may now or hereafter have to the laying of venue of all such actions and proceedings in any such Illinois state or federal court, and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such actions and proceedings in all such Illinois state and federal courts. A final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 12.10. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by law.

(c) Waiver of Jury Trial . Each Party acknowledges that each controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, it irrevocably and unconditionally waives all rights it may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party certifies and acknowledges that (i) it understands and has considered the implications of such waivers, (ii) it makes such waivers voluntarily, and (iii) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 12.14.

[signature page follows]

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SEARS, ROEBUCK AND CO. By Sears Holdings Management Corporation, its Agent		SEARS HOME APPLIANCE SHOWROOMS, LLC

By:	/s/ William Phelan	By:	/s/ W. Bruce Johnson
William Phelan		W. Bruce Johnson
Senior Vice President-Finance		President

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EXHIBIT A

TO LICENSE AGREEMENT

STORE NAMES


Country	Mark	Status	Reg./App. No.	Reg./App. Date	Goods / Services
United States	SEARS HOME APPLIANCE SHOWROOM	Registered	3,795,495	6/1/2010	Retail store services and online retail store services featuring appliances; retail department store services

United States	SEARS HOME APPLIANCE SHOWROOM	Registered	3,911,703	1/25/2011	Franchising services, namely, offering technical assistance in the establishment and/or operation of retail appliance stores; franchising, namely, consultation and assistance in business management, organization and promotion

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EXHIBIT B

TO LICENSE AGREEMENT

ADDITIONAL SEARS MARKS


Country	Mark	Status	Reg./App. No.	Reg./App. Date	Goods / Services
United States	PRICE MATCH PLUS	N/A	N/A	N/A	Price match policy

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EXHIBIT C

TO LICENSE AGREEMENT

DOMAIN NAMES

www.searshomeapplianceshowroom.com

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EXHIBIT D

TO LICENSE AGREEMENT

TERRITORY

50 United States, its territories and possessions, including Puerto Rico

Bermuda

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APPENDIX 1.1

TO LICENSE AGREEMENT

EFFECTIVE DATE

The Effective Date referred to in Section 1.1 is September , 2012.

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APPENDIX 11.1

TO LICENSE AGREEMENT

LICENSE OPERATING COMMITTEE

SHAS

Keri Durkin

Brandon Gartman

Guy Reda

Sears

Allyson Olsen

Paul Palich

Roger Teal

Initial Chairperson: Allyson Olsen

Exhibit 10.4

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STORE LICENSE AGREEMENT

August 8, 2012

This STORE LICENSE AGREEMENT (“ Agreement ”) is between SEARS ROEBUCK AND CO. , a New York corporation (“ Sears ”), and SEARS OUTLET STORES, L.L.C. , a Delaware limited liability company (“ Outlet Stores ”).

RECITALS

C. SBBUC has granted Sears an exclusive license to use (and to further sublicense the use of) the Marks (as defined in Section 4.1 below) throughout the world, excluding Canada;

D. Sears and Outlet Stores are parties to the Merchandising Agreement dated as of the Effective Date among (1) Sears, Kmart Corporation, Sears Holdings Corporation (“ SHC ”) and (2) Sears Hometown and Outlet Stores, Inc. (“ SHO ”), Sears Authorized Hometown Stores, LLC and Outlet Stores (the “ Merchandising Agreement ”); and

E. Outlet Stores desires to obtain a license to operate stores offering certain consumer products in the Territory under the Store Names and to use the Store Names in connection with the operation of such stores, and Sears desires to grant to Outlet Stores such license, subject to the terms of this Agreement.

NOW THEREFORE , in consideration of the mutual covenants in this Agreement, Sears and Outlet Stores agree as follows:

ARTICLE I

LICENSE AND SCOPE

1.1 Duration . The term of this Agreement will begin immediately following the “Rights Closing Effective Time” specified in the Separation Agreement (the “ Separation Agreement ”) to be executed and delivered by SHO and Sears Holdings Corporation (the date on which the Rights Closing Effective Time occurs, the “ Effective Date ”) and will end, unless terminated earlier, at 5:00 p.m. (Central Time) on the 17 ^th anniversary of the Effective Date (the “ Term ”). The calendar day that becomes the Effective Date will be inserted on Appendix 1.1 after the Effective Date has occurred.

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1.2 Grant of License in the Store Names . Subject to all the terms and conditions of this Agreement, Sears hereby grants to Outlet Stores, for and during the Term, an exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to operate retail stores and stores-within-a-store using the Store Names at locations in the Territory (the “ Stores ”) through which all HTS Products and the related services offered by, or with authorization from, Outlet Stores as of the Effective Date (the “ Services ”) will be offered and sold. Sears also grants to Outlet Stores an exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to use the Stores Names to promote the Outlet Products and Services by all Digital Methods. Sears grants Outlet Stores the right to use the Store Names to sell the Seller-Branded Products (as defined in the Merchandising Agreement) by all Seller Digital Methods. Subject to the next sentence, Sears may terminate Outlet Stores’s rights in this Section 1.2 to sell by Seller Digital Methods upon 24-months’ prior written notice. Upon termination in accordance with the preceding sentence of Outlet Stores’s rights to sell by Seller Digital Methods, Sears will grant Outlet Stores a license to allow Outlet Stores to (a) market all Seller-Branded Products by all then-current and future means, methods, and channels outside of the Territory if such marketing would not violate any Existing Contractual Obligation in effect immediately prior to the date of such license, and (b) sell all Seller-Branded Products by all Digital Methods in the Territory and all Seller-Branded Product outside of the Territory if the sale would not violate any Existing Contractual Obligation in effect immediately prior to the date of such license. The license described in the preceding sentence will include terms that are usual and customary for licenses of this type for comparable circumstances and a duration that is the same as the remaining duration of the last of the License Agreements to terminate in accordance with its terms. “ License Agreements ” means the following, each dated August 8, 2012: the Store License Agreement between Sears Authorized Hometown Stores, LLC and Sears; the Store License Agreement between Sears Home Appliance Showrooms, LLC and Sears; and the Trademark License Agreement between SHO and Sears (the “ Trademark License Agreement ”). “ Digital Methods ,” “ Existing Contractual Obligation ,” “ Outlet Products ,” “ Seller-Branded Products, ” and “ Seller Digital Methods ” each is defined in the Merchandising Agreement.

1.3 Grant of License in the Additional Sears Marks . Subject to all the terms and conditions of this Agreement, Sears hereby grants to Outlet Stores, for and during the Term, a non-exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to use the Additional Sears Marks solely within the Territory in connection with the marketing, offering and performance of Services provided under the Additional Sears Marks.

1.4 Grant of License in the Domain Names . Subject to all the terms and conditions of this Agreement, Sears hereby grants to Outlet Stores, for and during the Term, an exclusive, royalty-free, fully paid up, non-transferable and terminable right and license to use the Domain Names on the websites identified by the Domain Names (the “ Websites ”) and in connection with promotion of the Stores, the marketing and sale of the Seller-Branded Products, and the marketing and sale of the Services.

1.5 Further Sublicense . Outlet Stores shall not sublicense any of the rights granted in this Agreement without Sears’ prior written consent, which Sears may withhold in its sole discretion.

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1.6 Outlet Stores Non-Competition . Neither Outlet Stores nor any Affiliate of Outlet Stores shall engage, assist, own any beneficial interest, or otherwise participate, in any direct or indirect capacity, in any development, ownership, operation, leasing, joint venture, licensing, sponsorship, financing, consultation or similar relationship with respect to any Sears Competitor (as defined in Section 10.3 below). “ Affiliate ” shall mean any entity that, at the applicable time, directly or indirectly controls, is controlled with or by or is under common control with, a party. Notwithstanding the foregoing, only subsidiaries of Sears Holdings Corporation will be deemed to be Affiliates of Sears for purposes of this Agreement and only subsidiaries of Sears Hometown and Outlet Stores, Inc. will be deemed to be Affiliates of Outlet Stores for purposes of this Agreement. Outlet Stores shall not perform any act that would be materially adverse to Sears’ legitimate business interests as reflected in this Agreement.

1.7 Restrictions on Sales . Outlet Stores acknowledges that it is bound by the terms and conditions of Section 12(a)(iii)(B) of the Merchandising Agreement.

1.8 Sears Non-Competition . Sears acknowledges that it is bound by the terms and conditions of Section 9(c) of the Merchandising Agreement.

ARTICLE II

CERTAIN OBLIGATIONS OF OUTLET STORES

2.1 Site Selection . Outlet Stores shall be responsible for the selection of suitable sites for the Stores.

2.2 Promotion and Goodwill; Standards of Conduct . Outlet Stores shall use its best efforts to promote the Stores, the Websites, the Outlet Products and the Services in the Territory and to promote and maintain goodwill toward Sears, the Stores and the Websites. In all dealings with customers, prospective customers, suppliers and the public, Outlet Stores shall adhere to the highest standards of honesty, integrity, fair dealing and ethical conduct.

2.3 Compliance with Law .

a. Anti-Corruption and Anti-Bribery . Outlet Stores acknowledges that The Foreign Corrupt Practices Act of 1977, 15 U.S.C. §§78dd-1, et. seq. (the “ FCPA ”) applies to Outlet Stores’ business relationship with Sears and that national or regional anti-corruption or anti-bribery laws may apply to either Outlet Stores or Outlet Stores’ business relationship with Sears (together with the FCPA, the “ Anti-Corruption Laws ”). Outlet Stores represents and warrants that (i) Outlet Stores and its Personnel do and shall comply with all applicable Anti-Corruption Laws; (ii) Outlet Stores has not conducted, and shall not conduct, business with any individual or entity listed by the U.S. Government on any U.S. Government watch lists, including the U.S. Office of Foreign Assets Control security watch lists.; and (iii) all Personnel shall receive periodic training on compliance with the Anti-Corruption Laws. No later than January 1 ^st of each year and as otherwise requested by Company, Outlet Stores shall certify in a

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form satisfactory to Sears that this Section 2.4a remains true, accurate and correct. Outlet Stores shall fully cooperate with Sears in any ethics and compliance investigation, including any investigations related to the Anti-Corruption Laws, and with any governmental inquiry or investigation related to the Anti-Corruption Laws, and unless prohibited from doing so, will promptly notify Sears of any such investigation. “ Personnel ” means the officers, directors, employees, agents, suppliers, licensors, licensees, contractors, subcontractors, and other representatives, from time to time, of (i) the applicable entity, (ii) as to Sears, its Affiliates, and (iii) as to Outlet Stores, its Affiliates.

b. Outlet Stores shall comply with all applicable laws, regulations, standards and decrees of any governmental authorities in the Territory in connection with its performance under this Agreement, including but not limited to commercial electronic mail communication laws and export control and anti-boycott laws, and shall obtain all governmental approvals, permits, licenses and other authorizations necessary or appropriate for Outlet Stores to perform their obligations under this Agreement.

2.5 Expenses . Unless otherwise expressly provided in this Agreement, any and all expenses, costs and charges incurred by Outlet Stores in the performance of any of its obligations under this Agreement shall be borne and paid for by Outlet Stores, without any right of contribution or reimbursement from Sears.

ARTICLE III

STORE OPERATIONS AND PROMOTION

3.1 Store Names .

a. Use of Store Name . Outlet Stores shall operate the Stores only under the Store Name written in styles and typefaces and accompanied by logos and symbols only as specifically authorized by Sears in writing. Sears hereby approves the logos used by Outlet Stores as of the Effective Date. Outlet Stores shall use the full Store Name on all stationery, business cards, signage, sales receipts, vehicles for Store use, Store fronts, advertising and correspondence with or to customers and potential customers of the Store unless otherwise authorized by Sears in writing. Outlet Stores may use any of the Store Names (but not the SEARS Service Mark alone) as Outlet Stores’ company name or fictitious business name on checks, check blanks and bank accounts used solely for the operation of the Stores. Notwithstanding the foregoing, Outlet Stores may use the SEARS Service Mark alone (i.e., not as part of a Store Name) as an abbreviated version of the Store Name only on the primary signage-outside the Store and the inventory of in-store signage and point of purchase material in the possession of Outlet Stores on the Effective Date, provided, however, that Outlet Stores shall post signs as required by Section 3.1(b) below.

b. Additional Statement . All printed material bearing the Store Name and all printed advertising of the Stores or the Website shall also expressly state in the appropriate language: “Sears Outlet Stores are independently owned and operated under license from Sears, Roebuck and Co.” and “The SEARS mark is a service mark of Sears Brands, LLC.” In addition,

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Outlet Stores shall post a clear and conspicuous sign on the front of every Store stating in the appropriate language: “Sears Outlet Stores. Independently owned and operated by Sears Outlet Stores, L.L.C.”

3.2 Operating Standards . Outlet Stores shall comply with all commercially reasonable written operating policies and procedures provided by Sears or Sears Brands from time to time upon 60-days’ advance written notice to Outlet Stores (the “ Operating Standards ”). Outlet Stores acknowledges that any Operating Standards documents provided to Outlet Stores are to be used solely by Outlet Stores in performing the obligations under this Agreement.

3.3 Advertising . Outlet Stores shall be bound by the terms and conditions of Section 12(a)(iii)(E) of the Merchandising Agreement with respect to the Marks.

3.4 Electronic Mail Opt-Outs . With respect to its own email communications Outlet Stores will comply with the CAN-SPAM Act (the “ Act ”) as the Sender or Designated Sender (as defined in the Act and associated rules promulgated by FTC under the Act), to the exclusion of all others, which email communication will be distinguished from email communications from Sears and its Affiliates, as follows: (a) Outlet Stores will send its email communications a domain name that clearly indicates Outlet Stores or one of its Affiliates is the sender (such as searshometownandoutlet.com or searshomtownstores.com); (b) Outlet Stores will use SEARS HOMETOWN AND OUTLET STORES on the FROM line; (c) Outlet Stores will not use the Sears logo without including “Hometown Stores,” “Home Appliance Showroom,” or “Outlet” in Outlet Stores’s logos and branding; and (d) Outlet Stores will use in the footer of each email communication the following text for an unsubscribe link: “Click here to unsubscribe from receiving promotional email from Sears Hometown and Outlet Stores, Inc. (“Outlet Stores”). Please note that Outlet Stores is not associated with Sears, Roebuck and Co., Sears Holdings, or any of their subsidiaries.”

ARTICLE IV

MARKS

4.1 Ownership . Except as otherwise expressly provided in this Agreement, Sears Brands reserves all rights in and to: (a) the Store Name, (b) the SEARS Service Mark, (c) the Additional Sears Marks and (d) the Domain Names. The Store Name, SEARS Service Mark, Additional Sears Marks and the Domain Names are referred to collectively in this Agreement as the “ Marks .” Outlet Stores acknowledges that the goodwill associated with the Marks has inherent value. Any and all use of any Marks inures to the benefit of Sears Brands, and this Agreement does not confer on Outlet Stores any goodwill or ownership interests in any Marks. Outlet Stores shall have no rights in any of the Marks other than the limited right to use the Marks solely to market and sell the Outlet Products and Services in the Stores and through the Digital Methods in accordance with the terms of this Agreement.

4.2 Use of Marks . Outlet Stores shall comply at all times with any instructions provided in writing by Sears from time to time regarding use of any Store Name and all other

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Marks. Outlet Stores shall use the Marks only as expressly authorized in this Agreement and shall take all necessary steps to preserve the goodwill, prestige and reputation associated with the Marks. Outlet Stores acknowledges that Sears may, from time to time, issue additional guidelines or instructions regarding the use of the Marks, and Outlet Stores shall comply with any such guidelines and instructions. Outlet Stores further acknowledges that upon expiration or termination of this Agreement, no monetary value shall be attributable to any goodwill associated with the use of the Marks by Outlet Stores. Upon expiration or termination of this Agreement, Outlet Stores shall remove any Mark from any corporate, fictitious or trade name or from any prefix, suffix or other modifying trademarks, logos, words, terms, designs or symbols. Outlet Stores shall obtain such licenses, permits and authorizations relating to its use of the Marks as may be necessary or advisable under the laws of the Territory.

4.3 Quality Control .

a. Quality Control Obligation . Outlet Stores acknowledges that the reputation of Sears is based on the sale of high quality products and services offered under the Marks. Outlet Stores shall only use the Marks in connection with high-quality Outlet Products and Services. The Products (as defined in the Merchandising Agreement) shall be deemed to meet the standards prescribed in the preceding sentence. Outlet Stores shall cooperate and comply in good faith with all commercially reasonable quality control measures undertaken by or at the request of Sears in order to preserve or protect the integrity of the Marks. Sears recognizes that Outlet Stores has used the Marks for many years in connection with the operation of the Stores and the Websites and during that period has used the Marks in connection with Outlet Products and Services found to be of acceptable quality. Sears further recognizes that Outlet Stores has in place, Outlet Stores shall maintain throughout the Term, an effective system for evaluating, monitoring and ensuring continuing quality of the Outlet Products and Services.

b. Notice of Non-Compliance . If Sears determines that Outlet Stores is not in compliance with this Section 4.3, Sears may notify Outlet Stores of such non-compliance (“ Notice of Non-Compliance ”). A Notice of Non-Compliance from Sears shall be in writing and shall set forth with sufficient particularity a description of the nature of the non-compliance and any requested action for curing such non-compliance. Additionally, Outlet Stores shall promptly notify Sears of any non-compliance on the part of Outlet Stores. Upon Outlet Stores’ receipt of a Notice of Non-Compliance, or Sears’ receipt of a voluntary notice of non-compliance, Outlet Stores shall promptly correct the issues identified in such notice (“ Quality Issues ”), by enacting the cure mechanisms contained in Sections 4.3b.(i) through 4.3b.(iv).

(i) Cure Plan . Outlet Stores shall use reasonable efforts to cure or otherwise resolve all Quality Issues as soon as possible. In the event that the Quality Issues identified in a Notice of Non-Compliance cannot be cured or otherwise resolved with thirty (30) days from receipt of such notice, Outlet Stores shall submit to Sears a written plan to correct such Quality Issues (“ Cure Plan ”) within sixty (60) days after receipt of such Notice of Non-Compliance. For Quality Issues identified by Outlet Stores in a voluntary notice of non-compliance, such Cure Plan shall accompany Outlet Stores’ notice.

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(ii) Cure Plan Approval . After Outlet Stores submits its Cure Plan to Sears, the parties shall appoint a representative to promptly review and discuss in good faith the proposed Cure Plan.

(iii) Initial Cure Period . Once Sears, in its sole but good faith discretion, has approved the Cure Plan (“ Cure Plan Approval ”), Outlet Stores shall have a 120 day cure period, or a longer period as approved by Sears on a case-by-case basis in its sole but good faith discretion (“ Initial Cure Period ”) from Cure Plan Approval to correct the Quality Issues.

(iv) Additional Cure Period . If the Quality Issues are not capable of being cured, or the Cure Plan is not capable of being completely executed, within the Initial Cure Period or the quality Issues otherwise remain uncured after the expiration of the Initial Cure Period, Sears and Outlet Stores shall each appoint a representative to promptly negotiate in good faith additional or other cure plans (“ Additional Cure Plan ”) for a different or additional cure period (“ Additional Cure Period ”) that may be reasonably necessary to correct such Quality Issues. If the parties are unable to agree on an Additional Cure Plan or Additional Cure Period, Sears shall, in its sole but good faith discretion, determine such Additional Cure Plan or Additional Cure Period.

(v) Effect of Non-Compliance . If the Quality Issues have not been cured to Sears’ satisfaction or the Quality Issues remain otherwise uncured after the time period provided for in the Initial Cure Period and any Additional Cure Period(s), such Quality Issues shall be deemed uncured (“ Uncured Quality Issues ”). In that case, Outlet Stores shall cease use of the Marks on or in connection with the Outlet Products, Services or activities that are the subject of the Uncured Quality Issues as soon as reasonably practicable but in no event later than six (6) months after such Quality Issues are determined to be Uncured Quality Issues with regard to use for marketing materials and one (1) year with regard to all use on Outlet Products or Services.

4.4 Avoidance of Adverse Actions . Outlet Stores shall refrain from taking any action that would jeopardize or impair the ownership, legality and/or enforceability of any of the Marks. In addition, Outlet Stores shall not use, advertise, promote, or register any trademark, service mark, trade name or domain name that is confusingly similar to any of the Marks or any contraction or abbreviation thereof.

4.5 Infringement .

Outlet Stores shall notify Sears, within ten (10) days after Outlet Stores becomes aware thereof, of: (a) any use or registration of any word or phrase, symbol, logo or design, or any combination of any of the foregoing that might constitute infringement of any of the Marks, (b) any claim of any rights in any Mark or in any confusingly similar trademark or service mark, and (c) any action, publication or statement that might be adverse or detrimental to Sears’ or Sears Brands’ rights in the Marks or that might dilute or impair the value of any of the Marks. Sears and/or Sears Brands shall have the exclusive right to bring or defend all actions or proceedings relating to the Marks, and Outlet Stores shall cooperate fully with Sears and Sears Brands in the prosecution or defense of such actions. Neither Sears nor Sears Brands shall have any obligation

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to bring any action relating to the Marks, and failure by Sears and/or Sears Brands to bring any action relating to the Marks shall not be construed as a breach of this Agreement or waiver of any right reserved by Sears or Sears Brands. Outlet Stores shall execute all documents, testify truthfully and provide evidence in connection with any action or proceeding relating to the Marks as may be reasonably required by Sears or Sears Brands.

4.6 Change in Scope . Outlet Stores may request in writing an expansion of the scope of the licenses granted under this Agreement to include new trademarks, service marks or other proprietary designations; new products or services; new retail formats or business models; and/or new jurisdictions. Sears may approve or reject such expansion request in its sole discretion. If Sears approves such expansion request, Sears reserves the right to charge a royalty for the expanded rights.

4.7 Co-Branding . Outlet Stores shall not co-brand the Marks with any other third party trademark or service mark without Sears’ prior written consent.

ARTICLE V

DEFENSE AND INDEMNIFICATION

5.1 Defense and Indemnification by Outlet Stores . Outlet Stores shall defend, indemnify and hold harmless Sears and Sears Brands and their respective directors, officers, employees, Affiliates, agents and contractors from and against any and all alleged and actual claims, liabilities, damages, penalties, losses, actions, lawsuits, proceedings, costs or expenses (including, but not limited to court costs and attorneys’ fees), (collectively “ Claims ”), even though such Claims may be false, fraudulent or groundless, arising out of or in connection with any death of or injury to any person, damage to any property, or any loss suffered by a third party which results or is claimed to have resulted, in whole or in part, from:

a. the operation of the Stores, including but not limited to merchandise sold, work done, services rendered, products used therein and condition of Store premises, equipment and/or vehicles;

b. any other act or omission of Outlet Stores, its Affiliates and the Personnel of each of them in connection with performance under this Agreement, including, but not limited to the advertising, storage, shipment, transport, delivery, installation, adaptation, conversion, warranty, repair or servicing of any Outlet Product;

c. any violation by Outlet Stores (or its Affiliates or the Personnel of each of them) of any Anti-Corruption Law;

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e. latent or patent defect in any Outlet Product not purchased by Outlet Stores from Sears or its Affiliates;

f. any actual or alleged failure of the Stores, the Websites or any of the Outlet Products not purchased from Sears or its Affiliates to comply with any law, statute, ordinance, administrative order, rule, or regulation in force in the Territory;

g. Outlet Stores’ use of any Mark other than in accordance with the terms of this Agreement; and

h. any lack of validity or enforceability of this Agreement caused by Outlet Stores.

Outlet Stores shall use counsel satisfactory to Sears and Sears Brands in the defense of any such claims, and in the event of any actual or potential conflict of interest between Sears and Outlet Stores in the defense of any such claim, Sears may engage its own counsel at Outlet Stores’ expense. Outlet Stores shall not enter into any settlement with respect to any such claims without the prior written consent of Sears and without obtaining a release of all claims against Sears and Sears in a form approved in writing by Sears. This Section 5.1 shall survive any termination or expiration of this Agreement. The parties acknowledge all indemnification obligations for Claims relating to Outlet Products purchased by Outlet Stores from Sears or its Affiliates are governed by Section 14 of the Merchandising Agreement.

5.2 Defense and Indemnification by Sears . Sears shall defend, indemnify and hold harmless Outlet Stores and its respective directors, officers, employees, Affiliates, agents and contractors from and against any and all Claims arising out of any death of or injury to any person, damage to any property, or loss suffered which results or is claimed to have resulted, in whole or in part, from:

a. claims by third parties that Outlet Stores’ use of the Marks in accordance with this Agreement constitutes trademark, service mark or trade dress infringement, dilution, unfair competition, misappropriation or false/misleading advertising;

b. any third party claims as to the lack of validity or enforceability of (i) the registrations of the Marks or (ii) Sears’ or its Affiliates’ ownership rights in the Marks; and

c. any lack of validity or enforceability of this Agreement caused by Sears.

Outlet Stores shall not, however, be entitled to recover for Outlet Stores’ own lost profits. This Section 5.2 shall survive any termination or expiration of this Agreement.

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ARTICLE VI

RECORDKEEPING; INSPECTION AND AUDIT RIGHTS

6.1 Records . Outlet Stores shall maintain and preserve, at Outlet Stores’ sole expense, full, complete and accurate books, records and accounts for a period of two (2) years after the date of their preparation or such longer period as may be required by the Operating Standards or any applicable law in the Territory. Such records may be compiled on computer discs and shall include but are not necessarily limited to: copies of all employee records, sales, invoices, cash receipts, service records, purchase records, accounts payable, cash disbursement records, inventory records, general ledgers, itemized bank deposit slips and bank statements, corporate records (include minute books), copies of sales tax returns and copies of Outlet Stores’ income tax returns, records relating to Anti-Corruption Law compliance.

6.2 Inspection and Audit Rights . To determine whether Outlet Stores is complying with this Agreement, Sears (or any party designated by Sears) shall have the right at any reasonable time and with at least twenty (20) days prior notice to Outlet Stores to: (a) inspect the Stores, including areas beyond the sales floor, and any locations where any Services are offered or performed; (b) inspect all Outlet Products offered by Outlet Stores not purchased from Sears or its Affiliates; (c) observe Outlet Stores’ sales practices and Outlet Stores’ employees or agents in the performance of their duties; and (d) inspect all of Outlet Stores’ books and records. Upon at least twenty (20) days prior notice to Outlet Stores, Sears (or a party designated by Sears) shall have the right to inspect, audit and copy any or all of the records described in Section 6.1 above. Outlet Stores shall cooperate fully in any such inspection or audit.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

7.1 Outlet Stores Representations and Warranties . Outlet Stores represents and warrants to Sears that:

a. Company Status . Outlet Stores is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary power and authority to enter into and perform its obligations under this Agreement, to carry on its business and to own and lease properties as required for Outlet Stores’ full performance under this Agreement.

b. Authorization of Signatory . The person executing this Agreement on behalf of Outlet Stores has been duly authorized to perform such actions on behalf of Outlet Stores.

c. No Violations . The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein: (a) will not violate Outlet Stores’ Certificate of Organization, Limited Liability Company Agreement or any other

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charter document of Outlet Stores; (b) will not constitute or create a violation of or default under, or result in the creation or imposition of any lien, security interest or encumbrance under, any contract, agreement, loan, note, mortgage, security agreement, deed to secure debt, guaranty, lease (capital or operating) or any other document, instrument or arrangement; and (c) will not violate or contravene any judicial or administrative decree, rule or order to which Outlet Stores is a party or by which Outlet Stores or any of their respective properties or businesses may be bound.

d. No Adverse Proceedings . There is no arbitration, litigation, administrative proceeding, proposed legislation, government investigation or any other suit, action or proceeding pending against Outlet Stores as of the Effective Date that would adversely affect the ability of Outlet Stores to enter into or perform their obligations under this Agreement or would have a material adverse effect on the business, prospects, finances or reputation of Outlet Stores, if determined adversely to any of them. Further, neither Outlet Stores is the subject of any pending bankruptcy, insolvency, receivership or similar proceeding, nor is it a party to, subject to, or in default in any material respect under, any writ, injunction, decree judgment, award, determination, directive or demand of any arbitrator, court or governmental agency or instrumentality.

e. No Defaults . Outlet Stores is not in default under any deed of trust, mortgage, lease, security agreement, note, preferred stock, bond, indenture, guaranty or other instrument or security issued by Outlet Stores.

f. Accuracy of Information . All information provided by Outlet Stores in connection with this Agreement is true, correct and complete.

7.2 Sears Representations and Warranties . Sears represents and warrants to Outlet Stores that:

b. Authorization of Signatory . The person executing this Agreement on behalf of Sears has been duly authorized to perform such actions on behalf of Sears.

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d. No Adverse Proceedings . There is no arbitration, litigation, administrative proceeding, proposed legislation, government investigation or any other suit, action or proceeding pending against Sears as of the Effective Date that would adversely affect the ability of Sears to enter into or perform their obligations under this Agreement or would have a material adverse effect on the business, prospects, finances or reputation of Sears, if determined adversely to any of them. Further, neither Sears is the subject of any pending bankruptcy, insolvency, receivership or similar proceeding, nor is it a party to, subject to, or in default in any material respect under, any writ, injunction, decree judgment, award, determination, directive or demand of any arbitrator, court or governmental agency or instrumentality.

f. Accuracy of Information . All information provided by Sears in connection with this Agreement is true, correct and complete.

ARTICLE VIII

NO IMPLIED WARRANTIES; LIMITATION OF LIABILITY

8.2 Limitation of Liability . Sears shall not be liable to Outlet Stores or its Affiliates, directors, officers, customers or employees for any indirect, special, consequential, incidental, or punitive damages, losses, or expenses (including, without limitation, lost or anticipated revenues, profits, or savings relating to the same) arising from any claim relating directly or indirectly to this Agreement, whether a claim for such damages is based on warranty, contract, tort (including, without limitation, negligence or strict liability), even if an authorized representative of Sears has been advised of the likelihood or possibility of the same.

ARTICLE IX

TERMINATION

9.1 Termination upon Cessation of Use . Sears may terminate this Agreement effectively immediately upon 10-days’ advance written notice to Outlet Stores if SHO for 12 consecutive months has operated, or has authorized its dealers and Franchisees to operate, any retail store or store-within-a-store using a store name other than a Store Name.

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9.2 Termination for Breach .

a. Subject to the next sentence, (a) Sears or Outlet Stores may terminate this Agreement in the event of a material breach of this Agreement by the other Party if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within 30 days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Party’s delivery of notice to the breaching Party.

b. Sears may terminate this Agreement effective immediately upon 10-days’ advance written notice to Outlet Stores if a Stockholding Change occurs.

9.3 Termination in Response to Termination of Other Separation Agreements . Sears or Outlet Stores may terminate this Agreement (whichever party is entitled to terminate, the “ Terminating Party ”) effective immediately upon 30-days’ advance written notice to the other party if (a) the Terminating Party or any of its Affiliates terminates the Separation Agreement as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Separation Agreement, (b) the Terminating Party or any of its Affiliates terminates any of the License Agreements in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the License Agreement, (c) the Terminating Party or any of its Affiliates terminates the Merchandising Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Merchandising Agreement, or (d) the Terminating Party or any of its Affiliates terminates the Shop Your Way Rewards Retail Establishment Agreement dated August 8, 2012 between SHO and Sears Holdings Management Corporation (the “ SYW Agreement ”) in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the SYW Agreement.

9.5 Consequences of Termination . Upon any expiration or termination of this Agreement for any reason whatsoever, the following provisions shall apply:

a. Termination of License . The licenses granted under Sections 1.1, 1.2 and 1.3 shall immediately and automatically terminate and Outlet Stores shall cease using the Store Name, all other Marks and all Confidential Information of Sears immediately upon such termination or expiration, except as otherwise expressly authorized under this Section 9.3 or by Sears in writing. Outlet Stores shall take all necessary action to change the Store Names and its fictitious business name and/or registered trade name to omit the SEARS Service Mark and all

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other words that may be confusingly similar to the SEARS Service Mark or any other Mark. Outlet Stores shall return to Sears immediately upon such termination or expiration the Operating Standards document and all copies thereof together with all documentation prepared by or on behalf of Outlet Stores that is derived from or based on such documents or any other Confidential Information of Sears. Within sixty (60) days after the date of any termination or expiration of this Agreement, Outlet Stores shall furnish Sears with evidence reasonably satisfactory to Sears demonstrating Outlet Stores’ compliance with the foregoing obligations.

b. Representation . After the date of such expiration or termination, Outlet Stores shall not represent or hold itself out as a retailer authorized by Sears or one of its Affiliates or otherwise engage in any practices which might make it appear that Outlet Stores is still authorized to operate any Store or use any Mark.

c. No Compensation . Outlet Stores acknowledges and agrees that no indemnities or compensation of any kind shall be due to Outlet Stores as a result of the termination or expiration of this Agreement. In particular, Outlet Stores waives any claim it may have or acquire against Sears for any expenses incurred by it in preparing for and pursuing its operation of the Stores, including but not limited to the engagement of any employees or contractors; the rental, purchase, furnishing or remodeling of any facilities; the rental, purchase or other acquisition of equipment; and the development, purchase and/or dissemination of any advertisements or promotional materials.

d. Liability for Pre-Termination Actions . Nothing herein shall be construed to relieve Outlet Stores of any obligation with respect to Outlet Products purchased, liabilities incurred or other activities undertaken in connection with the Stores prior to the date of such expiration or termination, including but not limited to Outlet Stores’ defense and indemnity obligations, and such obligations shall survive any such termination or expiration.

e. Consent to Termination Provisions. Both parties expressly and unconditionally agree that each and every cause of termination under this Agreement is contracted to freely and constitute a breach of the essential obligations of this Agreement by the party in breach.

ARTICLE X

RELATIONSHIP; ASSIGNABILITY

10.1 Relationship . Sears and Outlet Stores are acting as independent contractors under this Agreement, and Outlet Stores is not an employee or agent of Sears. Nothing herein is intended to make either party a general or special agent, legal representative, subsidiary, joint venturer, partner, franchiser or franchisee, fiduciary, employee or servant of the other for any purpose. Outlet Stores is not authorized or empowered (i) to act as an agent for Sears; (ii) to enter into agreements, transact business or incur obligations for or on behalf of Sears; (iii) to accept legal service of process for or on behalf of Sears; or (iv) to bind Sears in any manner whatsoever. Outlet Stores shall not do or omit to do anything that might imply or indicate that Outlet Stores is an agent, representative, branch, division, or Affiliate of Sears or that Sears or its Affiliates in any manner either directly or indirectly, own, control or operate any of the Stores or the Websites or are in any way responsible for Outlet Stores’ acts or obligations.

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10.2 Assignability . Outlet Stores acknowledges that its rights and duties under this Agreement are personal and that Sears has entered into this Agreement and granted the license in reliance upon Sears’ perceptions of the character, business skill, aptitude and financial capacity of Outlet Stores. Accordingly, Outlet Stores shall not assign its rights or duties under this Agreement without Sears’ prior written consent.

10.3 Definition of Stockholding Change . “ Stockholding Change ” means the occurrence of any transaction or event, whether voluntary or involuntary, that results in a Sears Competitor becoming, or as a consequence of which a Sears Competitor becomes, directly or indirectly, at any time after the date of this Agreement and by whatever means, the beneficial owner of more than 50% of Outlet Stores’ membership interests or 50% of the total voting power of outstanding securities entitled to vote in, or carrying the right to direct the voting with respect to, directly or indirectly and by whatever means the election of the board of directors of Outlet Stores or any of its subsidiaries. “ Sears Competitor means, solely for purposes of this Agreement and for no other purpose, Amazon.com, Inc., Best Buy Co., Inc., hhgregg, Inc., The Home Depot, Inc., Lowe’s Companies, Inc., Target Corporation, Tractor Supply Co., Wal-Mart Stores, Inc., each other retailer that competes in any material respect with Sears’ major home appliance business or Sears’ power lawn and garden business, and the Sears Competitor Affiliates of each of them. “ Sears Competitor Affiliates ” means each individual or entity that directly or indirectly, and by whatever means, controls, is under common control with, or is controlled by, a Sears Competitor.

ARTICLE XI

LICENSE OPERATING COMMITTEE; DISPUTE RESOLUTION

11.1 License Operating Committee . Subject to the last sentence of this Section 11.1, Sears and Outlet Stores will form a committee (the “ License Operating Committee ”) that will address all day-to-day operational and other issues that may arise with respect to this Agreement and all Disputes (as defined in Section 11.2 below). The License Operating Committee will discuss all of these issues and will attempt to resolve informally all Disputes in accordance with Section 11.2b. The License Operating Committee will consist of three employees of each party as designated by the party. The initial employee designees are listed on Appendix 11.1 . Each party may replace one or more of its designees at any time upon notice to the other Party. Each party will promptly fill all of its License Operating Committee vacancies as they arise by notice to the other party. Unless the members of the License Operating Committee unanimously agree otherwise, the License Operating Committee will meet at least once every calendar month during the Term on the dates determined by the members of the License Operating Committee. If the members of the Merchandise Operating Committee cannot agree on a date or a time for a particular monthly meeting the meeting will occur at 1:00 p.m. Central Time on the second Thursday of the month at the offices of SHC, 3333 Beverly Road, Hoffman Estates, IL 60179 B6-D. At all times one of the members of the License Operating Committee will serve as the

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License Operating Committee’s Chairperson. The Chairperson will rotate among the License Operating Committee members on a monthly basis. The initial Chairperson is listed on Appendix 11.1 and the other License Operating Committee members each will serve thereafter as Chairperson, on a monthly basis, rotating between Sears’ members and Outlet Stores’ members. The Chairperson (i) will request that License Operating Committee members provide meeting agenda items and (ii) will distribute to members, at least two business days in advance of each License Operating Committee meeting, an agenda for the meeting. If in accordance with the Trademark License Agreement a “License Operating Committee” has been formed and is operating (the “ TLOC ”), then (a) Sears and Outlet Stores will not be required to form the License Operating Committee in accordance with this Section 11.1 and (b) the TLOC will serve at the License Operating Committee for all purposes of this Agreement.

11.2 Dispute Resolution .

b. Dispute Defined . Subject to the next sentence, “ Dispute ” means each claim, controversy, dispute, and disagreement between (i) on the one hand, Outlet Stores or any of its Affiliates, or any of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, and (ii) on the other hand, Sears or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a party’s performance, or failure to perform, one or more of its obligations in this Agreement. Disputes do not include claims, controversies, disputes or disagreements with respect to compliance with Article IV or payment obligations with respect to amounts due in accordance with the terms and conditions of this Agreement that are not reasonably in dispute.

c. Mediation of Unresolved Disputes . Sears and Outlet Stores will in good faith attempt to resolve all Unresolved Disputes by non-binding mediation. Sears and Outlet Stores will negotiate in good faith to determine the mediator, the mediator’s compensation and related costs, and the applicable rules for the mediation. If by the 15 ^th day following the Resolution Failure Date Sears and Outlet Stores have been unable to settle an Unresolved Dispute the obligations of Sears and Outlet Stores in this Section 11 will end with respect to the Unresolved Dispute.

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ARTICLE XII

GENERAL PROVISIONS

a. Non-disclosure of Confidential Information . Each party shall: (i) use its best efforts to protect the confidential nature of Confidential Information disclosed to it, including notifying its Affiliates, subsidiaries, sublicensees, distributors or anyone else with whom a party works to achieve the purposes of this Agreement of the confidential nature of such Confidential Information, (ii) prior to receiving any such Confidential Information, use its best efforts to have anyone with whom a party works to achieve the purposes of this Agreement sign a confidentiality agreement containing restrictions on the use and disclosure of such Confidential Information no less restrictive than those contained herein, (iii) except as provided in this Agreement or as required by law or court order, not disclose to third parties or copy any Confidential Information or allow any third party access to such Confidential Information without first obtaining the disclosing party’s written consent, and (iv) not use, or permit others to use, any Confidential information disclosed to it except for the purposes set forth herein.

Outlet Stores shall not, without the prior written permission of Sears, which permission shall be given, if at all, in Sears’ sole discretion (i) directly or indirectly utilize Confidential Information in its own business, (ii) manufacture and/or sell any product that is based in whole or in part on such Confidential Information, or (iii) disclose such Confidential Information to any third party.

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12.2 Force Majeure . Neither party hereto shall be liable for any failure, inability, or delay of performance under this Agreement if such failure, inability or delay results directly from the acts of any government (including its laws, rules, orders, ordinances, and regulations), currency and/or exchange controls, accidents, fires, insurrection, wars, strikes, floods, winds, or other natural disasters, sabotage, breakdown of machinery, failure in sources of supply, or any other cause beyond the reasonable control of such party.

12.4 Entire Agreement This Agreement, together with all Exhibits hereto (which are incorporated herein by this reference), is intended as the complete, final and exclusive statement of the terms of this Agreement between Outlet Stores and Sears with regard to the subject matter hereof, and supersedes all prior oral and written agreements, understandings, commitments, negotiations and practices between the parties relating to such subject matter. Nothing in this Agreement is intended, nor shall be deemed, to confer any rights or remedies upon any person or entity not a party to this Agreement.

12.5 Amendments. Except as otherwise expressly provided in this Agreement, no modification or amendment of this Agreement shall be effective unless made in a writing executed by an authorized representative of each party hereto.

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12.9 Survivability . Each term of this Agreement that would, by its nature, survive the termination or expiration of this Agreement will so survive, including the obligation of either Party to pay all amounts accrued hereunder and including Article V (Defense and Indemnification), Section 6.1(Records), Article VIII (No Implied Warranties; Limitation of Liability), Article IX (Termination), and Section 12.1 (Confidential Information).

Sears shall be addressed at :

Sears, Roebuck and Co.

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attn: SVP and President, Marketing

Facsimile: (847) 286-2735

With a copy to :

Sears Holdings Management Corporation

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attn: General Counsel

Facsimile: (847) 286-2471

Outlet Stores shall be addressed at :

Sears Outlet Stores, L.L.C.

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attn.: President

Facsimile: (847) 286-7197

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12.12 Good Faith and Fair Dealing . Outlet Stores and Sears each shall exercise Good Faith in the performance of its obligations in this Agreement. “ Good Faith ” means honesty in fact and the observance of reasonable commercial standards of fair dealing in accordance with Applicable Law.

12.13 Condition Precedent to the Effectiveness of this Agreement . This Agreement shall not become effective until it has been approved by the Audit Committee of the Board of Directors of SHC.

12.14 Governing Law; Jurisdiction; Waiver of Jury Trial .

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[signature page follows]

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SEARS, ROEBUCK AND CO. By Sears Holdings Management Corporation, its Agent		SEARS OUTLET STORES, L.L.C.

By:	/s/ William Phelan	By:	/s/ W. Bruce Johnson
William Phelan		W. Bruce Johnson
Senior Vice President-Finance		President

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EXHIBIT A

TO LICENSE AGREEMENT

STORE NAMES


Country	Mark	Status	Reg./App. No.	Reg./App. Date	Goods / Services

United States	SEARS OUTLET STORE	N/A	N/A	N/A	Retail store services

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EXHIBIT B

TO LICENSE AGREEMENT

ADDITIONAL SEARS MARKS


Country	Mark	Status	Reg./App. No.	Reg./App. Date	Goods / Services

United States	Sears Quality. Outlet Prices	N/A	N/A	N/A	Retail store services

United States	Sears Outlet Certified	N/A	N/A	N/A	Product certification process

United States	Sears Outlet Promise	N/A	N/A	N/A	Customer service

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EXHIBIT C

TO LICENSE AGREEMENT

DOMAIN NAMES

www.searsoutlet.com

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EXHIBIT D

TO LICENSE AGREEMENT

TERRITORY

50 United States, its territories and possessions, including Puerto Rico

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APPENDIX 1.1

TO LICENSE AGREEMENT

EFFECTIVE DATE

The Effective Date referred to in Section 1.1 is September , 2012.

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APPENDIX 11.1

TO LICENSE AGREEMENT

LICENSE OPERATING COMMITTEE

Outlet Store

Keri Durkin

Brandon Gartman

Guy Reda

Sears

Allyson Olsen

Paul Palich

Roger Teal

Initial Chairperson: Allyson Olsen

Exhibit 10.5

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TRADEMARK LICENSE AGREEMENT

August 8, 2012

This Trademark License Agreement (“ Agreement ”) is made between Sears, Roebuck and Co., a New York corporation located at 3333 Beverly Road, Hoffman Estates, IL 60179 (“ Sears ”), and Sears Hometown and Outlet Stores, Inc., located at 3333 Beverly Road Hoffman Estates, Illinois 60179 (“ SHO ”).

WHEREAS, Sears has a license to use (and to further sublicense the use of) the SEARS trademark (the “ Licensed Trademark ”);

WHEREAS, Sears has a license to use (and further sublicense the use of) the searshometownandoutlet.com, ownasearsstore.com, searssho.com, and sears-sho.com domain names (collectively the “ Domain Names ”);

WHEREAS, SHO wishes to use the Licensed Trademark as part of SHO’s corporate name; and

WHEREAS, SHO wishes to use the Domain Names to promote the businesses of Sears Authorized Hometown Stores, LLC (“ SAHS ”), Sears Outlet Stores, L.L.C. (“ Outlet Stores ”) and Sears Home Appliance Showrooms, LLC (“ SHAS ”, together with SAHS and Outlet Stores, the “ Businesses ”);

THEREFORE, in consideration of the mutual promises hereinafter set forth, the parties agree as follows:

1. Duration . The term of this Agreement will begin immediately following the “Rights Closing Effective Time” specified in the Separation Agreement (the “ Separation Agreement ”) to be executed and delivered by SHO and Sears Holdings Corporation (the date on which the Rights Closing Effective Time occurs, the “ Effective Date ”) and will end, unless terminated earlier, at 5:00 p.m. (Central Time) on the 17 ^th anniversary of the Effective Date (the “ Term ”). The calendar day that becomes the Effective Date will be inserted on Appendix 1 after the Effective Date has occurred.

2. Grant of License to Sears Name . Sears hereby grants to SHO a royalty-free license to use the Licensed Trademark as part of the corporate name Sears Hometown and Outlet Stores, Inc. (the “ Corporate Name ”) in the United States and to promote the Businesses. SHO shall not use the Licensed Trademark for any purpose other than for use in the Corporate Name and promotion of the Businesses without prior written consent of Sears.

3. Grant of License to the Domain Names . Sears hereby grants to SHO a royalty-free, fully-paid up license to use the Domain Names solely to promote the Businesses.

4. Sears’ Representations and Warranties . Sears represents and warrants that: (a) it has a license to use (and further sublicense the use of) the Licensed Trademark and the Domain

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Names; (b) to the best of its knowledge neither the Licensed Trademark nor any Domain Name infringes the intellectual property rights of any third party; and (c) it has the full authority to grant SHO the rights described herein.

5. Compliance with Laws . SHO shall comply with all applicable laws, regulations, standards and decrees of any governmental authorities in connection with its performance under this Agreement, including but not limited to commercial electronic mail communication laws and export control and anti-boycott laws, and shall obtain all governmental approvals, permits, licenses and other authorizations necessary or appropriate for SHO to perform its obligations under this Agreement.

6. Ownership . SHO recognizes the ownership of the Licensed Trademark and the Domain Names by Sears Brands, L.L.C. (“ Sears Brands ”). Nothing contained in this Agreement shall be construed as an assignment or grant to SHO of any right, title or interest in the Licensed Trademark or any Domain Name. SHO’s use of the Licensed Trademark and the Domain Names shall inure to the benefit of Sears Brands. SHO shall not represent that SHO has any right, title or interest in and to the Licensed Trademark or the Domain Names or that Sears is a sponsor, partner or co-venturer of SHO.

7. Quality . SHO acknowledges that if the products or services offered by it are of inferior quality, design, material or workmanship, the substantial goodwill associated with the Licensed Trademark and the Domain Names will be impaired. Accordingly, all products and services offered by SHO shall be of such quality and of such style and appearance as is reasonably necessary to maintain the substantial goodwill associated with the Licensed Trademark and the Domain Names. The Products (as defined in the Merchandising Agreement dated August 8, 2012 between SHO and Sears, among others (the “ Merchandising Agreement ”)) shall be deemed to meet the standards prescribed in the preceding sentence.

8. Confidentiality . In connection with this Agreement, Sears and SHO each may have access to confidential information made available by the other. Each party shall protect such confidential information in the same manner as it protects its own confidential information of like kind, and shall not disclose or use such confidential information, except as necessary for performance of this Agreement; provided, however, that this provision shall not apply to: (a) information previously known to the receiving party; (b) information which is or has become available to the public in general through no fault of or breach of an agreement by the receiving party; (c) information received from a third party not subject to any confidentiality obligations; or (d) information which is independently developed by the receiving party.

9. Indemnification .

(a) Indemnification by Sears . Sears shall indemnify and hold harmless SHO from and against any and all third party claims, losses, liabilities, damages, penalties, costs or out-of-pocket expenses (including reasonable attorneys’ fees) asserted against or incurred by SHO and arising out of or resulting from any breach by Sears of this Agreement.

(b) Indemnification by SHO . SHO shall indemnify and hold harmless Sears and its Affiliates, partners, officers, directors, shareholders, employees, agents, representatives,

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successors and assigns (collectively, the “ Sears Indemnified Parties ”), from and against any and all third party claims, losses, liabilities, damages, penalties, costs or out-of-pocket expenses (including reasonable attorneys’ fees) asserted against or incurred by the Sears Indemnified Parties and arising out of or resulting from any breach by SHO of this Agreement. “ Affiliates ” means any entity that, at the applicable time, directly or indirectly controls, is controlled with or by or is under common control with, a party. Notwithstanding the foregoing, only subsidiaries of Sears Holdings Corporation shall be deemed to be Affiliates of Sears for purposes of this Agreement.

10. No Implied Warranties; Limitation of Liability .

(a) Disclaimer of Warranty . Except as expressly set forth herein (and except as may be required by law), Sears expressly disclaims all representations and warranties, expressed or implied, in connection with the Licensed Trademark and the Domain Names and this Agreement, including, without limitation, the implied warranties of merchantability and fitness for a particular purpose. All materials provided hereunder are provided “as is” and “with all faults.”

(b) Limitation of Liability . Sears shall not be liable to SHO or its Affiliates, directors, officers, customers or employees for any indirect, special, consequential, incidental, or punitive damages, losses, or expenses (including, without limitation, lost or anticipated revenues, profits, or savings relating to the same) arising from any claim relating directly or indirectly to this Agreement, whether a claim for such damages is based on warranty, contract, tort (including, without limitation, negligence or strict liability), even if an authorized representative of Sears has been advised of the likelihood or possibility of the same.

11. Infringement . SHO shall advise Sears within a reasonable period of time of any infringement of the Licensed Trademark or any Domain Name of which it becomes aware. In any action instituted by Sears for claims relating to infringement, dilution or disparagement of the Licensed Trademark or any Domain Name, SHO agrees to cooperate with Sears at Sears’ expense.

12. Sublicensing . SHO shall not sublicense the rights licensed by Sears to SHO under this Agreement without Sears’ prior written consent, which Sears may withhold in its sole discretion.

13. Termination .

(a) Sears may terminate this Agreement effective immediately upon 10-days’ advance written notice to SHO if SHO for 12 consecutive months has not conducted business using the Corporate Name.

(b) Subject to the next sentence, Sears or SHO may terminate this Agreement in the event of a material breach of this Agreement by the other Party if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within 30 days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Party’s delivery of notice to the breaching Party.

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(c) Sears may terminate this Agreement effective immediately upon 10-days’ advance written notice to SHO if a Stockholding Change occurs. “ Stockholding Change ” means the occurrence of any transaction or event, whether voluntary or involuntary, that results in a Sears Competitor becoming, or as a consequence of which a Sears Competitor becomes, directly or indirectly, at any time after the date of this Agreement and by whatever means, the beneficial owner of more than 50% of the total voting power of outstanding securities entitled to vote in, or carrying the right to direct the voting with respect to, directly or indirectly and by whatever means the election of the board of directors of SHO or any of its subsidiaries. “ Sears Competitor means, solely for purposes of this Agreement and for no other purpose, Amazon.com, Inc., Best Buy Co., Inc., hhgregg, Inc., The Home Depot, Inc., Lowe’s Companies, Inc., Target Corporation, Tractor Supply Co., Wal-Mart Stores, Inc., each other retailer that competes in any material respect with Sears’ major home appliance business or Sears’ power lawn and garden business, and the Sears Competitor Affiliates of each of them. “ Sears Competitor Affiliates ” means each individual or entity that directly or indirectly, and by whatever means, controls, is under common control with, or is controlled by, a Sears Competitor.

(d) Sears or SHO may terminate this Agreement (whichever party is entitled to terminate, the “ Terminating Party ”) effective immediately upon 30-days’ advance written notice to the other party if (i) the Terminating Party or any of its Affiliates terminates the Separation Agreement as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Separation Agreement, (ii) the Terminating Party or any of its Affiliates terminates any of the License Agreements in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the License Agreement, (iii) the Terminating Party or any of its Affiliates terminates the Merchandising Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Merchandising Agreement, or (iv) the Terminating Party or any of its Affiliates terminates the Shop Your Way Rewards Retail Establishment Agreement dated August 8, 2012 between SHO and Sears Holdings Management Corporation (the “ SYW Agreement ”) in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the SYW Agreement. “ License Agreements ” means the following, each dated August 8, 2012: the Store License Agreement between Outlet Stores and Sears; the Store License Agreement between SHAS and Sears; and the Store License Agreement between SAHS and Sears.

(e) If SHO does not elect to extend the Term of the Merchandising Agreement for the First Renewal Period or the Second Renewal Period (as those terms are defined in the Merchandising Agreement), Sears may terminate this Agreement effective immediately upon 10-days’ advance written notice to SHO.

14. Cessation of Use . Upon expiration or termination of this Agreement, SHO shall immediately amend the Corporate Name to remove the Licensed Trademark and record such amendment with the appropriate authorities. Upon expiration or termination of the Agreement,

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SHO shall not use any trademark, trade name, corporate name and/or domain name containing the Licensed trademark or any trademark, trade name, corporate name and/or domain name confusingly similar to the Licensed Trademark.

15. Waiver . No waiver of any of the terms of this Agreement shall be valid unless it is in writing. No waiver by either party of a breach hereof or a default hereunder shall be deemed a waiver by such party of any subsequent breach or default, whether of the same or similar nature.

16. Notice . All notices, demands, or other communications given or made under this Agreement shall be in writing and shall be effective: (a) upon delivery if delivered in person; (b) five business days after mailing if delivered by registered mail, addressed to the recipient, postage pre-paid with return receipt requested; (c) if given or made by fax, when dispatched subject to receipt of a machine-printed confirmation of error-free dispatch; and (d) upon transmission if sent via electronic mail, provided that a confirmation copy is sent via express mail or overnight courier service and confirmation of such delivery is received. Such notices, demands or other communications shall be sent to each party at the mailing addresses or facsimile numbers indicated below:


If to Sears:		Sears, Roebuck and Co.
		3333 Beverly Road
		Hoffman Estates, Illinois 60179
		Attn: Senior Vice President-Finance
		Facsimile: (847) 286-2735

With a copy to:		Sears Holdings Management Corporation
		3333 Beverly Road
		Hoffman Estates, Illinois 60179
		Attn: General Counsel
		Fax: (847) 286-2471

If to SHO:		Sears Hometown and Outlet Stores, Inc.
		3333 Beverly Road
		Hoffman Estates, Illinois 60179
		Attn: Senior Vice President and Chief Operating Officer
		Fax: (847) 286-7838

With a copy to:		Sears Hometown and Outlet Stores, Inc.
		3333 Beverly Road
		Hoffman Estates, Illinois 60179
		Attn: General Counsel

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17. License Operating Committee; Dispute Resolution; Mediation .

(a) License Operating Committee . Sears and SHO shall form a committee (the “ License Operating Committee ”) that shall address all day-to-day operational and other issues that may arise with respect to this Agreement and all Disputes (as defined in Section 17(b)(ii) below). The License Operating Committee shall discuss all of these issues and shall attempt to resolve informally all Disputes in accordance with Section 17(b). The License Operating Committee shall consist of three employees of each party as designated by the party. The initial employee designees are listed on Appendix 17(a) . Each party may replace one or more of its designees at any time upon notice to the other Party. Each party shall promptly fill all of its License Operating Committee vacancies as they arise by notice to the other party. Unless the members of the License Operating Committee unanimously agree otherwise, the License Operating Committee shall meet at least once every calendar month during the Term on the dates determined by the members of the License Operating Committee. If the members of the License Operating Committee cannot agree on a date or a time for a particular monthly meeting the meeting shall occur at 1:00 p.m. Central Time on the second Thursday of the month at the offices of SHC, 3333 Beverly Road, Hoffman Estates, IL 60179 B6-D. At all times one of the members of the License Operating Committee shall serve as the License Operating Committee’s Chairperson. The Chairperson shall rotate among the License Operating Committee members on a monthly basis. The initial Chairperson is listed on Appendix 17(a) and the other License Operating Committee members each shall serve thereafter as Chairperson, on a monthly basis, rotating between Sears’ members and SAHS’s members. The Chairperson (i) shall request that License Operating Committee members provide meeting agenda items and (ii) shall distribute to members, at least two business days in advance of each License Operating Committee meeting, an agenda for the meeting. The License Operating Committee shall constitute the License Operating Committee for all purposes of the License Agreements and shall function accordingly.

(b) Dispute Resolution .

(i) License Operating Committee’s Attempt to Resolve Dispute . If a Dispute arises, neither party may cease to perform any of its obligations in this Agreement in accordance with their terms or take any formal legal action (such as seeking to terminate this Agreement, seeking mediation in accordance with Section 17(b)(iii), or instituting or seeking any judicial or other legal action, relief, or remedy with respect to or arising out of this Agreement) unless the party has first (i) delivered a notice of dispute (the “ Dispute Notice ”) to all of the members of the License Operating Committee and (ii) complied with the terms and conditions of this Section 16. At the first monthly meeting of the License Operating Committee following the delivery of the Dispute Notice (the “ Dispute Resolution Meeting ”) the License Operating Committee shall attempt to resolve all of the Disputes that are the subject of the Dispute Notice. Each party shall cause its designees on the License Operating Committee to negotiate in good faith to resolve all Disputes in a timely manner. If by the 10 ^th calendar day following the Dispute Resolution Meeting the License Operating Committee has not resolved all of the Disputes (the “ Resolution Failure Date ”) the parties shall proceed to mediate the unresolved Disputes (“ Unresolved Disputes ”) in accordance with Section 17(b)(iii).

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(ii) Dispute Defined . Subject to the next sentence, “ Dispute ” means each claim, controversy, dispute, and disagreement between (A) on the one hand, SHO or any of its Affiliates, or any of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, and (B) on the other hand, Sears or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a party’s performance, or failure to perform, one or more of its obligations in this Agreement. Disputes do not include claims, controversies, disputes or disagreements with respect to compliance with Section 6, Section 11 or payment obligations with respect to amounts due in accordance with the terms and conditions of this Agreement that are not reasonably in dispute.

(iii) Mediation of Unresolved Disputes . Sears and SHO shall in good faith attempt to resolve all Unresolved Disputes by non-binding mediation. Sears and SHO shall negotiate in good faith to determine the mediator, the mediator’s compensation and related costs, and the applicable rules for the mediation. If by the 15 ^th day following the Resolution Failure Date Sears and SHO have been unable to settle an Unresolved Dispute the obligations of Sears and SHO in this Section 17 shall end with respect to the Unresolved Dispute.

18. Injunctive Relief . Each party acknowledges that any breach by a party of this Agreement may cause the non-breaching party and its Affiliates irreparable harm for which the non-breaching party and its Affiliates have no adequate remedies at law. Accordingly, each party and its Affiliates, without complying with Section 17(b)(iii) and without the necessity to post a bond or other security, are entitled to seek injunctive relief for any such breach in any state or federal court in Chicago, Illinois, USA, and each party consents to the exclusive jurisdiction and venue in the state and federal courts in Chicago, Illinois, USA for injunctive relief purposes. Each party waives all claims for damages by reason of the wrongful issuance of an injunction and acknowledges that its only remedy in that case is the dissolution of that injunction.

19. Status of Parties . Nothing contained in this Agreement shall be deemed or construed as creating a joint venture or partnership between the parties. Neither party shall by virtue of this Agreement have the power to control the activities and operations of the other.

20. Assignment . The license granted in this Agreement is personal to SHO and may not be assigned by SHO without the prior written consent of Sears.

21. Force Majeure . Neither party shall be liable or responsible hereunder by reason of any failure or delay in the performance of its obligations hereunder (except for the payment of money) on account of strikes, shortages, riots, insurrection, fires, flood, storm, explosions, acts of God, war, governmental action, labor conditions, earthquakes, or any other cause which is beyond the reasonable control of such party.

22. Survival . The rights and obligations contained in Sections 4, 5, 6, 8, 9, 10, 11, 14, 17, 25 and 18 shall survive any termination or expiration of this Agreement, in addition to any provisions which by their nature should, or by their express terms do, survive or extend beyond the termination or expiration of this Agreement.

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23. Severability . If any provision hereof is held invalid or unenforceable by a court of competent jurisdiction, such invalidity shall not affect the validity or operation of any other provision and such invalid provision shall be deemed to be severed from the Agreement.

24. Entire Agreement . Except as provided in the Separation Agreement and the Ancillary Agreements (as defined in the Separation Agreement but excluding this Agreement), this Agreement contains the entire understanding of the parties. There are no representations, warranties, promises, covenants or undertakings other than those contained in this Agreement. No changes, amendments or modifications of this Agreement are valid or binding upon the parties unless made in writing and manually signed by a duly authorized representative of each party.

25. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of the Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement. Facsimile, scanned or photocopy signatures shall be deemed original signatures.

26. Good Faith and Fair Dealing . Sears and SHO each shall exercise Good Faith in the performance of its obligations in this Agreement. “ Good Faith ” means honesty in fact and the observance of reasonable commercial standards of fair dealing in accordance with applicable law.

27. Condition Precedent to the Effectiveness of this Agreement . This Agreement shall not become effective until it has been approved by the Audit Committee of the Board of Directors of Sears Holdings Corporation.

29. Governing Law; Jurisdiction; Waiver of Jury Trial .

(a) Governing Law . This Agreement shall be construed in accordance with, and governed by, the federal laws of the United States, including but not limited to the Lanham Act, and the internal laws of the State of Illinois, other than its conflict of laws principles and the Illinois Franchise Disclosure Act. This Agreement shall not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.

(b) Jurisdiction . Each of the Parties submits, for itself and its property, to the exclusive jurisdiction of all Illinois state courts and federal courts of the United States of America sitting in Cook County, Illinois, and all appellate courts to each thereof, in all actions and proceedings arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of all judgments relating thereto, and each of the Parties (i) shall commence all such actions and proceedings only in such courts, (ii) shall cause all claims in respect of all such actions and proceedings to be heard and determined in such Illinois state court or, to the extent permitted by law, in such federal court, (iii) waives, to the fullest extent it may legally and effectively do so, all objections that it may now or hereafter have to the laying of venue of all such actions and proceedings in any such Illinois state or federal court, and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such actions and proceedings in all such Illinois state and federal courts. A final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 16. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by law.

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[signature page follows]


SEARS, ROEBUCK AND CO. By Sears Holdings Management Corporation, its Agent

By:		/s/ William Phelan
William Phelan
Senior Vice President-Finance


SEARS HOMETOWN AND OUTLET STORES, INC.

By:		/s/ W. Bruce Johnson
W. Bruce Johnson
Chief Executive Officer and President

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APPENDIX 1

TO LICENSE AGREEMENT

EFFECTIVE DATE

The Effective Date referred to in Section 1 is September , 2012.

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APPENDIX 17(a)

TO LICENSE AGREEMENT

SHO LICENSE OPERATING COMMITTEE

SHO

Keri Durkin

Brandon Gartman

Guy Reda

Sears

Roger Teal

Timothy Hickey

Andrew Stein

Initial Chairperson: Roger Teal

Exhibit 10.6

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THE USE OF THE FOLLOWING NOTATION IN THIS EXHIBIT INDICATES THAT A CONFIDENTIAL PORTION HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION: [***].

MERCHANDISING AGREEMENT

BETWEEN

SEARS, ROEBUCK AND CO.,

KMART CORPORATION, AND

SEARS HOLDINGS CORPORATION

AND

SEARS HOMETOWN AND OUTLET STORES, INC.,

SEARS AUTHORIZED HOMETOWN STORES, LLC,

AND SEARS OUTLET STORES, L.L.C.,

August 8, 2012

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TABLE OF CONTENTS


1.	ADDITIONAL TERMS AND CONDITIONS		1

2.	TERM AND TERMINATION		1
	(a)	Initial Term	1
	(b)	The Term; Renewal Rights	1
	(c)	Termination of the Agreement	2
	(d)	Seller’s Right to Terminate Its Section 3 Obligations	3
	(e)	Seller’s Termination Rights on Appendix 5(a)	4
	(f)	Buyer’s Transition and Sell-Off Rights	4

3.	HTS PRODUCTS		4
	(a)	Seller’s Obligation to Sell	4
	(b)	Invoice Prices for HTS Products	5
	(c)	Vendor Charges	5
	(d)	Retail Pricing	5
	(e)	HTS Product Quality, Availability, and Packaging	5
	(f)	Location-Specific Products	6

4.	OUTLET PRODUCTS		6
	(a)	Section 4 Definitions	6
	(b)	DRM	6
	(c)	MOS	8
	(d)	Right of First Offer for Additional Categories	10
	(e)	Seller’s Compliance with Rights of First Offer; Termination	10
	(f)	Retail Pricing	10
	(g)	Invoice Prices for Outlet Products	10
	(h)	Outlet Product Restrictions	11

5.	ROYALTIES		11
	(a)	Quarterly Royalty Reports; Royalties Payable	11
	(b)	Adjustments	11
	(c)	Featuring Kenmore-Branded Product	12
	(d)	Minimum Commission	12
	(e)	Record Retention; Audit Rights	12

6.	INVENTORY MANAGEMENT POLICES AND PROCESSES; DELIVERY TERMS		12

7.	PAYMENT TERMS FOR INVOICE PRICES AND ROYALTIES		13
	(a)	Invoice Prices for Products	13
	(b)	Royalties	13

8.	SUBSIDIES AND MARKETING/MERCHANDISING SUPPORT		13
	(a)	Vendor Subsidies	13
	(b)	Product Information Support	13
	(c)	Other Support	14

9.	CUSTOMERS AND TRADE AREAS		14
	(a)	General	14

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	(b)	Buyer	14
	(c)	Seller	15
	(d)	Growth	16
	(e)	New HTS Stores and Renewals-Exclusivity	16

10.	PRODUCT WARRANTIES AND RETURNS		16
	(a)	Product Warranties	16
	(b)	Product Returns	17
	(c)	Product Recalls and Similar Product Issues	17
	(d)	Disclaimer	18

11.	PRODUCT SERVICING		18
	(a)	Seller’s Appointment	18
	(b)	Seller’s Obligations	18
	(c)	Buyer’s Obligations	19
	(d)	Seller’s Charges	20
	(e)	Services for Protection Agreements	20

12.	INTELLECTUAL PROPERTY		20
	(a)	Seller	20
	(b)	Buyer	23

13.	CONFIDENTIALITY		24
	(a)	Confidential Information	24
	(b)	Treatment of Confidential Information	24
	(c)	Exceptions to Confidential Treatment	25

14.	INDEMNIFICATION		26
	(a)	Seller Indemnities	26
	(b)	Buyer Indemnities	26
	(c)	Defense	26
	(d)	Exclusions from Claims; Tender and Cooperation	26

15.	INSURANCE		27
	(a)	Required Coverage	27
	(b)	Proof of Insurance	27

16.	LIMITATION ON LIABILITY		27

17.	MINIMUM QUANTITIES		27

18.	DISPUTE RESOLUTION		27
	(a)	Committees	27
	(b)	Dispute Resolution	28

19.	SELLER’S CLOSING LOCATIONS		29

20.	GLOSSARY		29

21.	SHC’S SOLE OBLIGATION		33

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22.	GENERAL		33
	(a)	Good Faith	33
	(b)	Assignment	33
	(c)	Computer Access	34
	(d)	Promotional Calendars	34
	(e)	Negotiating Event	34
	(f)	Consideration	34
	(g)	Construction and Interpretation	35
	(h)	Counterparts; Facsimile	35
	(i)	Entire Agreement; Severability	35
	(j)	Injunctive Relief	36
	(k)	Notices	36
	(l)	No Waiver	37
	(m)	Publicity	37
	(n)	Relationship of the Parties	37
	(o)	Reporting	37
	(p)	Representations and Warranties	37
	(q)	Survival	37
	(r)	Condition Precedent to the Effectiveness of this Agreement	37
	(s)	Governing Law; Jurisdiction; Waiver of Jury Trial	38

APPENDICES


Appendix 1	Additional Terms and Conditions	40
Appendix 2(a)	Effective Date	43
Appendix 3(a)	HTS Product Categories	44
Appendix 3(b)	HTS Invoice Prices	45
Appendix 4(b)(i)	Invoice Prices for DRM	46
Appendix 4(c)(ii)	MOS Categories and Initial MOS Invoice Prices	47
Appendix 5(a)	Royalty Rates; Kenmore Royalty Credits	48
Appendix 5(d)	Average Aggregate Minimum Commission	54
Appendix 6	Inventory Management Policies and Processes	55
Appendix 7(a)	Payment Due Date	60
Appendix 9(b)(i)(A)	New HTS Store List	61
Appendix 12(a)(iii)	Seller Marks	64
Appendix 18(a)(i)	Merchandising Operating Committee	65

iii

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MERCHANDISING AGREEMENT

August 8, 2012

This MERCHANDISING AGREEMENT (this “ Agreement ”) is between (1) SEARS, ROEBUCK AND CO. , a New York corporation (“ SRC ”), KMART CORPORATION, a Michigan corporation (“ Kmart ” and together with SRC, “ Seller ”), and SEARS HOLDINGS CORPORATION , a Delaware corporation (“ SHC ”), and (2) SEARS HOMETOWN AND OUTLET STORES, INC. , a Delaware corporation (“ SHO ”), SEARS AUTHORIZED HOMETOWN STORES, LLC , a Delaware limited liability company ( SAHS ”), and SEARS OUTLET STORES, L.L.C . , a Delaware limited liability company (“ Outlet Co. ” and together with SHO and SAHS, “ Buyer ”). Other capitalized terms used but not defined in this Agreement are defined in Section 20 , which begins on page 29.

TERMS AND CONDITIONS

For good and valuable consideration, the receipt of which Seller and Buyer acknowledge, Seller and Buyer agree as follows:

1. ADDITIONAL TERMS AND CONDITIONS . The Additional Terms and Conditions that are attached to this Agreement as Appendix 1 are incorporated into this Agreement by reference and are binding on Seller and Buyer as if expressly included below. To the extent any provision on Appendix 1 is inconsistent with the body of this Agreement, the body of this Agreement controls.

2. TERM AND TERMINATION .

(a) Initial Term . The initial term of this Agreement will begin immediately following the “Rights Closing Effective Time” specified in the Separation Agreement (the “ Separation Agreement ”) to be executed and delivered by SHO and SHC (the date on which the Rights Closing Effective Time occurs, the “ Effective Date ”) and will end, unless terminated earlier or extended in accordance with Section 2(c) or Section 2(d) , at 5:00 p.m. (Central Time) on the last day of the 66 ^th full month following the Effective Date (the “ Initial Term ”). The calendar day that becomes the Effective Date will be inserted on Appendix 2(a) after the Effective Date has occurred.

(b) The Term; Renewal Rights . Subject to Section 2(c) , Section 2(d) , and the next sentences of this Section 2(b) , Buyer may elect to extend for up to two consecutive three-year periods Seller’s obligations in Section 3 to sell KCD-Branded Products to Buyer. Buyer may not exercise its rights in the preceding sentence if Buyer or any of its Affiliates has failed to comply with any of its material obligations in this Agreement and the failure is continuing. The first renewal period is referred to as the “ First Renewal Period ” and its duration may be longer than three years as provided in Section 2(c)(ii)(B) and in Section 2(d)(ii) . Buyer will deliver written notice to Seller not later than six months prior to the end of the Initial Term if Buyer elects to extend the Term for the First Renewal Period. The second renewal period is referred to as the “ Second Renewal Period .” Buyer will deliver written notice to Seller not later than six months prior to the end of the First Renewal Period if Buyer elects to extend the Term for the Second Renewal Period. The Initial Term, the First Renewal Period (if elected), and the Second Renewal Period (if elected) are together referred to as the “ Term ” and the last day of the Term is referred to as the “ Expiration Date .” During the First Renewal Period and the Second Renewal Period Seller will have (i) no obligation in accordance with Section 3 to sell any HTS Product to Buyer that is not a KCD-Branded Product and (ii) no obligation in accordance with Section 4 to sell any Outlet Product to Buyer. Except as provided in the preceding sentence, all of the terms and conditions of this Agreement (including the terms and conditions of Section 9 ) will continue to be in full force in accordance with their terms during the Term. This Agreement applies to all Products shipped on or after the Effective Date and before the Expiration Date, regardless of when Buyer placed the order for the Products.

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(c) Termination of the Agreement . Neither Party may exercise its rights in this Section 2(c) if the Party or any of its Affiliates has failed to comply with any of its material obligations in this Agreement and the failure is continuing.

(i) Termination for Material Breach . Subject to the next sentence and to Section 18 , (A) Seller or Buyer may terminate this Agreement in the event of a material breach of this Agreement by the other Party, including Seller’s right to terminate this Agreement if Buyer purports to assign any of its rights or delegate any of its obligations under this Agreement in contravention of Section 22(b) , if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within 30 days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Party’s delivery of notice to the breaching Party.

(ii) Seller’s Right to Terminate upon a KCD Change in Control .

(A) Subject to the following sentences of this Section 2(c)(ii)(A) , if a KCD Change in Control occurs during the Initial Term Seller may, by written notice delivered to Buyer on or before the 60 ^th day following the effectiveness of the KCD Change in Control, terminate this Agreement. The termination will take effect on the date that is the first anniversary (the “ Section 2(c)(ii)(A) End Date ”) of the date that Seller delivered the written notice to Buyer in accordance with the preceding sentence. If the Section 2(c)(ii)(A) End Date is a date that is later than sixty-six months after the Effective Date, the Initial Term will be extended for all purposes of this Agreement to include the period ending on the Section 2(c)(ii)(A) End Date unless Buyer notifies Seller in writing on or before the 15 ^th day following Buyer’s receipt of the notice referred to in the first sentence of this Section 2(c)(ii)(A) that the extension will not occur.

(B) Subject to the following sentences of this Section 2(c)(ii)(B) , if a KCD Change in Control occurs during the First Renewal Period Seller may, by written notice delivered to Buyer on or before the 60 ^th day following the effectiveness of the KCD Change in Control, terminate this Agreement. The termination will take effect on the date that is the first anniversary (the “ Section 2(c)(ii)(B) End Date ”) of the date that Seller delivered the written notice to Buyer in accordance with the preceding sentence. If the Section 2(c)(ii)(B) End Date is a date that is later than three years after the beginning of the First Renewal Period, the First Renewal Period will be extended for all purposes of this Agreement to include the period ending on the Section 2(c)(ii)(B) End Date unless Buyer notifies Seller in writing on or before the 15 ^th day following Buyer’s receipt of the notice referred to in the first sentence of this Section 2(c)(ii)(B) that the extension will not occur.

(C) Subject to the following sentence of this Section 2(c)(ii)(C) , if a KCD Change in Control occurs during the Second Renewal Period Seller may, by written notice delivered to Buyer on or before the 60 ^th day following the effectiveness of the KCD Change in Control, terminate this Agreement. The termination will take effect on the date that is the earlier of (1) the end of the Second Renewal Period and (2) the first anniversary of the date that Seller delivered the written notice to Buyer in accordance with the preceding sentence.

(D) Upon Seller’s exercise of its right to terminate this Agreement in accordance with Section 2(c)(ii)(A) or Section 2(c)(ii)(B) Buyer’s right to extend the Term of this Agreement in accordance with Section 2(b) will immediately terminate.

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(iii) Seller’s Rights to Immediate Termination . Seller may terminate this Agreement effective immediately upon written notice to Buyer in the event that (A) Buyer purports to assign any of its rights or delegate any of its obligations under this Agreement in contravention of Section 22(b), (B) Buyer is unable to pay its debts as they mature or enters into a voluntary suspension of payments or voluntary or involuntary bankruptcy, makes an assignment for the benefit of creditors, has a receiver or trustee appointed for it or for any of its property, or adopts a resolution for winding-up, (C) a SHO Stockholding Change occurs, or (D) Buyer ceases to conduct one or more of its businesses using the “Sears” name.

(iv) Termination in Response to Termination of Another Agreement . Seller or Buyer may terminate this Agreement (whichever Party is entitled to terminate, the “ Terminating Party ”) effective immediately upon 30-days’ advance written notice to the other Party if (A) the Terminating Party or any of its Affiliates terminates the Separation Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other Party or its Affiliates of their obligations in the Separation Agreement, (B) the Terminating Party or any of its Affiliates terminates a License Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other Party or its Affiliates of their obligations in the License Agreement, or (C) the Terminating Party or any of its Affiliates terminates the SYW Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other Party or its Affiliates of their obligations in the SYW Agreement. “ Lic ense Agreement ” means each of the following, each dated August 8, 2012: the Store License Agreement between SAHS and SRC; the Store License Agreement between Outlet Co. and SRC; the Store License Agreement between Sears Home Appliance Showrooms, LLC and SRC; and the Trademark License Agreement between SHO and SRC. “ SYW Agreement ” means the Shop Your Way Rewards Retail Establishment Agreement dated August 8, 2012 between SHMC and SHO.

(d) Seller’s Right to Terminate Its Section 3 Obligations . Seller may not exercise its rights in this Section 2(d) if Seller or any of its Affiliates has failed to comply with any of its material obligations in this Agreement and the failure is continuing.

(i) Subject to the following sentences of this Section 2(d)(i) , if a KCD Mark Acquisition occurs during the Initial Term Seller may, by written notice delivered to Buyer on or before the 60 ^th day following the effectiveness of the KCD Mark Acquisition, terminate Seller’s obligations in Section 3 to sell all KCD-Branded Products that are branded with a KCD Mark that is the subject of the KCD Mark Acquisition. The termination will take effect on the date that is the first anniversary (the “ Section 2(d)(i) End Date ”) of the date that Seller delivered the written notice to Buyer in accordance with the preceding sentence. If the Section 2(d)(i) End Date is a date that is later than sixty-six months after the Effective Date, the Initial Term will be extended for all purposes of this Agreement to include the period ending on the Section 2(d)(i) End Date unless Buyer notifies Seller in writing on or before the 15 ^th day following Buyer’s receipt of the notice referred to in the first sentence of this Section 2(d)(i) that the extension will not occur.

(ii) Subject to the following sentences of this Section 2(d)(ii) , if a KCD Mark Acquisition occurs during the First Renewal Period Seller may, by written notice delivered to Buyer on or before the 60 ^th day following the effectiveness of the KCD Mark Acquisition, terminate Seller’s obligations in Section 3 to sell all KCD-Branded Products that are branded with a KCD Mark that is the subject of the KCD Mark Acquisition. The termination will take effect on the date that is the first anniversary (the “ Section 2(d)(ii) End Date ”) of the date that Seller delivered the written notice to Buyer in accordance with the preceding sentence. If the Section 2(d)(ii) End Date is a date that is later than three years after the beginning of the First Renewal Period, the First Renewal Period will be extended for all purposes of this Agreement to include the period ending on the Section 2(d)(ii) End Date unless Buyer notifies Seller in writing on or before the 15 ^th day following Buyer’s receipt of the notice referred to in the first sentence of this Section 2(d)(ii) that the extension will not occur.

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(iii) Subject to the following sentence of this Section 2(d)(iii) , if a KCD Mark Acquisition occurs during the Second Renewal Period Seller may, by written notice delivered to Buyer on or before the 60 ^th day following the effectiveness of the KCD Mark Acquisition, terminate Seller’s obligations in Section 3 to sell all KCD-Branded Products that are branded with a KCD Mark that is the subject of the KCD Mark Acquisition. The termination will take effect on the date that is the earlier of (A) the end of the Second Renewal Period and (B) the first anniversary of the date that Seller delivered the written notice to Buyer in accordance with the preceding sentence.

(iv) When a termination in accordance with this Section 2(d) takes effect Buyer’s renewal rights in Section 2(b) will immediately terminate with respect to all KCD-Branded Products that are branded with the KCD Mark or KCD Marks that are the subject of the KCD Mark Acquisition.

(e) Seller’s Termination Rights on Appendix 5(a) . Seller has termination rights that are specified on Appendix 5(a).

(f) Buyer’s Transition and Sell-Off Rights . Subject to the next sentence, upon termination of this Agreement for any reason or upon expiration of this Agreement Seller will provide Buyer with all reasonable transition services (“ Transition Assistance ”) for a period beginning on the date of termination or expiration and ending on or before the 180 ^th day after thereafter (the “ Transition Period ”). This Section 2(f) is not applicable if a termination of this Agreement occurs in accordance with Section 2(c)(i) , Section 2(c)(ii) , Section 2(c)(iii) , or Section 2(d) . The Transition Assistance will include enabling Buyer to transition from the Products to the products of another provider and will include Seller’s continued sale of Products, and continued provision of services that are necessary to implement the continued sale of Products (including all services to be provided by Seller that are described on Appendix 6 ), to Buyer in accordance with the terms and conditions of this Agreement to the extent necessary for an orderly transition. During the Transition Period (i) the HTS Invoice Prices, the Outlet Invoice Prices, and Royalties will be the HTS Invoice Prices, the Outlet Invoice Prices, and the Royalties, respectively, in effect immediately prior to the termination or expiration of this Agreement and (ii) the prices for services provided by Seller to Buyer in accordance with this Agreement will be the prices for the services in effect immediately prior to the termination or expiration of this Agreement. For all other Transition Assistance, Seller will not charge Buyer fees that exceed Seller’s then-standard rates (taking into account the average discount Seller provides to comparable wholesale or licensee customers). During the Transition Period Seller and Buyer will perform all of the terms and conditions of this Agreement to be performed and observed by each of them as if this Agreement were in full force and effect during the Transition Period. During the Transition Period and thereafter Buyer will use commercially reasonable efforts to sell off all of the Products in Buyer’s inventory in accordance with the terms of this Agreement.

3. HTS PRODUCTS .

(a) Seller’s Obligation to Sell . Subject to the other sentences of this Section 3(a) , subject to Sections 2(c) , 2(d) , and 2(e) , and in accordance with Section 6 , Buyer may purchase from Seller, and Seller will sell to Buyer, all of the products that Seller from time to time purchases from Vendors that are included in the product categories listed on Appendix 3(a) (the product categories together the “ HTS Product Categories ” and the products together the “ HTS Products ”) other than Customer-Specific Products and Non-Retail Products. A “ Customer-Specific Product ” is a product that Seller sells to a customer that is a reseller (other than Buyer and Seller’s Retail Businesses) and the product includes branding, trade dress, or significant features that are unique to the customer. A “ Non-Retail Product ” is a product that Seller does not sell to end-user consumers. “ Seller’s Retail Businesses ” means all retail

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businesses operated by Seller and its Affiliates including Sears stores and Kmart stores and including Sears.com, Kmart.com, and all other retail businesses operated by Digital Methods. Buyer acknowledges that Seller’s obligations to sell the HTS Products to Buyer in accordance with this Agreement may be subject to Seller’s Vendors agreeing to sell the HTS Products to Seller for resale to Buyer on commercially reasonable terms and conditions, over which Seller may have little or no control. Subject to Section 3(b) , Seller will take all commercially reasonable actions necessary to acquire HTS Products for sale to Buyer at the best prices to Seller or its Affiliates available from Vendors. Seller will (i) not refuse or otherwise cease to sell to Buyer any HTS Product that is available for purchase on commercially reasonable terms from a Vendor except on 12-months’ prior written notice to Buyer, and (ii) promptly notify Buyer if a Vendor discontinues an HTS Product.

(b) Invoice Prices for HTS Products . The invoice prices for the HTS Products that Seller will sell to Buyer are described on Appendix 3(b) (the “ HTS Invoice Prices ”). The HTS Invoice Price of each HTS Product will include (and will not be charged additionally to Buyer) all costs of manufacturing and delivering the Products to the FOB Point, including (i) all duties and taxes (including excise and withholding taxes) payable in any country where production or delivery takes place, (ii) all commissions to selling agents, and (iii) other incidental charges. Seller’s invoices will itemize for Buyer each 3(b) Amount described on Appendix 3(b) to the extent Seller’s systems permits itemization. If after the Effective Date there is imposed a U.S. value-added tax that is applicable to the HTS Products Seller and Buyer will negotiate in Good Faith an amendment to this Agreement the terms of which would adjust the HTS Invoice Prices to reflect the imposition of the tax.

(c) Vendor Charges . With respect to HTS Products sold to Buyer in accordance with this Agreement, Seller may charge back to Buyer all price adjustments, charges, and penalties that Seller is obligated to pay to its Vendors that occur to the extent due to the direct result of Buyer’s act or omission, including failure to comply with Vendor policies.

(d) Retail Pricing . Buyer will determine advertised prices, promotional prices, and retail prices for all HTS Products in Buyer’s sole discretion. Any agreement or understanding to the contrary is unauthorized, in conflict with Buyer’s and Seller’s policies, and a violation of the terms and conditions of this Agreement. Buyer is aware that Seller’s Vendors from time to time adopt minimum advertised price policies (“ MAP ”) and unilateral pricing policies (“ UPP ”) that may apply to Seller and its sale of HTS Products to Buyer in accordance with the terms and conditions of this Agreement. Buyer is also aware that the failure to comply with a Vendor’s MAP or UPP could result in the Vendor’s imposition of financial penalties on Seller and the Vendor’s refusal to sell one or more HTS Products to Seller, which ultimately could result in Seller’s inability to sell one or more HTS Products to Buyer in accordance with the terms and conditions of this Agreement. Buyer is also aware that Seller could seek to implement its own MAP and UPP with respect to HTS Products.

(e) HTS Product Quality, Availability, and Packaging . Subject to Section 3(a) , all HTS Products that are sold by Seller or its Affiliates to other customers (including Seller’s Retail Businesses) will be identical in all respects, to the HTS Products sold by Seller or its Affiliates to Buyer except for required changes to packaging and labeling that are required by Applicable Law or for which Buyer bears the entire cost. Seller will use commercially reasonable efforts to include in HTS Products available to Buyer all new products and product innovations that Seller purchases from Vendors so that Buyer will have the opportunity to offer HTS Products that are as compelling to Buyer’s end-user consumers as Seller’s comparable product offerings in its full line stores. Seller will obtain Buyer’s prior written approval for all initial HTS Product packaging specifications and graphic designs and for all changes to them.

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(f) Location-Specific Products . Buyer may sell each Location-Specific Product only in accordance with Seller’s requirements as to where the Location-Specific Product may be sold. A “ Location-Specific Product ” is an HTS Product, other than a Customer-Specific Product and a Non-Retail Product, that Seller sells to resellers (including Seller’s Retail Businesses) and as to which Seller requires all of the resellers to resell only at “bricks and mortar” physical locations or by Digital Methods.

4. OUTLET PRODUCTS .

(a) Section 4 Definitions

(i) “ DRM ” means all distressed and refurbished merchandise that from time to time comes into the possession of Seller or one or more of its Affiliates (other than Lands’ End) and that is included in a DRM Merchandise Category.

(ii) “ DRM Merchandise Category ” means each of the consumer electronics, home appliances, lawn and garden, mattresses, sporting goods, and tools Product categories.

(iii) “ MOS ” means marked-out-of stock merchandise described on Appendix 4(c)(ii) that from time to time comes into the possession of Seller or one or more of its Affiliates.

(iv) “ Right of First Offer ” means the obligation of Seller to negotiate in Good Faith with Buyer for 20 business days regarding the price and other material terms and conditions on which Seller would be willing to sell DRM or MOS to Buyer.

(v) “ Right of First Refusal ” means Buyer’s exclusive right (but not the obligation) to purchase DRM or MOS from Seller for the price and on the other material terms and conditions specified in this Section 4 .

(b) DRM .

(i) Selling and Buying DRM . Subject to the following subsections of this Section 4(b) and to Section 6 , during the Initial Term Seller will sell, and Buyer will purchase, all DRM at the prices listed on Appendix 4(b)(i) . Merchandise that is deemed to be DRM for purposes of this Agreement will be determined consistent with the mutual understandings of Seller and Buyer in effect immediately prior to the Effective Date.

(ii) 175% Limit on Buyer’s DRM Purchase Obligation .

(A) Subject to the next sentence, during each rolling twelve-month period that begins during the Initial Term (each a “ DRM Measurement Period ”), Buyer will not be obligated to purchase from Seller more than 175% of the amount of DRM that Buyer purchased from Seller during the 12-month period that immediately preceded the then-current DRM Measurement Period (the “ DRM 175% Limit ”). Buyer’s purchases of DRM Excess in accordance with Section 4(b)(ii)(B) , purchases of Offered DRM in accordance with Section 4(b)(iii)(A) , and purchases of DRM in accordance with Section 4(b)(iv) will be excluded from Buyer’s purchases of DRM for the purpose of determining Buyer’s purchases of DRM in excess of the DRM 175% Limit. With respect to the first DRM Measurement Period, which will end on the last day of the fiscal month in which the first anniversary of the Effective Date occurs, and for each of the next eleven consecutive DRM Measurement Periods (each ending on the last day of a fiscal month), the purchase volumes for the applicable number of months immediately preceding the Effective Date will be used to determine Buyer’s rights in accordance with the first sentence of this Section 4(b)(ii)(A) . The amount of DRM in excess of the DRM 175% Limit is referred to

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as the “ DRM Excess .” Buyer will notify Seller in writing with respect to each exercise by Buyer of its rights not to purchase the DRM Excess in accordance with this Section 4(b)(ii)(A) (each a “ DRM 175% Notice ”). Buyer will deliver the DRM 175% Notice within 10 days after the date Buyer’s purchases during a DRM Measurement Period equal or would first exceed the DRM 175% Limit.

(B) Seller will obtain a bona fide offer from an unrelated third party to purchase all, and not less than all, of the DRM Excess (the “ DRM Third-Party Offer ”), with the unrelated third-party’s obligation to begin purchasing the DRM Excess to occur not later than the 20 ^th day following Buyer’s delivery of the DRM 175% Notice (the “ DRM Excess Purchase Start Date ”). Seller will notify Buyer of the price and the other material terms of the DRM Third-Party Offer (including the frequency of purchases of the DRM Excess) not later than the 15 ^th day prior to the DRM Excess Purchase Start Date. Buyer will have a Right of First Refusal (the “ DRM Excess Right of First Refusal ”) to purchase all, and not less than all, of the DRM Excess at a price equal to the price specified in the DRM Third-Party Offer (the “ DRM Excess Price ”). To exercise the Right of First Refusal Buyer must (1) notify Seller not later than the 10 ^th day prior to the DRM Excess Purchase Start Date that Buyer will exercise the DRM Excess Right of First Refusal and (2) begin paying the DRM Excess Price, and begin purchasing the DRM Excess, on the DRM Excess Purchase Start Date. If Buyer does not exercise the DRM Excess Right of First Refusal in accordance with this Section 4(b)(ii)(B) Seller will be free to sell all, and not less than all, of the DRM Excess to the unrelated third party at a price no less than the DRM Excess Price in accordance with a binding agreement between Seller and the unrelated third party. If Seller does not enter into a binding agreement with the unrelated third party in accordance with the preceding sentence with respect to the DRM Excess or ceases to sell the DRM Excess to the unrelated third party, Buyer will have a Right of First Offer with respect to the DRM Excess.

(iii) Termination of DRM Selling/Buying obligations . The obligation of Seller to sell and of Buyer to purchase DRM in a DRM Merchandise Category in accordance with Section 4(b)(i) will end on the 111 ^th day following the third anniversary or the fourth anniversary of the Effective Date, whichever is applicable (the 111 ^th day, the “ End Date ”), but only if the following two conditions are satisfied:

(A) Seller, not earlier than the 60 ^th day and not later than the 90 ^th day following the third anniversary or the fourth anniversary of the Effective Date, as the case may be, offers by a written notice delivered to Buyer (the date the notice is delivered, the “ Offered DRM Notice Date ”) a Right of First Refusal (the “ Offered DRM Right of First Refusal ”) to purchase all identified items comprising one or more of the DRM Merchandise Categories as of the Offered DRM Notice Date (the “ Offered DRM ”) for the price and on the other material terms and conditions (including completing the purchase not earlier than 10 days after, and not later than 15 days after, the Offered DRM Notice Date) specified in a bona fide offer to Seller from an unrelated third party for the entire Offered DRM (and the offer has not been withdrawn) (the “ Offered DRM Third-Party Offer ”) and

(B) Buyer fails to exercise the Offered DRM Right of First Refusal by (1) delivering written notice to Seller on or before the 5 ^th day following the Offered DRM Notice Date of Seller’s intention to purchase the Offered DRM on the same terms and conditions as the terms and conditions of the Offered DRM Third-Party Offer, and (2) completing the purchase of the entire Offered DRM on the same terms and conditions as the terms and conditions of the Offered DRM Third-Party Offer.

(iv) Failure to Exercise Offered DRM Right of First Refusal . If Buyer fails to exercise in accordance with Section 4(b)(iii)(A) the Offered DRM Right of First Refusal, Seller will be free to sell all, and not less than all, of the entire Offered DRM to one unrelated third party upon the terms and conditions of the Offered DRM Third-Party Offer. If Seller does not sell all, and not less than all, of

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the Offered DRM to one unrelated third party upon the terms and conditions of the Offered DRM Third-Party Offer, Buyer will have (A) a Right of First Offer with respect to the Offered DRM, and (B) a continuing Right of First Offer with respect to all additional DRM available in the future that was in the same DRM Merchandise Category as the Offered DRM.

(c) MOS .

(i) Selling and Buying MOS . Subject to the following subsections of this Section 4(c) and to Section 6 , during the Initial Term Seller will sell, and Buyer will purchase, all MOS. Merchandise that is deemed to be MOS for purposes of this Agreement will be determined consistent with the mutual understandings of Seller and Buyer in effect immediately prior to the Effective Date.

(ii) MOS Invoice Prices; Negotiated Price Changes . The invoice prices for MOS for the first three 12-month periods during the Initial Term are reflected on Appendix 4(c)(ii) . At the end of the third 12-month period of the Initial Term and the end of the fourth 12-month period of the Initial Term, Seller and Buyer will negotiate in Good Faith the invoices prices for MOS for the fourth 12-month period and the final 18-month period of the Initial Term. If the required negotiations at the end of the third 12-month period and the end of the fourth 12-month period of the Initial Term result in agreed-upon invoice prices for all categories of MOS for the fourth 12-month period and the final 18-month period of the Initial Term, as the case may be, those prices will become the invoice prices for all categories of MOS effective for the entire fourth 12-month period and the entire final 18-month period, as the case may be.

(iii) Price Changes Not Negotiated; Selling/Buying Obligations End . If Seller and Buyer are unable at the end of the third 12-month period of the Initial Term to negotiate an invoice price for one or more categories of MOS, then for the remainder of the Initial Term (i) Seller’s obligations to sell, and Buyer’s obligations to purchase, MOS in these categories in accordance with Section 4(c)(i) will end, and (ii) Seller will give Buyer a continuing Right of First Offer with respect to all MOS in these categories. If the required negotiations at the end of the third 12-month period result in agreed-upon invoice prices for all categories of MOS for the fourth 12-month period but Seller and Buyer are unable at the end of the fourth 12-month period to negotiate an invoice price for one of more categories of MOS for the final 18-month period of the Initial Term, then for the remainder of the Initial Term (y) Seller’s obligations to sell, and Buyer’s obligations to purchase, MOS in these categories in accordance with Section 4(c)(i) will end, and (z) Seller will give Buyer a continuing Right of First Offer with respect to all MOS in these categories.

(iv) 175% Limit on Buyer’s MOS (Non-Apparel) Purchase Obligation .

(A) Subject to the next sentence, during each rolling twelve-month period that begins during the Initial Term (each a “ MOS (Non-Apparel) Measurement Period ”), Buyer will not be obligated to purchase from Seller more than 175% of the amount of MOS (Non-Apparel) that Buyer purchased from Seller during the 12-month period that immediately preceded the then-current MOS (Non-Apparel) Measurement Period (the “ MOS (Non-Apparel) 175% Limit ”). Buyer’s purchases of MOS (Non-Apparel) in accordance with a MOS Right of First Offer and purchases of MOS (Non-Apparel) Excess in accordance with Section 4(c)(iv)(B) will be excluded from Buyer’s purchases of MOS (Non-Apparel) for the purpose of determining Buyer’s purchases of MOS (Non-Apparel) in excess of the MOS (Non-Apparel) 175% Limit. With respect to the first MOS (Non-Apparel) Measurement Period, which will end on the last day of the fiscal month in which the first anniversary of the Effective Date occurs, and for each of the next eleven consecutive MOS (Non-Apparel) Measurement Periods (each ending on the last day of a fiscal month), the purchase volumes for the applicable number of months immediately preceding the Effective Date will be used to determine Buyer’s rights in accordance with the first sentence of this Section 4(c)(iv)(A) . The amount of MOS (Non-Apparel) in excess of the MOS (Non-Apparel)

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175% Limit is referred to as the “ MOS (Non-Apparel) Excess .” Buyer will notify Seller in writing with respect to each exercise by Buyer of its rights not to purchase the MOS (Non-Apparel) Excess in accordance with this Section 4(c)(iv)(A) (each a “ MOS (Non-Apparel) 175% Notice ”). Buyer will deliver the MOS (Non-Apparel) 175% Notice within 10 days after the date Buyer’s purchases during a MOS (Non-Apparel) Measurement Period equal or would first exceed the MOS (Non-Apparel) 175% Limit.

(B) Seller will obtain a bona fide offer from an unrelated third party to purchase all, and not less than all, of the MOS (Non-Apparel) Excess (the “ MOS (Non-Apparel) Third-Party Offer ”), with the unrelated third-party’s obligation to begin purchasing the MOS (Non-Apparel) Excess to occur not later than the 20 ^th day following Buyer’s delivery of the MOS (Non-Apparel) 175% Notice (the “ MOS (Non-Apparel) Excess Purchase Start Date ”). Seller will notify Buyer of the price and the other material terms of the MOS (Non-Apparel) Third-Party Offer (including the frequency of purchases of the MOS (Non-Apparel) Excess) not later than the 15 ^th day prior to the MOS (Non-Apparel) Excess Purchase Start Date. Buyer will have a Right of First Refusal (the “ MOS (Non-Apparel) Excess Right of First Refusal ”) to purchase all, and not less than all, of the MOS (Non-Apparel) Excess at a price equal to the price specified in the MOS (Non-Apparel) Third-Party Offer (the “ MOS (Non-Apparel) Excess Price ”). To exercise the Right of First Refusal Buyer must (1) notify Seller not later than the 10 ^th day prior to the MOS (Non-Apparel) Excess Purchase Start Date that Buyer will exercise the MOS (Non-Apparel) Excess Right of First Refusal and (2) begin paying the MOS (Non-Apparel) Excess Price, and begin purchasing the MOS (Non-Apparel) Excess, on the MOS (Non-Apparel) Excess Purchase Start Date. If Buyer does not exercise the MOS (Non-Apparel) Excess Right of First Refusal in accordance with this Section 4(c)(iv)(B) Seller will be free to sell all, and not less than all, of the MOS (Non-Apparel) Excess to the unrelated third party at a price no less than the MOS (Non-Apparel) Excess Price in accordance with a binding agreement between Seller and the unrelated third party. If Seller does not enter into a binding agreement with the unrelated third party in accordance with the preceding sentence with respect to the MOS (Non-Apparel) Excess or ceases to sell the MOS (Non-Apparel) Excess to the unrelated third party, Buyer will have a Right of First Offer with respect to the MOS (Non-Apparel) Excess.

(v) 175% Limit on Buyer’s MOS (Apparel) Purchase Obligation .

(A) Subject to the next sentence, during each twelve-month period that begins during the Initial Term and includes Seller’s Fall-Winter mark-out period and Seller’s Spring-Summer mark-out period (each a “ MOS (Apparel) Measurement Period ”), Buyer will not be obligated to purchase from Seller more than 175% of the amount of MOS (Apparel) that Buyer purchased from Seller during the 12-month period that immediately preceded the then-current MOS (Apparel) Measurement Period (the “ MOS (Apparel) 175% Limit ”). Buyer’s purchases of MOS (Apparel) in accordance with a MOS Right of First Refusal and purchases of MOS (Apparel) Excess in accordance with Section 4(c)(v)(B) will be excluded from Buyer’s purchases of MOS (Apparel) for the purpose of determining Buyer’s purchases of MOS (Apparel) in excess of the MOS (Apparel) 175% Limit. The first MOS (Apparel) Measurement Period will include Seller’s 2012 Fall-Winter mark-out period and Seller’s 2013 Spring-Summer mark-out period and the purchase volumes for the 12-month period that included Seller’s 2011 Fall-Winter mark-out Period and Seller’s 2012 Spring-Summer mark-out Period will be used to determine Buyer’s rights in accordance with the first sentence of this Section 4(c)(v)(A) . The amount of MOS (Apparel) in excess of the MOS (Apparel) 175% Limit is referred to as the “ MOS (Apparel) Excess .” Buyer will notify Seller in writing with respect to each exercise by Buyer of its rights not to purchase the MOS (Apparel) Excess in accordance with this Section 4(c)(v)(A) (each a “ MOS (Apparel) 175% Notice ”). Buyer will deliver the MOS (Apparel) 175% Notice within 10 days after the date Buyer’s purchases during a MOS (Apparel) Measurement Period equal or would first exceed the MOS (Apparel) 175% Limit.

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(B) Seller will obtain a bona fide offer from an unrelated third party to purchase all, and not less than all, of the MOS (Apparel) Excess (the “ MOS (Apparel) Third-Party Offer ”), with the unrelated third party’s obligation to begin purchasing the MOS (Apparel) Excess to occur not later than the 20 ^th day following Buyer’s delivery of the MOS (Apparel) 175% Notice (the “ MOS (Apparel) Excess Purchase Start Date ”). Seller will notify Buyer of the price and the other material terms of the MOS (Apparel) Third-Party Offer (including the frequency of purchases of the MOS (Apparel) Excess) not later than the 15 ^th day prior to the MOS (Apparel) Excess Purchase Start Date. Buyer will have a Right of First Refusal (the “ MOS (Apparel) Excess Right of First Refusal ”) to purchase all, and not less than all, of the MOS (Apparel) Excess at a price equal to the price specified in the MOS (Apparel) Third-Party Offer (the “ MOS (Apparel) Excess Price ”). To exercise the Right of First Refusal Buyer must (1) notify Seller not later than the 10 ^th day prior to the MOS (Apparel) Excess Purchase Start Date that Buyer will exercise the MOS (Apparel) Excess Right of First Refusal and (2) begin paying the MOS (Apparel) Excess Price, and begin purchasing the MOS (Apparel) Excess, on the MOS (Apparel) Excess Purchase Start Date. If Buyer does not exercise the MOS (Non-Apparel) Excess Right of First Refusal in accordance with this Section 4(c)(v)(B) Seller will be free to sell all, and not less than all, of the MOS (Apparel) Excess to the unrelated third party at a price no less than the MOS (Apparel) Excess Price in accordance with a binding agreement between Seller and the unrelated third party. If Seller does not enter into a binding agreement with the unrelated third party in accordance with the preceding sentence with respect to the MOS (Apparel) Excess or ceases to sell the MOS (Apparel) Excess to the unrelated third party, Buyer will have a Right of First Offer with respect to the MOS (Apparel) Excess.

(d) Right of First Offer for Additional Categories . Buyer will have a continuing Right of First Offer to purchase all of Seller’s (i) discontinued and obsolete products, (ii) overstock products and home goods and furniture that were new and still in original packaging, (iii) distressed, refurbished, discontinued, and obsolete home goods and furniture, and (iv) marked-out-of-stock footwear, except that Buyer’s rights in this Section 4(d) do not apply to Non-Retail Products.

(e) Seller’s Compliance with Rights of First Offer; Termination . Seller may comply with its obligations with respect to each Right of First Offer provided in this Section 4 by notifying Buyer once during each calendar quarter as to the DRM or MOS, as the case may be, that is subject to the Right of First Offer. If with respect to a Right of First Offer Buyer fails during any 12-month period to engage in Good Faith negotiations for 50% or more of Seller’s notifications in the preceding sentence for the Right of First Offer, Seller’s obligations, and Buyer’s rights, with respect to the Right of First Offer will terminate.

(f) Retail Pricing . Buyer will determine advertised prices, promotional prices, and retail prices for DRM, MOS, and all other Products acquired from Seller in accordance with this Section 4 (together, “ Outlet Products ”) in Buyer’s sole discretion. Any agreement or understanding to the contrary is unauthorized, in conflict with Buyer’s and Seller’s policies, and a violation of the terms and conditions of this Agreement.

(g) Invoice Prices for Outlet Products . The invoice prices for the Outlet Products that Seller will sell to Buyer in accordance with this Section 4 (the “ Outlet Invoice Prices ”) will include (and will not be charged additionally to Buyer) all costs of manufacturing and delivering the Outlet Products to the FOB Point, including (i) all duties and taxes (including excise and withholding taxes) payable in any country where production or delivery takes place, (ii) all commissions to selling agents, and (iii) other incidental charges. If after the Effective Date there is imposed a U.S. value-added tax that is applicable to the Outlet Products Seller and Buyer will negotiate in Good Faith an amendment to this Agreement the terms of which would adjust the Outlet Invoice Prices to reflect the imposition of the tax. Buyer will have 20 days (30 days with respect to washers) from Buyer’s receipt to return to Seller Outlet Products that are

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not saleable. If with respect to an Outlet Product Buyer does not notify Seller in accordance with the preceding sentence that the Outlet Product is not saleable, Buyer’s purchase of the Outlet Product will be final.

(h) Outlet Product Restrictions . Buyer acknowledges that Seller’s obligations to sell the Outlet Products to Buyer in accordance with this Agreement may be subject to Seller’s Vendors agreeing to permit Seller to sell the Outlet Products to Buyer for resale in accordance with this Section 4 , over which Seller may have little or no control. Seller will take all commercially reasonable actions necessary to be able to sell the Outlet Products to Buyer in accordance with this Section 4 . If Seller has entered into an agreement with a Vendor in effect immediately prior to the Effective Date and the agreement requires Seller to return Outlet Products to the Vendor (a “ Return-Requirement Agreement ”), or a Return-Requirement Agreement is extended or renewed on or after the Effective Date on substantially the same terms and conditions as its predecessor agreement, the provisions of the extended or renewed agreement will prevail over the provisions of this Section 4(h) . Subject to the next sentence, if on or after the Effective Date Seller in Good Faith enters into an agreement with a Vendor that would require Seller to return an Outlet Product to the Vendor and the price that the Vendor of the Outlet Product would be obligated to pay to Seller would be greater than the Outlet Invoice Price that Buyer would be obligated to pay to Seller for the Outlet Product (the “ Vendor’s RTV Payment ”), Seller may return the Outlet Product to the Vendor (in exchange for the Vendor’s RTV Payment) rather than selling the Outlet Product to Seller in accordance with Section 4(b) . Seller will not give the Vendor a financial or other benefit (including agreeing to pay the Vendor a higher purchase price for Seller’s purchase of the Outlet Product from the Vendor), or give the Vendor Seller’s commitment or obligation, directly or indirectly in exchange for, or as an inducement to the Vendor to pay, the Vendor’s RTV Payment.

5. ROYALTIES .

(a) Quarterly Royalty Reports; Royalties Payable . Within 15 days following the end of each of Buyer’s fiscal quarters during the Term and during any sell-off period in accordance with Section 2(f) , Buyer will submit to Seller a true and correct report for the fiscal quarter of Gross Sales, Net Sales, and Royalties for each KCD-Branded Product sold by Buyer to a customer during the fiscal quarter (each a “ Royalty Report ”). “ Gross Sales ” means the total amount of specified merchandise sold, other than among a Party and its Affiliates, without deduction of any kind (including deductions for separately invoiced freight and insurance, bad debts, and uncollectible accounts). “ Net Sales ” means Gross Sales less all returns of the specified merchandise and all adjustments to resolve customer complaints and without any other deduction (including deductions for cash discounts, freight discounts, advertising discounts, and uncollectable amounts). “ Royalties ” for a Buyer fiscal quarter means the royalties payable by Buyer with respect to its Net Sales of each category of KCD-Branded Products at the Royalty Rates specified on Appendix 5(a) , less the Kenmore Royalty Credit for the fiscal quarter determined as specified on Appendix 5(a) but subject to Section 5(c) and Section 5(d) . Buyer will pay Royalties at the times specified in Section 7(b) . Buyer will include with each Royalty Report a certificate from a Senior Vice President of Buyer certifying, to the Senior Vice President’s best knowledge after due inquiry, (i) that the contents of the Royalty Report are true and correct in all material respects and (ii) whether during the fiscal quarter Buyer complied with Section 5(c) and Section 5(d) .

(b) Adjustments . If Buyer or Seller discovers any inconsistencies or mistakes in a Royalty Report, Buyer will deliver an updated Royalty Report within 30 days of such discovery rectifying the inconsistencies or mistakes and, if Royalties have been under-reported, Buyer will, with delivery of the updated Royalty Report, simultaneously tender the under-paid Royalties to Seller. If Buyer has over paid Royalties, Buyer will identify the amount of the overpayment in its updated Royalty Report and Seller will credit the amount of the overpayment against amounts due in subsequent payment periods after Seller has confirmed that a credit is due.

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(c) Featuring Kenmore-Branded Product . Subject to the next sentence, to be eligible for the Kenmore Royalty Credit for a Buyer fiscal quarter Buyer will during the fiscal quarter (i) use commercially reasonable efforts to feature Products sold under the Kenmore Mark (“ Kenmore-Branded Products ”) in all pre-prints and free-standing inserts created by Buyer for the Sears Hometown Store, Sears Home Appliance Showroom, and Sears Hardware Store formats, and (ii) use commercially reasonable efforts to feature Kenmore-Branded Products on the cover of all preprints created by Buyer in the Sears Hometown Store and Sears Home Appliance Showroom formats. In no event during the Buyer fiscal quarter will Buyer feature Kenmore-Branded Products (x) in less than 95% of all pre-prints and free-standing inserts created by Buyer for the Sears Hometown Store, Sears Home Appliance Showroom, and Sears Hardware Store formats, (y) on the cover of less than 95% of all preprints created by Buyer for the Sears Hometown Store and Sears Home Appliance Showroom formats, and (z) on the cover of less than 50% of the preprints created by Buyer for the Sears Hardware Store formats.

(d) Minimum Commission . To be eligible for the Kenmore Royalty Credit for a Buyer fiscal quarter Buyer will during the fiscal quarter pay the Franchisees and the owners of the Sears Hometown Stores the Average Aggregate Minimum Commission Rate specified on Appendix 5(d) on sales of Kenmore-Branded Products.

(e) Record Retention; Audit Rights . Buyer will keep and preserve accurate records of each transaction relating to Buyer’s calculations of Royalties, Kenmore Royalty Credit, and Average Aggregate Minimum Commission for the longer of (i) the minimum period required by Applicable Law, and (ii) two years following the applicable transaction. Upon Seller’s reasonable request Buyer will provide Seller with information that will enable Seller to confirm Buyer’s calculations of Royalties, Kenmore Royalty Credit, and Average Aggregate Minimum Commission. Seller, with reasonable notice to Buyer, may during normal business hours conduct audits of the books and records of Buyer to confirm Buyer’s calculations of Royalties, Kenmore Royalty Credit, and Average Aggregate Minimum Commission (each an “ Audit ”). Subject to the next sentence, Audits may occur no more than twice per calendar year and may be conducted by Seller’s employees, by Seller’s authorized agents, or by a combination of the two, in each case only if each person participating in an Audit agrees to treat all information with respect to the Audit as confidential in accordance with Section 13(b) . If an Audit or other information demonstrates that Buyer under-reported a Royalty or over-reported a Kenmore Royalty Credit by more than 5% with respect to two or more Buyer fiscal months, or Buyer fiscal quarters, as the case may be, Seller has the right to conduct Audits on a quarterly basis until such time as Buyer has properly reported Royalties and Kenmore Royalty Credits for three consecutive Audits, after which time Seller’s rights in accordance with this Section 5(e) will revert to conducting Audits no more than twice per calendar year. Seller will pay for all Audits but if an Audit shows a 5% or greater discrepancy in the amount of the Royalty or Kenmore Royalty Credit calculated by Buyer for a Buyer fiscal month or Buyer fiscal quarter, as the case may be, then Buyer will pay for that Audit and all subsequent Audits for a period of one year.

6. INVENTORY MANAGEMENT POLICES AND PROCESSES; DELIVERY TERMS . With respect to Seller’s obligations in Section 3(a) and Section 4 , Buyer and Seller will comply with the Inventory Management Policies and Processes specified on Appendix 6 (the “ Inventory Policies and Processes ”). Seller will deliver all Products to the applicable FOB Point in accordance with the Inventory Policies and Processes. With respect to each Product, Seller will have title to, and risk of loss for, the Product until Seller delivers the Product to the FOB Point in accordance with this Section 6 , at which time Seller’s title and risk of loss will terminate.

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7. PAYMENT TERMS FOR INVOICE PRICES AND ROYALTIES .

(a) Invoice Prices for Products . Seller will invoice Buyer for Products sold to Buyer no earlier than the date the invoiced Products are delivered to the FOB Point. “ FOB Point ” means a Sears Hometown Store, a Sears Hardware Store, a Sears Outlet Store, a store operated by a Franchisee, the residence of a customer of any of these stores, or a distribution facility to which a Product is delivered in accordance with Buyer’s instructions. Not later than the Payment Due Date specified on Appendix 7(a) , Buyer will pay for the undisputed portion of each invoice and notify Seller of any disputed amount and the reason for the dispute.

(b) Royalties . During the period that Buyer’s Stores use Seller’s point-of-sale system (the “ POS ”) to record all sales of Products, Buyer will pay to Seller the Royalty due, as determined by the POS, for each of Buyer’s fiscal weeks not later than the Payment Due Date specified on Appendix 7(a) . If Buyer’s Stores cease to use the POS, Buyer will pay to Seller the Royalty due, as determined from the Royalty Reports in accordance with Section 5 , for each Buyer fiscal quarter not later than the Payment Due Date specified on Appendix 7(a) .

8. SUBSIDIES AND MARKETING/MERCHANDISING SUPPORT .

(a) Vendor Subsidies . Subject to the next sentences of this Section 8(a) , Seller will pay to Buyer the Subsidy Pro Rata Share of each Vendor Subsidy that Seller collects (by actual payment or as a credit against a Seller obligation) with respect to the Product categories sold by Seller to Buyer except to the extent that Seller is prohibited by the terms of a Vendor contract from paying a Subsidy Pro Rata Share to Buyer and except to the extent that a Vendor refuses to pay to Seller a Vendor Subsidy with respect to Seller’s sales of Products to Buyer. Vendor Subsidies received for the following will not be allocated between Seller and Buyer on a Subsidy Pro Rata Share basis: (i) “HotBuys/Door Buster” items will be allocated on an actual specific units sold basis; (ii) training events (such as Home Appliance Roadshow), Hometown Celebration, and Powerama) will be allocated to Buyer to the extent it is incurring the related expense; (iii) new store locations will be allocated to Buyer with respect to the Buyer Store locations for which the Vendor Subsidy is applicable; (iv) Buyer-specific transition merchandise subsidies will be allocated to Buyer only; (v) Seller-specific transition merchandise subsidies will be allocated to Seller only; (vi) Buyer-specific fixture subsidies will be allocated to Buyer only; and (vii) Seller-specific fixture subsidies will be allocated to Seller only. Seller will in Good Faith use commercially reasonable efforts to maximize the Vendor Subsidies and to obtain Vendors’ permission to share all Vendor Subsidies with Buyer in accordance with this Section 8(a) . “ Subsidy Pro Rata Share ” of a Vendor Subsidy paid by the Vendor with respect to, or in connection with, a Product category means a fraction the numerator of which is Buyer’s total fiscal year-to-date sales of Products in the Product category and the denominator of which is Seller’s total fiscal year-to-date sales of Products in the Product category. Seller will calculate Subsidy Pro Rata Share on a fiscal monthly basis and pay the Subsidy Pro Rata Share to Buyer by the 15 ^th day of the next fiscal month. “ Vendor Subsidy ” means support or assistance payments from Vendors relating to merchandise sold or the Vendor-customer relationship and include (regardless as to how they are entitled) advertising and marketing allowances, brand-building subsidies, display subsidies, electronic efforts subsidies, fixed-percentage subsidies, fixture subsidies, markdown support, new-outlet subsidies, product-return assistance, quality-assurance subsidies, reset subsidies, signage subsidies, transition-support subsidies, volume incentive discounts, and similar Vendor support and assistance.

(b) Product Information Support . Seller agrees to provide to Buyer the following Product promotional and information support:

(i) Marketing and Promotional Materials . Seller will provide to Buyer a reasonable supply of customer literature and other marketing and promotional items for the Products, consistent with past practices and conditioned on the provision of marketing materials to Seller by its Vendors.

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(ii) Electronic Efforts . Seller will support Buyer’s electronic marketing, distribution, logistic, accounting and sales efforts by providing to Buyer in electronic format (or other format reasonably requested by Buyer) such Product descriptions, text, high-resolution Product images (including supplemental feature shots), audio, video and other web content that Seller has prepared for its own use as Buyer reasonably requests from time to time for any website that is owned or controlled by Buyer (including any product specific site or Micro site) or any other Internet-based application relating to the Products. Seller and Buyer will negotiate in Good Faith the appropriate pro rata charges that Buyer would pay for these services.

(c) Other Support . Periodically during the Term, Buyer and Seller will negotiate to determine the level of Seller’s support required to successfully implement Product launches and other promotional initiatives as mutually agreed upon by the Parties to support the sale of the Products. Such support will be determined on a case by case basis in view of competitive conditions in the marketplace and will be documented through a promotional agreement, consistent with past practices and conditioned on the further support of Seller’s Vendors.

9. CUSTOMERS AND TRADE AREAS .

(a) General . Nothing in this Section 9 or elsewhere in this Agreement limits or restricts in any way whatsoever the unrestricted rights of each of Seller and its Affiliates to market or sell Products, other merchandise, or services by Digital Methods or the unrestricted rights of Buyer and its Affiliates to market or sell Products other than Seller-Branded Products, other merchandise, or services by Digital Methods. The rights of Buyer and its Affiliates to sell Seller-Branded Products by Digital Methods are subject to Section 12(a)(iii)(B) . In this Section 9 (i) all references to “ stores ,” “ Stores ,” and “ Showrooms ” refer only to “brick and mortar” physical locations, and (ii) all references to “ new ” and “ New ” stores, Stores, or Showrooms refer to stores, Stores or Showrooms that first open for business on or after the Effective Date.

(b) Buyer .

(i) HTS Stores . Buyer and its Affiliates may continue to, and may authorize others to continue to, own, license, franchise, and otherwise operate at all times after the Effective Date the Sears Hometown Stores, Sears Home Appliance Showrooms, and Sears Hardware Stores owned, licensed, franchised, or otherwise operated on or before the Effective Date. Buyer and its Affiliates may open, own, license, franchise, and otherwise operate, and may authorize others (except Seller Competitors), to own, license, franchise, and otherwise operate, at all times after the Effective Date new Sears Hometown Stores, new Sears Home Appliance Showrooms, and new Sears Hardware Stores (“ New HTS Stores ”) without restriction, except that none of Buyer and its Affiliates will, directly or indirectly, open, own, license, franchise, or otherwise operate, or authorize others to operate, a New HTS Store or any other new store in any Metropolitan Statistical Area (as defined by the United States Office of Management and Budget) unless one of the following applies to the New HTS Store or the other new store:

(A) The New HTS Store or other new store is listed on Appendix 9(b)(i)(A) ;

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(B) The New HTS Store or other new store is at least eight miles (using the most logical driving route) from all existing Seller-owned or operated stores branded with the name “Sears” (“ Sears Stores ”),

(C) The New HTS Store or other new store is between five miles and eight miles (using the most logical driving route) from all existing Sears Stores and Buyer and Seller agree in writing that Buyer will pay Seller annually 30% of the New HTS Store’s or other new store’s annual EBITDA, if any, for the first five of Buyer’s fiscal years that the New HTS Store or other new store is open for business, or

(D) The New HTS Store or other new store distributes products primarily on a rent-to-own basis.

(ii) Sears Outlet Stores . Buyer and its Affiliates may continue to own and operate all Sears Outlet Stores owned and operated on the Effective Date without restriction. Buyer may open, own, and operate after the Effective Date new Sears Outlet Stores without restriction.

(c) Seller .

(i) Existing Stores and New Stores . Seller and its Affiliates may continue to, and may authorize others to continue to, own and operate after the Effective Date all stores owned and operated by them on the Effective Date. Subject to the next sentence, after the Effective Date Seller and its Affiliates may open new stores, and authorize Authorized Stores, using store names used by Seller and its Affiliates on the Effective Date without restriction. After the Effective Date none of Seller and its Affiliates will, directly or indirectly, do any of the following:

(A) in any MicroSA open, own, or operate any new store, or authorize in any MicroSA any new Authorized Store, that is (1) branded with any Mark that includes “Kenmore” or “Craftsman” or (2) a Sears Store;

(B) open, own, or operate any new store, or sell Prohibited Products to any new Authorized Store, that is substantially similar to one or more of the Sears Hometown Stores, Sears Home Appliance Showrooms, or Sears Outlet Stores formats existing on the Effective Date; or

(C) open, own, or operate any new store, or authorize any new Authorized Store, that markets or sells, or authorizes (via a license agreement, operating agreement, or otherwise) any natural person, business entity, or non-entity business enterprise to market or sell, any item of Exclusive Merchandise at a store physically located in any Zip Code area with respect to which, and to the extent, Buyer or any Affiliate of Seller has agreed with the owner of an HTS Store to refrain from selling Exclusive Merchandise in the Zip Code area.

(ii) Defined Terms . “ Authorized Store ” means a store (A) that is authorized by Seller or its Affiliates pursuant to a license agreement, an operating agreement, or otherwise to market or sell one or more Prohibited Products, or (B) to which Seller or its Affiliates sell products. “ Exclusive Merchandise ” means the following merchandise identified by the “Kenmore” name: clothes washers; clothes dryers; dishwashers; ranges; and full-size refrigerators. “ MicroSA ” means a Micropolitan Statistical Area (as defined by the United States Office of Management and Budget). “ Prohibited Products ” means Exclusive Merchandise, freezers, built-in cooking, lawn mowers and tractors, and the Products in the following KCD-Branded Product Categories: Handtools & Mechanics Tools; Power Tools; and Garage & Storage.

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(d) Growth . Buyer and Seller will negotiate in Good Faith with respect to each request by Buyer to sell Seller-Branded Products to Buyer’s Affiliates, Franchisees, or licensees at “brick and mortar” physical locations outside the Territory.

(e) New HTS Stores and Renewals-Exclusivity . After the Effective Date SHO will not enter into an Authorizing Agreement for a New HTS Store that includes, or amend an Authorizing Agreement to add, product-exclusivity rights. If after the Effective Date Buyer in its discretion elects to renew, or permits the assignment of, an Authorizing Agreement for a Sears Hometown Store that includes product-exclusivity rights, Buyer will use commercially reasonable efforts to seek to renew, or permit the assignment of, the Authorizing Agreement on terms and conditions that eliminate the product-exclusivity rights effective upon the renewal or the assignment. “ Authorizing Agreement ” means an agreement authorizing an unrelated third-party owner or Franchisee to operate an HTS Store and includes Buyer’s franchise agreements and dealer agreements.

10. PRODUCT WARRANTIES AND RETURNS .

(a) Product Warranties .

(i) No-Vendor-Warranty Products . With each KCD-Branded Product that Seller purchases from a Vendor without the Vendor’s customer warranty and resells to Buyer in accordance with the terms and conditions of this Agreement (a “ No-Vendor-Warranty Product ”) Seller will include Seller’s customer warranty (the “ Seller Warranty ”). If Seller also sells the No-Vendor-Warranty Product through Seller’s Retail Businesses, the duration and coverage of the Seller Warranty will be no less favorable to Buyer’s customers than the duration and coverage of the most-favorable-to-customer warranty provided by Seller for the No-Vendor-Warranty Product when sold by Seller’s Retail Businesses. If Seller does not sell the No-Vendor-Warranty Product through Seller’s Retail Businesses, the duration and coverage of the Seller Warranty will be no less favorable to Buyer’s customers than the duration and coverage of the most-favorable-to-customer warranty provided by Seller for a product that is comparable to the No-Vendor-Warranty Product when sold by Seller’s Retail Businesses. All Products that Seller purchases from a Vendor without the Vendor’s Warranty, other than No-Vendor-Warranty Products, and resells to Buyer in accordance with the terms and conditions of this Agreement are referred to as “ Excluded No-Warranty Products .”

(ii) Vendor-Warranty Products . With each Product that Seller purchases from a Vendor with the Vendor’s customer warranty and resells to Buyer in accordance with the terms and conditions of this Agreement (a “ Vendor-Warranty Product ”) Seller will include the Vendor’s customer warranty (the “ Vendor Warranty ”). If Seller also sells the Vendor-Warranty Product through Seller’s Retail Businesses, the duration and coverage of the Vendor Warranty will be no less favorable to Buyer’s customers than the duration and coverage of the Vendor Warranty that the Vendor includes with the Vendor-Warranty Product sold by Seller’s Retail Businesses. If Seller does not sell the Vendor-Warranty Product through Seller’s Retail Businesses, the duration and coverage of the Vendor Warranty will be no less favorable to Buyer’s customers than the duration and coverage of the most-favorable-to-customer warranty provided by Vendor for the Vendor-Warranty Product when sold by Vendor to its other customers. Seller will perform its obligations in this Section 10(a)(ii) without any additional compensation payable by Buyer to Seller. The Seller Warranty and the Vendor Warranty are together referred to as the “ Warranty .”

(iii) Seller’s Compensation for Seller Warranty; Termination . Subject to the following sentences of this Section 10(a)(iii) , (A) as Seller’s sole compensation for the Seller Warranty for a No-Vendor-Warranty Product (including a “stock product”) that is an HTS Product, the HTS Invoice Price described on Appendix 3(b) includes a charge for the Seller Warranty, and (B) as Seller’s sole

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compensation for the Seller Warranty for a No-Vendor-Warranty Product that is an Outlet Product, Seller’s charge for the Seller Warranty is included in “Outlet’s Cost” specified in Table A on Appendix 4(b)(i) (the compensation described in clauses (A) and (B), together “ Seller’s Compensation ”). Seller and Buyer will negotiate in Good Faith Seller’s Compensation for the one-year period beginning on the first anniversary of the Effective Date and thereafter annually for each succeeding one-year period. If at the end of any one-year period Seller and Buyer have been unable to negotiate Seller’s Compensation for the next one-year period, (i) the warranty, returns, and repair policies and practices for all Products will continue to be the warranty, returns, and repair policies and practices provided in this Section 10 and in Section 11 , and (ii) Buyer and Seller each may terminate the applicability of this Section 10 and the applicability of Section 11 , together and not separately, with respect to all Products upon 60-days’ prior written notice delivered to the other on or before the 30 ^th day following the end of the preceding one-year period.

(b) Product Returns .

(i) Repairable Products . For each Product that a customer returns to Buyer for the reason that the Product is defective and the returned Product is covered by a Warranty, Buyer will accept the return of the Product and deliver it to Seller in accordance with and subject to Section 11(c) . Seller will determine whether the Product is repairable and, subject to Section 11(c) , Seller at its sole expense will repair, and return to the customer, each repairable returned Product in accordance with Section 11 .

(ii) Non-Repairable Products . For each Product that (A) a customer returns to Buyer for the reason that the Product is defective, (B) the returned Product is covered by a Warranty, and (C) Seller determines is not repairable, Seller, at its sole expense and using commercially reasonable arrangements determined by Seller, will replace the Product for the customer and dispose of the Product.

(iii) Non-Defective Products . Seller will have no obligation to Buyer or any of its customers with respect to Products the customers return to Buyer that are not defective, which Products Buyer may dispose at Buyer’s discretion and solely for its account, including selling the Products at Buyer’s Stores and, subject to Section 12(a)(iii)(B)(5) , selling the Products to liquidators.

(iv) Returned Products Not Covered by a Warranty . Subject to Section 10(c) , Seller will have no obligation to Buyer or any of its customers with respect to Products the customers return to Buyer that are not covered by a Warranty except to the extent that Buyer requests that Seller repair the Product, in which event Seller will repair the Product in accordance with Section 11 . With respect to Products described in the preceding sentence that are not repairable, Buyer may dispose of the Products at Buyer’s discretion and solely for its account, including selling the Products at Buyer’s Stores and, subject to Section 12(a)(iii)(B)(5) , selling the Products to liquidators.

(v) Warranty Claims for KCD-Branded Merchandise . If Buyer receives a warranty claim for merchandise that is branded with a KCD Mark but was not purchased from Buyer, Buyer will handle the merchandise in accordance with this Section 10(b) as if the merchandise were a KCD-Branded Product.

(c) Product Recalls and Similar Product Issues . If Seller learns that a Product has been recalled by the U.S. Consumer Product Safety Commission, Seller or a Vendor voluntarily conducts a Product recall, or Seller or a Vendor takes other action with respect to Products that may be defective, Seller will (i) notify Buyer, (ii) provide Buyer with available Seller transaction detail with respect to Buyer’s purchases of the recalled Product, and (iii) provide Buyer, at Seller’s sole expense, sufficient replacement Product, correction kits, or other items to enable Buyer to meet the requirements of the recall or other action. All other costs incurred by Buyer in connection with the recall or other action, including

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all labor, parts, travel, customer notification, reporting, and legal costs, will be the sole responsibility of Buyer. Seller will have no obligation to Buyer or any other person for claims, costs, obligations, damages, or expenses arising in connection with the recall or other action, including any extraordinary expenses, lost profits, or opportunity costs incurred by Buyer or any customer of Buyer with respect to the recall or other action. Seller and Buyer each will cooperate with the other to assert against, and collect from, the Vendor of the affected Product all claims, costs, obligations, damages, and expenses incurred by each of Seller and Buyer arising in connection with the recall or other action.

(d) Disclaimer . Except as otherwise provided in this Agreement each Party disclaims all other express or implied representations, warranties, and covenants (including warranties of non-infringement and title). Seller and Buyer each acknowledges that reliance on any representation, warranty, or covenant not contained in this Agreement is not what Seller and Buyer intend and would not be reasonable.

11. PRODUCT SERVICING .

(a) Seller’s Appointment . Subject to the next sentence and to Section 10(a)(iii) , Buyer appoints Seller during the Term as Buyer’s exclusive independent-service contractor to perform on-site and in-shop repair and maintenance service on the Products whether or not they are covered by a Warranty (the “ Product Services ”). Buyer may perform repair services using its own employees and may refer repair services to independent third-party repair-service providers (other than Seller) if requested by Buyer’s customers. For purposes of this Section 11 , “ Products ” also includes merchandise purchased other than from Seller. Seller will provide the Product Services in accordance with the terms of the Seller Warranty and the Vendor Warranty. Seller may, in its sole discretion, decline to perform any Product Service that Seller, using commercially reasonable efforts, is unable to perform. Seller may engage in marketing activities at the customer’s home for any goods and services offered by Seller or its affiliates, including mailing to or leaving with customers who receive Product Services surveys, brochures, coupons or other advertisements. If requested by Buyer, Seller and Buyer will negotiate in Good Faith the terms and conditions for Seller to include Buyer promotional materials as part of Seller’s customer-home marketing activities.

(b) Seller’s Obligations .

(i) Performance Standards . Seller will perform the Product Services in a workmanlike manner consistent with performance standards prevailing from time to time in the product-repair industry. Seller will maintain and appropriately staff a toll-free telephone number to be used by Buyer’s customers when scheduling on-site Product Service. Upon receipt of a call requesting on-site Product Service, Seller will use commercially reasonable efforts to schedule Product Service at a time during Seller’s normal business hours that is convenient for the customer in accordance with Seller’s scheduling procedures in effect on the Effective Date. Seller will use commercially reasonable efforts to provide and complete all Product Service in accordance with Seller’s scheduling procedures in effect on the Effective Date. Seller will have the sole and absolute discretion to determine the order for performing Product Services, but Seller may not favor Seller’s other warranty customers (including the warranty customers of Seller’s Retail Businesses) over Buyer’s customers, except that Seller’s policies may favor “cash” and customers whose warranty rights arise under protection agreements. Seller may perform the Product Services utilizing third-party contractors who perform the Product Services using the “Sears” name and Seller’s Affiliates to the same extent as Seller uses third-party contractors and Seller’s Affiliates to perform services for Seller’s other customers. Seller will be responsible to Buyer in accordance with the terms and conditions of this Agreement for Product Services performed by all third-party contractors including in accordance with Section 14(a) . Seller will use commercially reasonable efforts to cause all Vendors to assume and bear financial responsibility for the Vendor Warranties in accordance with their terms.

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(ii) Warranty . Seller may assume that a valid Warranty is in place on each Product that Buyer’s customers submit for Product Services. For each customer that calls Seller directly seeking Product Service under a Warranty, Seller will use commercially reasonable efforts to determine that the customer’s Product is covered by a valid Warranty. If the Product or required repair is not covered by a Warranty Seller may perform the repairs with the customer’s prior approval and collect and retain from the customer Seller’s customary charges for the services and all applicable sales and use taxes.

(iii) Inaccessible Products . If Seller schedules a Product for on-site Product Service and the Product is inaccessible, Seller may with the customer’s prior approval undertake to make the Product accessible and charge the customer Seller’s standard service rates for such work. If the customer declines to pay and Buyer does not approve, Seller will not be required to make the Product accessible or complete the Product Service.

(iv) Products Beyond Repair . If Seller reasonably determines that a Product covered by a Warranty is beyond repair or that it would be uneconomical to repair the Product Seller will notify Buyer, and Seller will have no obligation to repair the Product.

(v) Special Situations . Seller will assist Buyer with respect to services for special situations involving a large volume of similar repairs or upgrades (such Product recalls or reworks), subject to the Parties’ written agreement regarding the terms, conditions, and pricing, if any, for these services.

(c) Buyer’s Obligations .

(i) Onsite Product Services . Buyer will advise customers with in-warranty product service needs to contact Seller via Seller’s toll-free telephone number (or transfer them to such number). When referring a customer, Buyer will provide Seller with the information reasonably specified by Seller, including customer name, address and telephone number, email address, Product type and brand, the date the Product was purchased, whether the Product is covered by a Warranty, model and serial number, and the nature of the problem with the Product (together the “ Service Information ”). Buyer and Seller are joint owners of the Service Information. Buyer may use the Service Information to operate its businesses and for all other purposes in accordance with its privacy policy and Applicable Law (including transfer to, and use by, third parties) without restriction. Seller may use the Service Information to complete the Product Services and to engage in the marketing activities described in Section 11(a) in accordance with Seller’s privacy policy and Applicable Law and for no other purpose of any kind whatsoever.

(ii) In-Shop Product Services . Buyer will take possession of the Product, determine whether there is a valid Warranty in place, and produce a service ticket for those items that are entitled to Product Service in a form to be reasonably specified by Seller (which will include providing the Service Information). Buyer will be responsible for the safe packing of the Product and its shipping to a facility designated by Seller, and Buyer will bear the risk of loss or damage to the Product in transit to Seller. For each Product that is subject to a Warranty, when Seller has repaired the Product Seller will be responsible for its safe packing and shipping to Buyer’s customer, and Seller will bear the risk of loss or damage to the Product in transit to Buyer’s customer.

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(d) Seller’s Charges .

(i) Product Service Provided under a Seller Warranty . For completed Product Services on Products covered by a Seller Warranty, Buyer will not be obligated to pay Seller any charges.

(ii) Product Service Provided for Vendor-Warranty Products . For completed Product Services on Vendor-Warranty Products, Buyer will be obligated to pay Seller its charges specified in the Services Agreement dated August 8, 2012 between SHO and SHMC (the “ Services Agreement ”) but only if (A) the Vendor refuses to reimburse Seller for the Product Services solely on the grounds that the Vendor’s obligations with respect to the Vendor Warranty do not extend to Vendor-Warranty Products purchased by Buyer, and (B) Seller has used commercially reasonable efforts to cause the Vendor to assume and bear financial responsibility for the Vendor Warranty in accordance with its terms.

(iii) Product Service Not Provided under a Warranty and Buyer Approves . For completed Product Services on Products that are not covered by a Warranty but the Product Services for the Products are approved in writing by Buyer, Buyer will pay Seller its charges specified in the Services Agreement.

(iv) Product Service Not Provided under a Warranty and Buyer does Not Approve . If a customer requests Seller to perform, and the customer has agreed to pay Seller’s charges for, repairs or other services on Products that are not covered by a Seller Warranty and the repairs or other services have not been approved by Buyer, Seller may collect from the customer and retain Seller’s customary charges for such services and all applicable sales and use taxes.

(v) Product Service for Outlet Stock Products and Excluded No-Warranty Products . For completed Product Services on “stock products” for Sears Outlet Stores and for Excluded No-Warranty Products, Buyer will pay Seller its charges specified in the Services Agreement.

(e) Services for Protection Agreements . Seller and Buyer will negotiate in Good Faith the terms of an arrangement pursuant to which Seller would provide on-site and in-shop repair and maintenance service on Products that are covered by protection agreements sold by Buyer.

12. INTELLECTUAL PROPERTY .

(a) Seller

(i) Work Product . All marketing materials, advertising materials, promotional materials, point of sale displays, packaging, customer information and material, warranty card information, software, data, service training materials, parts lists, owner’s manuals, service manuals, web content, performance claims and evaluations, testing protocols and data used to evaluate performance claims, database formats, methods used to assemble and maintain electronic Seller-Branded Product catalogs, and programming related to Seller or its Affiliates’ web sites and user applications (e.g., mobile applications) and all files, data, notes, copies, abstracts, copyrights, summaries, and other materials relating to Seller-Branded Products and all copyrights therein, that are prepared, developed or created by or on behalf of Seller or its Affiliates or Buyer or its Affiliates or any of their respective Personnel (together, “ Seller Work Product ”), will be owned worldwide by Seller or its Affiliates. All Seller Work Product will be deemed “work made for hire” as that term may be defined from time to time in Section 101 of the Copyright Act, 17 U.S.C. Section 101 (or any successor). Seller or its Affiliates will be deemed the author of the Seller Work Product, and Seller or its Affiliates will be the owner of all right, title and interest, including all copyrights, in and to the Seller Work Product. If for any reason the Seller

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Work Product is found not to have been created as work made for hire, Buyer hereby assigns to Seller or its Affiliates without limitation and without additional compensation to Buyer, all right, title and interest, including the copyrights and any other intellectual property rights embodied in the Seller Work Product. Buyer will (and will cause its Affiliates to) execute and deliver to Seller all further documents deemed by Seller to be useful in documenting, effectuating or recording the foregoing assignment. Buyer will not, and will not permit its Affiliates or any third party to, disclose or provide any of the Seller Work Product to any person or entity other than Seller or its Affiliates.

(ii) Ownership of Innovations . Buyer acknowledges (on behalf of itself and its Affiliates) that Seller or its Affiliates will exclusively own all right, title and interest in and to all cosmetic designs, ornamental appearance and trade dress embodied in Seller-Branded Products (including design patents and pending applications) regardless of whether the cosmetic design, ornamental appearance or trade dress originated solely with Seller or its Affiliates, solely with Buyer or its Affiliates or jointly with Seller, Buyer, their respective Affiliates and others. All such cosmetic design, ornamental appearance and trade dress rights and design patents and pending applications will be deemed the intellectual property of Seller or its Affiliates.

(iii) Licenses to Use Seller Marks .

(A) Subject to the next sentence and to Section (B) , Seller hereby grants to Buyer during the Term and during any sell-off period contemplated under Section 2(f) the following: (1) a nonexclusive, nontransferable, and revocable right and license to use, in connection with the marketing and selling of the Seller-Branded Products but in no event to alter, the KCD Marks (the Royalties for which are provided in Section 5(a) ); and (2) a nonexclusive, nontransferable, royalty-free, and revocable right and license to use in connection with the marketing and selling of the Seller-Branded Products, but in no event to alter, all Seller Marks other than the KCD Marks, in each case described in clauses (1) and (2) with respect to the Marks that are affixed to Seller-Branded Products. Buyer may grant sublicenses to Franchisees and the owners of the Sears Hometown Stores to use, in connection with the marketing and selling by them of the Seller-Branded Products, but in no event to alter, the Seller Marks.

(B) Subject to the other sentences of this Section (B) , the licenses granted in Section 12(a)(iii)(A) are limited to the following:

(1) Buyer may market all Seller-Branded Products by all current and future means, methods, and channels (including by Seller Digital Methods) in the Territory;

(2) Buyer may market all Seller-Branded Products by all current and future means, methods, and channels (including by Seller Digital Methods) outside of the Territory if such marketing would not violate any Existing Contractual Obligation;

(3) Buyer may sell all Seller-Branded Products at “brick and mortar” physical locations in the Territory subject to Section 9(b);

(4) Buyer may sell all Seller-Branded Products in the Territory and outside the Territory in each case by Seller Digital Methods including delivering Seller-Branded Products outside the Territory to end-user consumers who used one or more Seller Digital Methods to purchase the Seller-Branded Products; and

(5) Buyer may sell Outlet Products to liquidators but only after using commercially reasonable efforts to obtain the agreement of the liquidators to remove or obliterate (where removal is not possible) all Seller Marks from the Seller-Branded Products and all related labels, tags, and packaging.

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“ Existing Contractual Obligation ” means a contractual obligation that (y) has been entered into in Good Faith by, and is binding on, Seller or one or more of its Affiliates, and (z) if it first becomes binding on Seller or one or more of its Affiliates on or after the Effective Date, all terms and conditions in the contractual obligation that limit Seller’s right to grant a license to, or otherwise authorize, Buyer to market or sell one or more Seller-Branded Products also to the same extent limit the right of Seller and its Affiliates to grant a license to, or otherwise authorize, each of Seller’s Retail Businesses to market and sell the same Seller-Branded Products. “ Seller Digital Methods ” means Digital Methods owned or operated by Seller or its Affiliates and includes the Outlet Stores website operated by Seller’s Affiliates immediately prior to the Effective Date and its successors owned or operated by Seller’s Affiliates.

(C) Subject to the next sentence, Seller may terminate Buyer’s rights in Section 12(a)(iii)(B)(4) to sell by Seller Digital Methods upon 24-months’ prior written notice. Upon termination in accordance with the preceding sentence of Buyer’s rights to sell by Seller Digital Methods, Seller will grant Buyer a license to allow Buyer to (1) market all Seller-Branded Products by all then-current and future means, methods, and channels outside of the Territory if such marketing would not violate any Existing Contractual Obligation in effect immediately prior to the date of such license, and (2) sell all Products by all Digital Methods in the Territory and all Product outside of the Territory if the sale would not violate any Existing Contractual Obligation in effect immediately prior to the date of such license. The license described in the preceding sentence will include terms that are usual and customary for licenses of this type for comparable circumstances and a duration that is the same as the remaining duration of the last of the License Agreements to terminate in accordance with its terms.

(D) Buyer will use Seller Marks in full compliance with the terms and conditions of this Agreement and with all commercially reasonable standards, specifications, and operating procedures prescribed by Seller from time to time, including all logo and trademark-usage guidelines.

(E) Subject to the following sentences of this subsection, Buyer will submit to Seller for its review and approval, prior to publication, all Non-Guideline Advertising created by Buyer for Seller-Branded Products that incorporate one or more Seller Marks, including newspaper, magazine and website advertising, television and radio tapes, store signage, display billboards and any and all other materials on which a Seller Mark appears. Buyer will submit all Non-Guideline Advertising to Seller’s designated marketing associate by email or overnight courier so that the designated marketing associate receives the materials at least seven business days before Buyer intends to use them. If Seller does not notify Buyer of Seller’s disapproval of these materials within five business days after Seller’s designated marketing associate actually received them, the materials will be deemed approved. Seller’s approval of Non-Guideline Advertising is limited to the use of Seller Marks in connection with the advertising and will not be deemed to constitute approval of the appropriateness or compliance with Applicable Laws. “ Non-Guideline Advertising ” means all advertising that deviates in any material respect from Seller’s logo and trademark-usage guidelines in effect from time to time and delivered to Buyer, but no change that is applicable to Buyer will take effect upon less than 60-days’ advance written notice to Buyer.

(iv) Ownership; Display and Notices; Goodwill . Buyer acknowledges that (A) Seller or its Affiliates own all the proprietary rights to Seller Marks and (B) Buyer gains no ownership rights to Seller Marks licensed under this Agreement and gains only the limited right to use Seller Marks subject to the terms of this Agreement. Seller and its Affiliates reserve the unrestricted right to use, and to grant others the right to use, Seller Marks. Buyer will display the trademark and service mark notices for Seller Marks that Seller requests. Buyer’s use of Seller Marks and any goodwill generated from their use

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inures only to the benefit of Seller or its Affiliates. Buyer will not directly or indirectly contest or challenge the validity of Seller Marks or the rights of Seller and its Affiliates in Seller Marks. Buyer will not register or attempt to register any Mark that is confusingly similar to the Seller Marks or which dilutes any of the Seller Marks, including any domain name or URL containing or otherwise identifying any Seller Mark. Any content displayed on any website containing any Seller Mark must be pre-approved by Seller.

(v) Other Obligations . Buyer will not use, advertise, promote or register any trademark, service mark, design mark or logo that is similar to any Seller Mark. Buyer will not engage in any act which would disparage or dilute the distinctiveness of any Seller Mark, and Buyer will use its best efforts to support the premium nature of the brands represented by Seller Marks. Buyer acknowledges that Buyer will not have any right, title or interest in or to any intellectual-property right in any Seller-Branded Product. Buyer will not have any right to alter any Seller-Branded Product or Seller-Branded Product packaging or repair, duplicate, translate, decompile, reverse engineer or adapt any Seller-Branded Product without Seller’s prior written consent. Buyer will not use any trademark, trade name, brand name or identifying mark of its own or any third party, alone or in combination with Seller Marks in connection with the sale of the Seller-Branded Products, if such use would create a combination mark.

(vi) Notice of Infringement or Claim . Buyer will promptly notify Seller if Buyer learns of any challenge to its use, or any apparent infringement, of any Seller Mark or any claim by any person to rights in any Seller Mark that are inconsistent with Seller’s rights to Seller Marks as described in this Section 12(a) . Seller and its Affiliates retain the right to control exclusively all settlements, litigation, and Patent and Trademark Office proceedings and other proceedings arising out of each such infringement or claim. Buyer will execute all documents and provide, at Seller’s expense, all assistance that Seller reasonably requests to protect Seller’s interests in Seller Marks and to protect Seller’s interests in all litigation and proceedings concerning Seller Marks.

(vii) Retention of Rights . Nothing in this Agreement limits in any way the rights of Seller and its Affiliates in and to Seller Marks, including without limitation (A) all rights of ownership in and to Seller Marks, including the right to license or transfer the same, and, (B) the unimpaired right to use and to license others to use Seller Marks in connection with manufacturing, marketing, distribution, sale, service, maintenance, repair, or provision of any products or services whether within or without the Territory.

(b) Buyer

(i) License to Use Buyer Marks .

(A) Buyer hereby grants to Seller, during the Term and during any sell-off period contemplated under Section 2(f) , a nonexclusive, nontransferable, revocable, royalty-free right to use, but in no event to alter, Buyer Marks that are necessary for Seller to use to perform its obligations in accordance with the terms and conditions of this Agreement.

(B) Seller will use Buyer Marks in full compliance with the terms and conditions of this Agreement and with all standards, specifications, and operating procedures prescribed by Buyer from time to time, including any logo and trademark usage guidelines.

(ii) Ownership; Display and Notices; Goodwill . Seller acknowledges that (A) Buyer or its Affiliates own all the proprietary rights to Buyer Marks and (B) Seller gains no ownership rights to Buyer Marks licensed under this Agreement and gains only the limited right to use Buyer Marks subject to the terms of this Agreement. Buyer and its Affiliates reserve the unrestricted right to use, and to

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grant others the right to use, Buyer Marks. Seller will display the trademark and service mark notices for Buyer Marks that Buyer requests. Seller’s use of Buyer Marks and any goodwill generated from their use inures only to the benefit of Buyer or its Affiliates. Seller will not directly or indirectly contest or challenge the validity of Buyer Marks or the rights of Buyer and its Affiliates in Buyer Marks. Seller will not register or attempt to register any Mark that is confusingly similar to the Buyer Marks or which dilutes any of the Buyer Marks, including any domain name or URL containing or otherwise identifying any Buyer Mark. Any content displayed on any website containing any Buyer Mark must be pre-approved by Buyer.

(iii) Other Obligations . Seller will not use, advertise, promote or register any trademark, service mark, design mark or logo that is similar to any Buyer Mark. Seller will not engage any act which would disparage or dilute the distinctiveness of any Buyer Mark, and Seller will use its best efforts to support the premium nature of the brands represented by Buyer Marks.

(iv) Notice of Infringement or Claim . Seller will promptly notify Buyer if Seller learns of any challenge to its use, or any apparent infringement, of any Buyer Mark or any claim by any person to rights in any Buyer Mark that are inconsistent with Buyer’s rights to Buyer Marks as described in this Section 12(b) . Buyer and its Affiliates retain the right to control exclusively all settlements, litigation, and Patent and Trademark Office proceedings and other proceedings arising out of each such infringement or claim. Seller will execute all documents and provide, at Buyer’s expense, all assistance that Buyer reasonably requests to protect Buyer’s interests in Buyer Marks and to protect Buyer’s interests in all litigation and proceedings concerning Buyer Marks.

(v) Retention of Rights . Nothing in this Agreement limits in any way the rights of Buyer and its Affiliates in and to Buyer Marks, including without limitation (A) all rights of ownership in and to Buyer Marks, including the right to license or transfer the same, and, (B) the unimpaired right to use and to license others to use Buyer Marks in connection with manufacturing, marketing, distribution, sale, service, maintenance, repair, or provision of any products or services whether within or without the Territory.

13. CONFIDENTIALITY .

(a) Confidential Information . “ Confidential Information ” means all information, whether disclosed in oral, written, visual, electronic or other form, that (i) one Party (the “ Disclosing Party ”) discloses to the other Party (the “ Receiving Party ”), (ii) relates to or is disclosed in connection with this Agreement or a Party’s business, and (iii) if not designated as “confidential” (in which event the information is deemed to be Confidential Information), is or reasonably should be understood by the Receiving Party to be confidential or proprietary to the Disclosing Party. The Disclosing Party’s sales, pricing, costs, inventory, operations, employees, current and potential customers, financial performance and forecasts, and business plans, strategies, forecasts and analyses, as well as information as to which the Securities and Exchange Commission has granted confidential treatment pursuant to its Rule 406 of Regulation C (the “ CTR Information ”), are Confidential Information.

(b) Treatment of Confidential Information . The Receiving Party will use Confidential Information only in accordance with this Agreement and, except as expressly permitted by this Agreement and subject to the next sentence, will not disclose any Confidential Information for three years from the date of receipt of the Confidential Information. Neither Party will disclose the CTR Information during the period ending December 31, 2022.

(i) Limitations . The Receiving Party will (A) restrict disclosure of the Confidential Information to its and its Affiliates’ Personnel (“ Representatives ”) with a need to know the Confidential

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Information for purposes of performing the Receiving Party’s responsibilities or exercising the Receiving Party’s rights under this Agreement, (B) advise those Representatives of the obligation not to disclose the Confidential Information, (C) copy the Confidential Information only as necessary for those Representatives who need it for performing the Receiving Party’s responsibilities under this Agreement, and ensure that confidentiality is maintained in the copying process; and (D) protect the Confidential Information, and require those Representatives to protect it, using the same degree of care as the Receiving Party uses with its own Confidential Information, but no less than reasonable care.

(ii) Permitted Disclosure . Either Party may disclose the Confidential Information to any of its Affiliates but only if the Affiliate’s use of such Confidential Information will be subject to the terms and conditions of this Agreement and the Disclosing Party will remain responsible for disclosures by its Affiliates and their Personnel in violation of this Agreement. Buyer may disclose (A) the existence and contents of this Agreement in connection with Buyer’s filings with the Securities and Exchange Commission and with federal and state franchise regulatory authorities (including filing this Agreement as an exhibit to Buyer’s filings), and (B) Seller’s Confidential Information related to Products to Franchisees and their Personnel in connection with the sale of Products but the use of the Confidential Information in accordance with this clause (B) will be subject to the terms and conditions of this Agreement and Buyer will remain responsible for disclosures made by Franchisees and their Personnel in violation of this Agreement.

(iii) Liability for Unauthorized Use . The Receiving Party will be liable to the Disclosing Party for any unauthorized disclosure or use of Confidential Information by any of its and its Affiliates or current or former Personnel.

(iv) Destruction . Within ten days after receiving the Disclosing Party’s written request, the Receiving Party will destroy or return (as instructed by the Disclosing Party) any materials containing Confidential Information, and certify to the Disclosing Party that it has satisfied its obligations under this Section 13(b) .

(c) Exceptions to Confidential Treatment .

(i) Exceptions . The obligations under this Section 13 do not apply to any Confidential Information that the Receiving Party can demonstrate (A) was previously known to the Receiving Party without any obligation to hold it in confidence, (B) is disclosed to third parties by the Disclosing Party without an obligation of confidentiality to the Disclosing Party, (C) is or becomes available to any member of the public other than by unauthorized disclosure, (D) was or is independently developed by the Receiving Party without use of the Confidential Information, (E) legal counsel’s advice is that the Confidential Information is required to be disclosed by Applicable Law or the rules and regulations of any applicable regulatory authority, or (F) legal counsel’s advice is that the Confidential Information is required to be disclosed in response to a valid subpoena or order of a court or other governmental body of competent jurisdiction or other valid legal process.

(ii) Notification . In the case of any disclosure under Section 13(c)(i)(E) or Section 13(c)(i)(F) the Receiving Party must notify the Disclosing Party prior to disclosure and use reasonable efforts to cooperate with the Disclosing Party so that the Disclosing Party may take legally available steps to resist or narrow the requested disclosure and obtain an appropriate protective order or other assurance that confidential treatment will be accorded the Confidential Information.

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14. INDEMNIFICATION .

(a) Seller Indemnities . To the fullest extent permitted by Applicable Law and subject to Section 14(d) and Section 16 , Seller will defend, indemnify, and hold harmless Buyer, its Affiliates, and their respective present, former, and future directors, officers, other employees, agents, each of their successors, and assigns, and the heirs, executors, administrators of each of the foregoing that are natural persons (together, the “ Buyer Indemnified Persons ”), against all damages, losses, costs, expenses (including attorneys’ fees, costs and expenses), and other liabilities arising out of or in connection with all Seller Claims. “ Seller Claims ” means all claims, demands, suits, and causes of action by third parties (other than Buyer and its Affiliates) arising out of or in connection with this Agreement (including claims of negligence by Personnel of Seller or its Affiliates) that result, or are claimed to result, in whole or in part, from (i) the violation by Seller, its Affiliates, or any of their Personnel of any intellectual property right of another, (ii) the failure by Seller or its Affiliates to perform their obligations in this Agreement in accordance with their terms, or (iii) any other act or omission of Seller or its Affiliates.

(b) Buyer Indemnities . To the fullest extent permitted by Applicable Law and subject to Section 14(d) and Section 16 , Buyer will defend, indemnify and hold harmless Seller, its Affiliates, and their respective present, former, and future directors, officers, other employees, agents, each of their successors, and assigns, and the heirs, executors, administrators of each of the foregoing that are natural persons (together, the “ Seller Indemnified Persons ”), against all damages, losses, costs, expenses (including attorneys’ fees, costs and expenses) and other liabilities arising out of or in connection with all Buyer Claims. “ Buyer Claims ” means all claims, demands, suits, and causes of action by third parties (other than Seller and its Affiliates) arising out of or in connection with this Agreement (including claims of negligence by the Personnel of Buyer or its Affiliates) that result, or are claimed to result, from (i) the use of any Seller Mark by Buyer, its Affiliates, or its Franchisees that is not accordance with the terms of this Agreement or the violation by Buyer, its Affiliates, or any of their Personnel of any intellectual property right of another, (ii) Buyer’s display, sale, assembly, installation, service, or repair, or installation of any Product (excluding claims, demands, suits, and causes of action arising out of or in connection with services to be performed by Seller for Buyer in accordance with the terms and conditions of the Services Agreement and all other services that are performed for Buyer by Seller or its Affiliates), (iii) the failure by Buyer or its Affiliates to perform their obligations in this Agreement in accordance with their terms, or (iv) any other act or omission of Buyer or its Affiliates. “ Claims ” means the Seller Claims and the Buyer Claims together.

(c) Defense . The Party that is obligated to provide defense and indemnity to the other Party with respect to a Claim in accordance with this Section 14 (the “ Indemnifying Party ”) has the right to control the defense of the Claim, but the other Party (the “ Indemnified Party ”) has the right to participate in the defense. Upon the Indemnifying Party’s request, the Indemnified Party will reasonably cooperate in the defense, and the Indemnifying Party must reimburse the Indemnified Party for its reasonable out-of-pocket expenses in providing the requested cooperation. The Indemnified Party will provide prompt notification to the Indemnifying Party of each Claim to which it is entitled to be indemnified, but any delay by the Indemnified Party in giving notice will not relieve the Indemnifying Party of its obligations pursuant to this Section 14 except to the extent that the Indemnifying Party demonstrates actual damage caused by such delay. The obligations of Seller and Buyer to defend, indemnify and hold harmless, respectively, the Buyer Indemnified Parties and the Seller Indemnified Parties under this Section 14 are independent of each other and any other obligation of the Parties under this Agreement.

(d) Exclusions from Claims; Tender and Cooperation . Excluded from Claims are claims, actions, liabilities, proceedings, losses, and expenses (including attorneys’ fees) arising out of or with respect to the death of or injury to any person or damage to any property, by whomsoever suffered, to the

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extent resulting or claimed to result from a latent or patent defect in a Product (each a “ Product Liability Claim ”). Buyer and Seller each will take all commercially reasonable actions, and cooperate with the other Party, as may be necessary to (i) tender each Product Liability Claim to the Vendor or manufacturer of the applicable Product and (ii) cause the Vendor or manufacturer to assume and bear financial responsibility for, and hold Buyer and Seller harmless from, the Product Liability Claim to the fullest extent permitted by Applicable Law, including the legal defense of the Product Liability Claim.

15. INSURANCE .

(a) Required Coverage . Buyer will obtain and maintain at its own cost occurrence-based Commercial General Liability Insurance, including but not limited to products, completed operations and contractual liability, in amounts not less than $5,000,000.00 per occurrence, naming the Seller and Buyer (together the “ Insured Parties ”) as additional insureds. This insurance must be primary to any of Seller’s coverage. Buyer will furnish certificate(s) of insurance upon execution of this Agreement, and within 15 days of any insurance renewals. All of the insurance policies specified in this Section 15(a) must contain a provision that such policies may not be cancelled or materially altered without 30 days prior written notice to Seller. All insurance carriers for the insurance coverage referred to in this Section 15(a) must be listed in the current Best’s Insurance Guide as possessing a minimum policyholders rating of “A” and a financial category of “VI” ($25,000,000 to $50,000,000).

(b) Proof of Insurance . Buyer will once each year, and, upon request by Seller, promptly furnish or cause to be furnished to Seller, a copy of the insurance certificate and premium receipt for the most recent payment.

16. LIMITATION ON LIABILITY . Neither Party will be liable to the other Party or its Affiliates, directors, officers, customers or employees for any indirect, special, consequential, incidental, or punitive damages, losses, or expenses (including, without limitation, lost or anticipated revenues, profits, or savings relating to the same) arising in connection with any Claim or the failure to perform, or the termination of, this Agreement regardless of the nature of the Claim or the failure to perform, or the termination of this Agreement even if a Party has been advised of the likelihood or possibility of such damages, losses, or expenses.

17. MINIMUM QUANTITIES . Buyer will purchase at least $100 of Products during the Term. If at the expiration of the Term Buyer has ordered less than $100 of Products, Buyer will pay Seller (upon request) the difference between the amount ordered and $100. Seller acknowledges that except as set forth in this Section 17 , Buyer is not obligated or committed to purchase any quantities of Products except as expressly ordered by Buyer according to the Inventory Policies and Processes.

18. DISPUTE RESOLUTION .

(a) Committees .

(i) Merchandising Operating Committee . Buyer and Seller will form a committee (the “ Merchandising Operating Committee ”) that will address all day-to-day operational, financial, and other issues that may arise with respect to this Agreement, including its interpretation, the Parties intent reflected in this Agreement, and the policies and practices between Seller and its Affiliates and the businesses comprising Buyer’s businesses in effect immediately prior to the Effective Date. The Merchandising Operating Committee will discuss all of these issues and will attempt to resolve informally all Disputes in accordance with Section 18(b)(i). The Merchandising Operating Committee will consist of three employees of each Party or of an Affiliate of the Party, in all cases as designated by the Party. The initial employee designees are listed on Appendix 18(a)(i). Each Party may replace one or

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more of its designees at any time upon notice to the other Party. Each Party will promptly fill all of its Merchandising Operating Committee vacancies as they arise by notice to the other Party. Unless the members of the Merchandising Operating Committee unanimously agree otherwise, the Merchandising Operating Committee will meet at least once every calendar month during the Term on the dates determined by the members of the Merchandising Operating Committee. If the members of the Merchandising Operating Committee cannot agree on a date or a time for a particular monthly meeting the meeting will occur at 1:00 p.m. Central Time on the second Thursday of the month at the offices of SHC, 3333 Beverly Road, Hoffman Estates, IL 60179 B6-D. At all times one of the members of the Merchandising Operating Committee will serve as the Merchandising Operating Committee’s Chairperson. The initial Chairperson is listed on Appendix 18(a)(i) and the other Merchandising Operating Committee members each will serve thereafter as Chairperson, on a monthly basis, rotating between Seller’s designees and Buyer’s designees. The Chairperson (A) will request that Merchandising Operating Committee members provide meeting agenda items and (B) will distribute to members, at least two business days in advance of each Merchandising Operating Committee meeting, an agenda for the meeting.

(ii) Executive Committee . Buyer and Seller will form a committee (the “ Executive Committee ”) that will attempt to resolve all Disputes that the Merchandising Operating Committee has been unable to resolve in accordance with Section 18(b) and that the Merchandising Operating Committee has referred to the Executive Committee. The Executive Committee will consist of the Chief Financial Officer, the General Counsel (or other chief legal officer), and the chief merchandising officer of each Party.

(b) Dispute Resolution .

(i) Merchandising Operating Committee’s Attempt to Resolve Dispute . If a Dispute arises, neither Party may cease to perform any of its obligations in this Agreement in accordance with their terms or take any formal legal action (such as seeking to terminate this Agreement, seeking mediation in accordance with Section 18(b)(iv), or instituting or seeking any judicial or other legal action, relief, or remedy with respect to or arising out of this Agreement) unless the Party has first (1) delivered a notice of dispute (the “ Dispute Notice ”) to all of the members of the Merchandising Operating Committee and (2) complied with the other terms and conditions of this Section 18 . At the first monthly meeting of the Merchandising Operating Committee following the delivery of the Dispute Notice the Merchandising Operating Committee will attempt to resolve all of the Disputes that are the subject of the Dispute Notice. Each Party will cause its designees on the Merchandising Operating Committee to negotiate in Good Faith to resolve all Disputes in a timely manner.

(ii) Executive Committee’s Attempt to Resolve Dispute . If the Merchandising Operating Committee is unable to resolve all of the Disputes included in the Dispute Notice by the end of the first Merchandising Operating Committee meeting following the delivery of the Dispute Notice, the Chairperson for the next Merchandising Operating Committee meeting will notify each member of the Executive Committee in writing of each unresolved Dispute. The Executive Committee will meet not later than the 10 ^th day following delivery of the notification by the Merchandising Operating Committee’s Chairperson (the “ Dispute Meeting ”) and attempt to resolve each Dispute that is listed on the notification. Each Party will cause its designees on the Executive Committee to negotiate in Good Faith to resolve all Disputes in a timely manner. If by the 10 ^th day following the Dispute Meeting the Executive Committee has not resolved all of the Disputes (the “ Resolution Failure Date ”) the Parties will proceed to mediate the unresolved Disputes (“ Unresolved Disputes ”) in accordance with Section 18(b)(iv).

(iii) Dispute Defined . Subject to the next sentence, “ Dispute ” means each claim, controversy, dispute, and disagreement between (A) on the one hand, Buyer or any of its Affiliates, or any

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of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, and (B) on the other hand, Seller or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a Party’s performance, or failure to perform, one or more of its obligations in this Agreement. Disputes do not include claims, controversies, disputes, or disagreements with respect to compliance with Section 13 or payment obligations with respect to amounts due in accordance with the terms and conditions of this Agreement that are not reasonably in dispute.

(iv) Mediation of Unresolved Disputes . Seller and Buyer will in Good Faith attempt to resolve all Unresolved Disputes by non-binding mediation. Buyer and Seller will negotiate in Good Faith to determine the mediator, the mediator’s compensation and related costs, and the applicable rules for the mediation. If by the 15 ^th day following the Resolution Failure Date Seller and Buyer have been unable to settle an Unresolved Dispute the obligations of Seller and Buyer in this Section 18 will terminate with respect to the Unresolved Dispute.

19. SELLER’S CLOSING LOCATIONS . Seller will notify Buyer of each Sears Store location that Seller or its Affiliates intend to close. Seller will notify Buyer of the store-closing decision not later than the 10 ^th day following the decision or the day before public disclosure of the decision, whichever occurs first. If Seller notifies Buyer of the decision before Seller publicly discloses the decision it will constitute Confidential Information until the decision is publicly disclosed. Seller will notify Buyer, not later than the 30 ^th day following the decision, as to whether Seller intends to continue its retail presence in the trade area that included the closing store. If Seller does not (a) notify Buyer in accordance with the preceding sentence that Seller intends to continue its retail presence in the trade area, or (b) does not open a new Sears Store in the trade area within 18 months of the notification, Buyer may open one or more New HTS Stores or other new stores in the trade area when the store location closes free of the restrictions, if any, in Section 9(b)(i) with respect to the closed store.

20. GLOSSARY .

The following terms have the meanings given below and include the singular and the plural forms of the terms:

“ 3(b) Amount ” is defined on Appendix 3(b) .

“ Affiliates ” means (solely for purposes of this Agreement and for no other purpose) (i) with respect to Buyer, its subsidiaries including Outlet Co and SAHS, (ii) with respect to Seller, SHC and its subsidiaries including Sears Holdings Management Corporation (“ SHMC ”), and (iii) with respect to SHC, its subsidiaries.

“ Applicable Laws ” means all applicable laws, ordinances, regulations, rules, and court and administrative orders and decrees of all national, regional, state, local and other governmental units that have jurisdiction in the given circumstances.

“ Average Aggregate Minimum Commission ” is defined on Appendix 5(d) .

“ Buyer ” is defined in the introductory paragraph of this Agreement.

“ Buyer Marks ” means Marks owned by Buyer or its Affiliates.

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“ Buyer Stores ” means, together, the Sears Hardware Stores, the Sears Hometown Stores, and the Sears Outlet Stores.

“ Confidential Information ” is defined in Section 13(a) .

“ Core Cost ” is defined on Appendix 3(b ).

“ Digital Methods ” means promoting and selling by all current and future electronic means, channels, processes, and methods, including via the Internet.

“ Disclosing Party ” is defined in Section 13(a) .

“ Dispute ” is defined in Section 18(b)(ii) .

“ Dispute Resolution Meeting ” is defined in Section 18(b)(i) .

“ DRM ” is defined in Section 4(a)(i) .

“ Effective Date ” is defined in Section 2(a) .

“ Excluded No-Warranty Product ” is defined in Section 10(a)(i) .

“ First Renewal Period ” is defined in Section 2(b) .

“ FOB Point ” is defined in Section 7(a) .

“ Franchisee ” means a natural person or entity that has purchased (i) a franchise as described in the Franchise Disclosure Document of Sears Home Appliance Showrooms, LLC dated May 11, 2012 (with respect to Sears Home Appliance Showrooms), (ii) a franchise as described in the Franchise Disclosure Document of Sears Home Appliance Showrooms, LLC dated May 11, 2012 (with respect to Sears Hardware Stores), or (iii) any other franchise offered by Buyer from time to time.

“ Inventory Policies and Processes ” is defined in Section 6 .

“ Good Faith ” means honesty in fact and the observance of reasonable commercial standards of fair dealing in accordance with Applicable Law.

“ Group ” means a “group” as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended.

“ Home Appliance Category ” is defined on Appendix 5(a) .

“ HTS I nvoice Prices ” is defined in Section 3(b) .

“ HTS Products ” is defined in Section 3(a) .

“ Initial Term ” is defined in Section 2(a) .

“ KCD-Branded Product Category ” is defined on Appendix 5(a) .

“ KCD-Branded Products ” means all Seller-Branded Products sold under a KCD Mark.

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“ KCD Change in Control ” means the occurrence of any transaction or event or series of transactions or events, whether voluntary or involuntary, that results in an Unaffiliated Person or a Group acquiring directly, or as a consequence of which an Unaffiliated Person or a Group acquires directly, at any time after the date of this Agreement and by whatever means (including by license), all rights, title and interest in and to all of the KCD Marks. “ Unaffiliated Person ” means a natural person, entity, or other enterprise other than Seller or Seller’s Affiliate. “ Seller’s Affiliate ” means each natural person, entity, and other enterprise that directly or indirectly, and by whatever means, controls, is under common control with, or is controlled by, Seller.

“ KCD Marks ” means Kenmore®, Craftsman®, DieHard®, and the sub-brand Marks associated with, and the trade dress related to, the Kenmore, the Craftsman, and the DieHard Marks.

“ KCD Mark Acquisition ” means the occurrence of any transaction or event or series of transactions or events (other than a KCD Change in Control), whether voluntary or involuntary, that results in an Unaffiliated Person or a Group acquiring directly, or as a consequence of which an Unaffiliated Person or a Group acquires directly, at any time after the date of this Agreement and by whatever means (including by license), all rights, title and interest in and to one or more but less than all of the KCD Marks.

“ Kenmore-Branded Product ” is defined in Section 5(c) .

“ Kenmore Royalty Credit ” is defined on Appendix 5(a) .

“ License Agreements ” is defined in Section 2(c)(iv) .

“ Mark ” means any name, brand, mark, trademark, service mark, sound mark, trade dress, trade name, business name, slogan, or other indicia of origin and includes all common law or statutory property rights related to such Mark.

“ MOS ” is defined in Section 4(a)(iii) .

“ Net Sales ” is defined in Section 5(a) .

“ No-Vendor-Warranty Product ” is defined in Section 10(a)(i)

“ Non-Retail Products ” is defined in Section 3(a) .

“ Outlet Invoice Prices ” is defined in Section 4(g) .

“ Outlet Products ” is defined in Section 4(f) .

“ Party ” means (1) SRC and Kmart together, on the one hand, and (2) SHO, SAHS, and Outlet Co. together, on the other hand. Although SHC is a party to this Agreement SHC is not a Party.

“ Personnel ” means the officers, directors, employees, agents, suppliers, licensors, licensees, contractors, subcontractors, advisors, including attorneys, accountants, technical consultants or investment bankers and other representatives, from time to time, of (i) the applicable entity, (ii) as to Seller, its Affiliates, and (iii) as to Buyer, its Affiliates.

“ Product Services ” is defined in Section 11(a) .

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“ Products ” means, together, HTS Products and Outlet Products.

“ Receiving Party ” is defined in Section 13(a) .

“ Replacement Reimbursement Amount ” is defined in Section 10(b)(ii) .

“ Representatives ” is defined in Section 13(b)(i) .

“ Right of First Offer ” is defined in Section 4(a)(iv) .

“ Right of First Refusal ” is defined in Section 4(a)(v) .

“ Royalties ” is defined in Section 5(a) .

“ Sears Hardware Stores ” means all stores that are operated, or authorized to operate, by Buyer or Franchisees and that are branded with the name “Sears Hardware Stores” or “Sears Appliance & Hardware Stores.”

“ Sears Hometown Stores ” means all stores that are operated, or authorized to operate, by Buyer and that are branded with the name “Sears Hometown Store” or “Sears Authorized Hometown Store.”

“ Sears Outlet Stores ” means all stores that are operated, or authorized to operate, by Buyer and that are branded with the name “Sears Outlet Store.”

“ Second Renewal Period ” is defined in Section 2(b) .

“ Seller ” is defined in the introductory paragraph of this Agreement.

“ Seller-Branded Product ” means Products sold under a Seller Mark and includes KCD-Branded Products.

“ Seller Competitor ” means, solely for purposes of this Agreement and for no other purpose, Amazon.com, Inc., Best Buy Co., Inc., hhgregg, Inc., The Home Depot, Inc., Lowe’s Companies, Inc., Target Corporation, Tractor Supply Co., Wal-Mart Stores, Inc., each other retailer that competes in any material respect with Seller’s major home appliance business or Seller’s power lawn and garden business, and the Seller Competitor Affiliates of each of them. “ Seller Competitor Affiliates ” means each individual or entity that directly or indirectly, and by whatever means, controls, is under common control with, or is controlled by, a Seller Competitor.

“ Seller Marks ” means Marks owned by Seller or its Affiliates and includes the KCD Marks.

“ Seller Warranty ” is defined in Section 10(a)(i) .

“ Seller’s Retail Businesses ” is defined in Section 3(a) .

“ Separation Agreement ” is defined in Section 2(a) .

“ Service Information ” is defined in Section 11(c)(i) .

“ Services Agreement ” is defined in Section 11(d)(ii) .

“ SHC ” is defined in the introductory paragraph of this Agreement.

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“ SHO ” is defined in the introductory paragraph of this Agreement.

“ SHO Stockholding Change ” means the occurrence of any transaction or event, whether voluntary or involuntary, that results in a Seller Competitor becoming, or as a consequence of which a Seller Competitor becomes, directly or indirectly, at any time after the date of this Agreement and by whatever means, the beneficial owner of more than 50% of the total voting power of outstanding securities entitled to vote in, or carrying the right to direct the voting with respect to, directly or indirectly and by whatever means the election of the board of directors of SHO or any of its subsidiaries.

“ Specification ” means the detailed description of Products agreed upon by Seller and Buyer as contained in any Vendor Agreement.

“ SYW Agreement ” is defined in Section 2(c)(iv) .

“ Term ” is defined in Section 2(a) .

“ Territory ” means the United States of America (including its unincorporated territories Guam, Puerto Rico, and the United States Virgin Islands) and Bermuda.

“ Vendor ” means any source (other than Seller’s Affiliates) from whom Seller purchases Products.

Vendor-Warranty Product ” is defined in Section 10(a)(ii)

“ Vendor Agreement ” means any Purchase Order or other agreement in writing and executed by Buyer and Seller relating to Products, including this Agreement, advertising, point of sale, promotional service, promotional funding or other selling assistance agreements, buying or supply agreements, exclusivity agreements, letters of agreement, and any written amendments, waivers and consents relating to any of the foregoing.

“ Vendor Warranty ” is defined in Section 10(a)(ii) .

“ Warranty ” is defined in Section 10(a)(ii) .

21. SHC’S SOLE OBLIGATION . As its sole obligation in this Agreement and unless Buyer has failed to comply with one or more of its material obligations in this Agreement and the failure is continuing, SHC will cause SRC, Kmart, and the Affiliates of each of them to take all actions that will enable Seller to perform, and not take any action that would disable to any extent Seller from performing, its obligations in this Agreement in accordance with their terms.

22. GENERAL .

(a) Good Faith . SHC and the Parties each will exercise Good Faith in the performance of its obligations in this Agreement.

(b) Assignment . Seller may at any time assign, delegate or subcontract its rights, or obligations or both, in whole or in part, under this Agreement except to a Seller Competitor, without the consent of Buyer. Subject to the next sentence, Buyer may not assign or otherwise transfer any of its rights or obligations under this Agreement (except to a wholly owned subsidiary of Buyer), by operation of law or otherwise, without the express prior written consent of Seller, and any attempt to assign or assignment without the express prior written consent of Seller is void. Buyer may exercise all of its rights, and perform all of its obligations, under this Agreement through its wholly owned subsidiaries.

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(c) Computer Access . If either Party is given access, whether on-site or through remote facilities, to any communications, computer, or electronic data storage systems of the other Party or its Affiliates (each an “ Electronic Resource ”), in connection with this Agreement, then the Party given access will use such access solely to perform, and will not attempt to access any Electronic Resource other than those specifically required to perform, its obligations under this Agreement. The Party given access will limit such access to those of its Personnel who need to have such access in connection with this Agreement, will advise the other Party in writing of the name of each of its Personnel who will be granted such access, and will strictly follow all security rules and procedures for use of such Electronic Resources. All user identification numbers and passwords disclosed to a Party given access and any information obtained by the Party given access as a result of its access to, and use of such Electronic Resources will be deemed to be, and will be treated as, Confidential Information of the other Party. Each Party will cooperate with the other Party in the investigation of any apparent unauthorized access by the other Party, its Affiliates, or its Personnel to any Electronic Resources or unauthorized release of Confidential Information. Each Party will promptly notify the other Party of any actual or suspected unauthorized access or disclosure of any Electronic Resource.

(d) Promotional Calendars . To the extent permitted by Applicable Law and consistent with practices in effect prior to the Effective Date, Seller will deliver to Buyer Seller’s promotional calendars with respect to Products (including for Home Appliances, Tools, Lawn and Garden, Sporting Goods, Mattresses, and Consumer Electronics) as soon as they have been approved, including all amendments. Also consistent with practices prior to the Effect Date, the promotional calendars will include Seller’s “master price files” (and substitute information) describing Seller’s retail and promotional pricing, as to which the Parties acknowledge that Section 3(d) and Section 4(f) are and will be applicable.

(e) Negotiating Event . If a Negotiating Event occurs and thereafter a Party (the “ Delivering Party ”) delivers to the other Party (the “ Receiving Party ”) an Opinion of Counsel that states that, as a consequence of the Negotiating Event the Delivering Party is unable, due to Applicable Law, to continue to perform any of the obligations to be performed by it in accordance with the terms and conditions of this Agreement (an “ Impediment ”), Seller and Buyer will negotiate in Good Faith an amendment to this Agreement that would eliminate the Impediment. “ Opinion of Counsel ” means a written opinion (which may be reasoned) of a reputable law firm of national stature. The form and substance of the written opinion, and the law firm, will be subject to the approval of the Receiving Party. “ Negotiating Event ” means the occurrence of any transaction or event, whether voluntary or involuntary, as a result of which a single stockholder or a Group ceases to be the “beneficial owner” (as defined in Securities and Exchange Commission Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended) of a majority of the total voting power of the then-outstanding voting capital stock of SHC or SHO.

(f) Consideration . Buyer has given, and Seller has received and accepted, adequate, good, sufficient, and valuable consideration for this Agreement, and for all purposes of this Agreement this Agreement is fully supported by adequate, good, sufficient, and valuable consideration provided by Buyer and received and accepted by Seller. Buyer’s adequate, good, sufficient, and valuable consideration includes, without limitation, the mutual covenants, obligations, and promises herein and the following (which separately and together have enabled Seller to execute and deliver this Agreement and have assisted and will assist Seller’s performance of its obligations under this Agreement): (i) Buyer has at great length discussed and upon reasonable request during the Term will discuss its business needs with Seller for the purpose of enabling Seller to make compelling business proposals to Buyer; (ii) Buyer has entered into negotiations with Seller that culminated in the execution and delivery of this Agreement, which Agreement gives Seller many advantages over other vendors; (iii) Buyer has provided and upon

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reasonable request during the Term will provide information to Seller about Buyer’s operations; (iv) Seller has bargained for and, pursuant to this Agreement will receive, material benefits, interests, rights, and value from Buyer through such consideration and that Seller is not entitled to, and would not have received, such benefits, interests, rights, and value absent this Agreement; and (v) Buyer is obligated to purchase Products in accordance with, and subject to the terms and conditions of, Sections 4(b)(i) and 4(c) . This Agreement is legally binding; and Seller will not, directly or indirectly, plead or otherwise assert in any manner in any litigation, arbitration, mediation, or other dispute-resolution proceeding that this Agreement is invalid, void, voidable, revocable, terminable, or otherwise unenforceable for lack, inadequacy, or insufficiency of consideration; and by this Agreement Seller irrevocably waives and will be estopped from pleading or asserting, directly or indirectly, any cause of action, claim, defense, right, or prayer for relief to such effect. Each of Seller’s waivers in this Section 22(f) is reasonable and made with Seller’s full knowledge of its significance and consequences.

(g) Construction and Interpretation . In this Agreement (1) “ include ,” “ includes ,” and “ including ” are inclusive and mean, respectively, “include without limitation,” “includes without limitation,” and “including without limitation,” (2) “ or ” is disjunctive but not necessarily exclusive, (3) “ will ” expresses an imperative, an obligation, and a requirement, (4) numbered “ Section ” references refer to sections of this Agreement unless otherwise specified, (5) section headings are for convenience only and will have no interpretive value, (6) unless otherwise indicated all references to a number of days will mean calendar (and not business) days and all references to months or years will mean calendar months or years, (7) references to $ or Dollars will mean U.S. Dollars, and (8) references to a Party’s approval or consent right include the Party’s obligation not to unreasonably delay or withhold its approval or consent. Seller and Buyer intend that this Agreement be construed without any rule requiring construction or interpretation against Seller, whose representatives drafted this Agreement. To the extent the Parties intend that a term or condition of this Agreement reflect policies and practices in effect immediately prior to the Effective Date, the Parties will negotiate in Good Faith to determine the policies and practices.

(h) Counterparts; Facsimile . This Agreement may be executed in any number of separate counterparts, all of which, when taken together, will constitute one and the same instrument, notwithstanding the fact that all Parties did not sign the same counterpart. A signature transmitted to the other Party or its counsel by email or facsimile transmission will be effective to bind the Party whose signature was transmitted, as a duly executed and delivered original. Each Party will promptly deliver its original signature pages to this Agreement to counsel for the other Party promptly following execution, but any failure to do so will not affect the binding effect of such signature.

(i) Entire Agreement; Severability . Except as provided in the Separation Agreement and the Ancillary Agreements (as defined in the Separation Agreement but excluding this Agreement), this Agreement, which includes each of the attached Appendices, sets forth the entire agreement and understanding between the Parties with respect to the Products. All prior and contemporaneous discussions and negotiations relating to the Products are merged herein. This Agreement will not be supplemented, modified, or amended except by a written instrument signed by a duly authorized representative of each of Buyer and Seller. In the event of any conflict or inconsistency between this Agreement and the terms and condition of any forecast, purchase order, or other order document, including any inconsistency as to any Product invoice price, the terms and conditions of this Agreement will control unless such other document constitutes an Amendment and expressly references and supersedes this Agreement. This Agreement will be binding upon and inure to the benefit of the successors, representatives and permitted assigns of the Parties. The terms and conditions of this Agreement supersede and replace those of any prior negotiations and any documents that the Parties have exchanged in connection therewith (together, “ Negotiation Documents ”). Buyer and Seller represent and warrant that they are entering into this Agreement based solely on the provisions set forth herein and not in reliance, in whole or in part, on any claim or representation contained in any Negotiation Document. If

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any provision of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, such invalidity shall not affect the validity or operation of any other provision and such invalid provision shall be deemed to be severed from the Agreement.

(j) Injunctive Relief . Each Party acknowledges that any breach by a Party of Section 12 or Section 13 of this Agreement may cause the non-breaching Party and its Affiliates irreparable harm for which the non-breaching Party and its Affiliates have no adequate remedies at law. Accordingly, each Party and its Affiliates are entitled to seek injunctive relief, without complying with Section 18(b) and regardless of Buyer’s cure rights, if any, for any such breach in any state or federal court in Chicago, Illinois, USA, and each Party consents to the exclusive jurisdiction and venue in the state and federal courts in Chicago, Illinois, USA for injunctive relief purposes. Each Party waives all claims for damages by reason of the wrongful issuance of an injunction and acknowledges that its only remedy in that case is the dissolution of that injunction.

(k) Notices . Notices under this Agreement are sufficient if given by nationally recognized overnight courier service, certified mail (return receipt requested), or email or facsimile with electronic confirmation or personal delivery to the other Party at the address below:


		If to either Seller:		Sears, Roebuck and Co.
				3333 Beverly Road
				Hoffman Estates, IL 60179
				Attn: EVP, Chief Merchandising Officer, & President-Sears Full Line Store & Kmart Formats
				Facsimile: 847-286-0204
				Email: ron.boire@searshc.com

		With a copy to:		Sears, Roebuck and Co.
				3333 Beverly Road
				Hoffman Estates, IL 60179
				Attn: General Counsel
				Facsimile: (847) 286-2471
				Email: dane.drobny@searshc.com

		If to any Buyer :		Sears Hometown and Outlet Stores, Inc.
				3333 Beverly Road
				Hoffman Estates, IL 60179
				Attn.: Senior Vice President and Chief Operating Officer
				Facsimile: (847) 286-7838
				Email: william.powell@searshc.com

		With a copy to:		Sears Hometown and Outlet Stores, Inc.
				3333 Beverly Road
				Hoffman Estates, IL 60179
				Attn: General Counsel

		If to SHC :		Sears, Roebuck and Co.
				3333 Beverly Road
				Hoffman Estates, IL 60179
				Attn: EVP, Chief Merchandising Officer, & President-Sears Full Line Store & Kmart Formats
				Facsimile: 847-286-0204
				Email: ron.boire@searshc.com

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		With a copy to:		Sears Holdings Corporation
				3333 Beverly Road
				Hoffman Estates, IL 60179
				Attn: General Counsel
				Facsimile: (847) 286-2471
				Email: dane.drobny@searshc.com

Notice is effective: (i) when delivered personally, (ii) three business days after sent by certified mail, (iii) on the business day after sent by a nationally recognized courier service, or (iv) on the business day after sent by email or facsimile with electronic confirmation to the sender. A Party may change its notice address by giving notice in accordance with this Section 21(k) .

(l) No Waiver . The terms, covenants and conditions of this Agreement may be waived only by a written instrument signed by the Party waiving compliance. Any Party’s failure at any time to require performance of any provision will not affect that Party’s right to enforce that or any other provision at a later date. No waiver of any condition or breach of any provision, term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances will be deemed to be or construed as a further or continuing waiver of that or any other condition or of the breach of that or another provision, term or covenant of this Agreement.

(m) Publicity . Each Party will refrain from making any reference to this Agreement or to the other Party in the solicitation of business, unless the other Party gives its prior written consent to such action and approves any press release or other publicity materials prior to their dissemination.

(n) Relationship of the Parties . The relationship of Seller and Buyer to each other is that of independent contractors, and neither Party will not represent that the other Party is its partner in any manner. Buyer has no authority to enter into any contract or incur any expense or obligation of any kind in Seller’s name.

(o) Reporting . For purpose of this Agreement, unless otherwise indicated herein, all calculations and measurements with respect to Buyer’s purchases and sales of Products and similar information will be measured in units or dollars, as the context requires, and determined by reference to Seller’s information reporting systems.

(p) Representations and Warranties . Each Party represents that it has the right, power and authority to grant to the other Party the rights provided under this Agreement and to perform its obligations under this Agreement, and that such Party’s execution, delivery, and performance of this Agreement have been duly authorized and will not violate any other agreement, restriction, or Applicable Law to which such Party is a party or by which such Party is bound.

(q) Survival . Each term of this Agreement that would, by its nature, survive the termination or expiration of this Agreement will so survive, including the obligation of either Party to pay all amounts accrued hereunder and including Section 7 (PAYMENT TERMS), Section 12 (INTELLECTUAL PROPERTY.), Section 13 (CONFIDENTIALITY.), Section 14 (INDEMNIFICATION.), Section 21 (SHC’S SOLE OBLIGATION.), and this Section 22 (GENERAL.).

(r) Condition Precedent to the Effectiveness of this Agreement . This Agreement will not become effective until it has been approved by the Audit Committee of the Board of Directors of SHC.

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(s) Governing Law; Jurisdiction; Waiver of Jury Trial .

(i) Governing Law . This Agreement will be construed in accordance with, and governed by, the federal laws of the United States, including the Lanham Act, and the internal laws of the State of Illinois, other than its conflict of laws principles and the Illinois Franchise Disclosure Act. This Agreement will not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.

(ii) Jurisdiction . Each of the Parties submits, for itself and its property, to the exclusive jurisdiction of all Illinois state courts and federal courts of the United States of America sitting in Cook County, Illinois, and all appellate courts to each thereof, in all actions and proceedings arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of all judgments relating thereto, and each of the Parties (A) will commence all such actions and proceedings only in such courts, (B) will cause all claims in respect of all such actions and proceedings to be heard and determined in such Illinois state court or, to the extent permitted by law, in such federal court, (C) waives, to the fullest extent it may legally and effectively do so, all objections that it may now or hereafter have to the laying of venue of all such actions and proceedings in any such Illinois state or federal court, and (D) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such actions and proceedings in all such Illinois state and federal courts. A final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 22(k) . Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by Applicable Law.

(iii) Waiver of Jury Trial . Each Party acknowledges that each controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, it irrevocably and unconditionally waives all rights it may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party certifies and acknowledges that (A) it understands and has considered the implications of such waivers, (B) it makes such waivers voluntarily, and (C) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 22(s) .

(SIGNATURE PAGE FOLLOWS)

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SEARS, ROEBUCK AND CO. KMART CORPORATION		SEARS HOMETOWN AND OUTLET STORES, INC.

	By: Sears Holdings Management Corporation, their agent
		By:	/s/ W. Bruce Johnson
		W. Bruce Johnson
By:	/s/ Ronald Boire	Chief Executive Officer and President
Ronald Boire
EVP, Chief Merchandising Officer, & President-Sears Full Line Store & Kmart Formats

SEARS HOLDINGS CORPORATION		SEARS AUTHORIZED HOMETOWN STORES, LLC

By:	/s/ Ronald Boire
Ronald Boire		By:	/s/ W. Bruce Johnson
EVP, Chief Merchandising Officer, & President-Sears Full Line Store & Kmart Formats		W. Bruce Johnson President

		SEARS OUTLET STORES, L.L.C.

		By:	/s/ W. Bruce Johnson
		W. Bruce Johnson
		President

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Appendix 1

Additional Terms and Conditions

1. PURCHASE ORDERS . The execution of the Merchandising Agreement to which this Appendix 1 is attached (the “ Merchandising Agreement ”) does not give rise to any commitment on the part of Buyer to purchase any Product. A commitment to purchase Product arises only at such time as Buyer issues a Purchase Order or enters into a separate Vendor Agreement for specific quantities of Product and Buyer’s obligation to purchase Product is limited to the quantities in that Purchase Order or Vendor Agreement. When issued by Buyer and accepted by Seller, all Purchase Orders become part of and will be subject to the terms of the Merchandising Agreement. All estimates or forecasts of Buyer’s future needs for Products which may be provided to Seller by Buyer are for planning purposes only and do not in any way represent a commitment by Buyer nor give rise to any obligation or liability of Buyer. Buyer has no responsibility for any actions taken by Seller based on such estimates or forecasts.

2. CODES OF CONDUCT. Buyer acknowledges that it has been furnished a copy of the Sears Holdings Corporation Code of Conduct (the “ Code of Conduct ”) and that Seller employees are required to follow the Code of Conduct. Buyer will support the Code of Conduct and will not directly or indirectly take any action that may cause a Seller employee to violate any law or the Code of Conduct. Without limiting the foregoing, Buyer will not directly or indirectly offer or give any personal benefit (other than infrequent, non-cash gifts of nominal value consistent with the Code of Conduct), including commissions, kickbacks, payments, loans, gratuities (including travel and entertainment), bribes, gifts, samples, services, promises of future employment or personal considerations (each a “ Benefit ”) to any Personnel of Seller and Seller’s Affiliates or to any person that Buyer knows is a member of such Personnel’s family, or to any entity in which Buyer knows such Personnel or a member of such Personnel’s family owns a direct or indirect interest. Buyer will notify the Sears Holdings Corporation Office of Compliance within five business days after it has knowledge of any violation or attempted violation of the Code of Conduct or this Section 4. Any such notice is deemed to have been given when delivered by certified mail, return receipt requested, by email at compliance@searshc.com or to such other email address as may be provided in the Code of Conduct. Buyer will cooperate with any request by Seller to provide information and documentation regarding any communication or transaction with Seller or its Personnel. If Buyer adopts a code of conduct with respect to its Personnel and delivers that code of conduct to Seller, Seller will support that code of conduct and will not directly or indirectly take any action that may cause any of Buyer’s Personnel to violate the code of conduct or any Applicable Law.

3. PACKAGING, LABELING, SHIPPING AND BILLING. Seller will be responsible for providing adequate packaging, tagging, labeling, packing, shipping and billing. Seller will comply with all packaging, tagging, labeling, packing, shipping and billing requirements reasonably requested by Buyer as well as any and all requirements established by applicable laws, regulations, carrier tariffs and product classifications. For Products to be shipped to Buyer from a point of origin within the United States, Seller will deliver Products to the designated carrier on or before the ship date specified in the applicable Vendor Agreement. For Products to be shipped to Buyer or a Buyer-branded outlet from a point of origin outside the United States. Seller will deliver Products in accordance with the delivery terms specified in the applicable Vendor Agreement and such delivery will be made on or before the ready date specified in such Vendor Agreement. Delivery dates specified will be of the essence of the Vendor Agreement. Seller will ship all Products in full packs and full shipments in accordance with Buyer’s requirements as set forth in the Vendor Guide or any Vendor Agreement.

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4. REPRESENTATIONS AND WARRANTIES.

4.1. Products . Without in any way disclaiming implied remedies or limiting remedies for breach thereof, Seller represents and warrants that all Products will: (a) conform to the Specification for such Products; (b) be fit and sufficient for the ordinary purpose for which Products is used; (c) be free from defects in workmanship, materials and packaging; (d) be free from defects in construction and design; (e) be fit and sufficient for the purpose stated on any packaging, labeling or advertising; and (f) be equivalent in materials, quality, fit, finish, workmanship, performance and design to any samples submitted to and approved by Buyer.

4.2. Advertising . Seller represents and warrants that all claims made by Seller in any packaging, labeling, advertising, or other consumer material in connection with any Products or Seller brand relating to Products will be true and will have been substantiated and at the time such claims are made.

4.3. Intellectual Property . Seller represents and warrants that: (a) all patents, trademarks, trade names, trade dress, copyrights, trade secrets, rights of publicity and other intellectual property rights (other than those intellectual property rights owned by or licensed to Buyer) used by Seller in connection with Products or in the development or manufacture of Products are either owned by Seller or Seller has been and is properly authorized by the owner of such rights to use such intellectual property rights in connection with such Products and to sell such Products incorporating such intellectual property rights to Buyer for use or further resale and (b) Products will not, at the time that it is delivered, offered for sale or sold by Buyer, infringe any patent, trademark, service mark, trade name, trade dress, copyright, trade secret, domain name, right of publicity or other intellectual property right of any person, corporation or other entity. Seller will notify Buyer’s chief legal officer in writing by certified mail, return receipt requested, within five business days after it has knowledge of any claim or allegation of infringement, misuse, dilution, misappropriation or other violation of any patent, trademark, service mark, trade name, trade dress, copyright, trade secret, domain name, right of publicity or other intellectual property right in any way related to or affecting Products.

4.4. Compliance with Law . Seller represents and warrants that: (a) all Products have been or will be produced, assembled packaged, tagged, labeled, packed, shipped and invoiced (“ Products Production ”) in compliance with the applicable requirements of federal, state and local laws, regulations, ordinances and administrative orders and rules of the United States and its territories and those of all other countries in which such Products Production or delivery of Products takes place; (b) Seller, its affiliates, and the Personnel of each of them who are involved in the Products Production or delivery of Products each will during the term of each Vendor Agreement strictly comply with all applicable federal, state and local laws, regulations, and prohibitions of the United States and its territories, and the laws, regulations, and prohibitions of all countries in which any Products Production or delivery of Products occurs including all laws, regulations and prohibitions governing the working conditions, wages, hours and minimum age of the work force; and (c) Products Production has not and will not involve at any time, in whole or in part, any use of child, convict or forced labor. Seller will provide Buyer with any guaranty of compliance with the foregoing in such form as Buyer may designate with respect to any Products.

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4.5. Antidumping . Seller represents and warrants that all sales of Products to Buyer will be made at no less than fair value under the United States antidumping law and that no government has provided a countervailable subsidy for Products actionable under U.S. law. Seller will indemnify Buyer for (i) all antidumping and countervailing duties imposed on all Products that is sold prior to the date of publication of the International Trade Administration’s preliminary determination of sales at less than fair value or prior to the date of publication of the existence of countervailable subsidies and exported before the date of publication of the International Trade Administration’s final determination of sales at less than fair value or the existence of countervailable subsidies and (ii) any expenses (including reasonable attorneys’ fees) and administrative costs incurred by Buyer, its Authorized Resellers, and Buyer-Branded Outlets in their participation in any United States antidumping or countervailable duty proceeding involving any warranted Products.

5. PURCHASE ORDER PROCESSING. Purchase Orders and each invoice (or ship notice, in the absence of an invoice) will contain an appropriate, agreed upon code, symbol or statement affirming Seller’s compliance with all applicable requirements of the Fair Labor Standards Act (as amended), the regulations and orders of the United States Department of Labor issued pursuant thereto and of any similar state laws and regulations. All electronic fund transfers and wire transactions will be in accordance with National Automated Clearing House Association (NACHA) rules and in accordance with any instructions and procedures which Buyer may from time to time supply. Neither Party will be liable to the other Party for any indirect, special, incidental, exemplary or consequential damages arising from or as a result of any delay, omission or error in the electronic transmission or receipt of any documents, even if the other Party has been advised of the possibility of such damages.

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Appendix 2(a)

Effective Date

The Effective Date referred to in Section 2(a) is September , 2012.

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A ppendix 3(a)

HTS Product Categories


Division Description and Number

1.		FURNITURE-IN STORE—1

2.		HOME OFFICE—3

3.		SPORTING GOODS—6

4.		HOUSEWARES—8

5.		TOOLS—9

6.		NURSERY—12

7.		HEALTH AND BEAUTY—13

8.		LUGGAGE—14

9.		FLOORCARE/SEWING—20

10.		COOKING & CLEANUP—22

11.		WINDOW SHOP—24

12.		HOME BIG TICKET—025

13.		LAUNDRY—26

14.		SCAN BASED TRADING—27

15.		AUTOMOTIVE—28

16.		PAINT—30

17.		HOME ENVIRONMENT—32

18.		ELECTRICAL—34

19.		FLOOR COVERING—37

20.		MENS SPORTSWEAR—41

21.		AIR & WATER APPLIANCES—42

22.		FOOD STORAGE—46

23.		LANDS’ END CHILDREN’S APP—48

24.		CHILDREN’S HARDLINES—49)

25.		GENERAL MERCHANDISE—50

26.		TOYS—52

27.		HOME ELECTRONICS—57

28.		ENTERTAINMENT SOFTWARE—58

29.		MENS SHOES—67

30.		LAWN, GARDEN, PATIO—71

31.		OUTLET BUDGET SHOP—80

32.		BEDDING—82

33.		BATHROOM FIXTURES/PLUMBING—83

34.		PANTRY AND HOUSEHOLD—87

35.		BED AND BATH—96

36.		PARTS OTHER-COUNTER—98

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Appendix 3(b)

HTS Invoice Prices

The HTS Invoice Prices will be the sum of (1) [***], plus (2) the net amount of the following charges and credits without duplication (each a “ 3(b) Amount ”):

Audit recoveries

Carriage costs from the Vendor’s delivery point to the FOB Point;

Cash discounts;

Distribution-center markdowns;

Distribution-center shrink;

Other logistics expense;

Charge for Seller Warranty for No-Vendor-Warranty Products that are HTS Products: [***] of Core Cost (“ Core Cost ” means costs reflected in the Sears Corporate Repository of Referential Information or successor system);

Source penalties;

Packaging costs requested by Buyer;

10.

Vendor-compliance income; and

11.

All other charges and expenses consistent with practices in effect for Buyer and Seller immediately prior to the Effective Date.

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Appendix 4(b)(i)

Invoice Prices for DRM

The invoice prices for DRM are described on the following tables. Buyer is responsible for carriage only from Seller’s MDOs to the Sears Outlet Stores.

Table A—For All Outlet Products that are No-Vendor-Warranty Products :


Description and Seller Division	Percentage Off Seller’s Core Cost (“Outlet’s Cost”)

Furniture-In Store (Div 001)		[	***]
Sporting Goods (Div 006)		[	***]
Housewares (Div 008)		[	***]
Tools (Div 009)		[	***]
Floorcare, Sewing (Div 020)		[	***]
Cooking And Cleanup (Div 022)		[	***]
Laundry (Div 026)		[	***]
Plumbing & Heating (Div 042)		[	***]
Food Storage (Div 046)		[	***]
Baby Furniture – Children’s Hardlines		[	***]
Audio/Visual (Div 057)		[	***]
Lawn, Garden, Patio (Div 071)		[	***]
Mattresses (Div 082)		[	***]

Table B—For Outlet Products that are Vendor-Warranty Products:


Description and Seller Division	Percentage Off Seller’s Core Cost

Furniture-In Store (Div 001)		[	***]
Sporting Goods (Div 006)		[	***]
Housewares (Div 008)		[	***]
Tools (Div 009)		[	***]
Floorcare, Sewing (Div 020)		[	***]
Cooking And Cleanup (Div 022)		[	***]
Laundry (Div 026)		[	***]
Plumbing & Heating (Div 042)		[	***]
Food Storage (Div 046)		[	***]
Baby Furniture – Children’s Hardlines		[	***]
Audio/Visual (Div 057)		[	***]
Lawn, Garden, Patio (Div 071)		[	***]
Mattresses (Div 082)		[	***]

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Appendix 4(c)(ii)

MOS Categories and Initial MOS Invoice Prices

The categories of MOS that Seller will sell, and Buyer will purchase, in accordance with, and subject to, Section 4(b) of the Merchandising Agreement to which this Appendix 4(c)(ii) is attached and forms a part are described in the table below in the column labeled “Source and Merchandise Description.” The invoice prices for MOS for the first three 12-month periods during the Initial Term will be the sum of (1) the applicable amounts listed in the following table in the column labeled “Base Price” plus (2) at the end of each of the first three years of the Term, an additional amount equal to [***] of Buyer’s annual EBITDA, if any, with respect to MOS sold by Buyer, which amount (if any) Buyer will pay on or before the 45 ^th day after the end of Buyer’s fiscal year. Buyer is responsible for carriage only from Seller’s CRC’s to the Sears Outlet Stores.


Source and Merchandise Description		Base Price

Kmart (including Kmart.com) —all items in all categories of MOS		Per pallet $[***]

Lands’ End (including Lands’ End.com) —all items in all categories of MOS (Apparel) all items in all categories of MOS shoes		Per item $[*] Per item $[*]

Sears, Roebuck and Co. (including Sears.com) —all items in all categories of MOS (Apparel)		Per item $[***]

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Appendix 5(a)

Royalty Rates; Kenmore Royalty Credits

I.	ROYALTY RATES

Royalty Rates during the Initial Term :


KCD-Branded Product	Royalty Rate before Deduction of the Kenmore Royalty Credit

Kenmore-branded		[	***]

Craftsman-branded—Lawn & Garden		[	***]

Craftsman-branded—all other		[	***]

DieHard-branded		[	***]

Royalty Rates during the First Renewal Period and the Second Renewal Period:

The Royalty Rates for KCD-Branded Product that are major home appliances (divisions 022, 026, and 046 as described on Appendix 3(a) ), lawn mowers, and tractors will be the rates specified above in the column labeled “Royalty Rate before Deduction of the Kenmore Royalty Credit” (the “ Initial-Term Rate ”).

The Royalty Rates for all other KCD-Branded Products will be determined in accordance with the following:

1.	First Renewal Period .

[***] A total of two pages were omitted and filed separately with the Securities and Exchange Commission.

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2.	Second Renewal Period .

[***] A total of two pages were omitted and filed separately with the Securities and Exchange Commission.

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[***]

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3.	Terms Defined for the Purposes of this Appendix 5(a) .

[***] A total of two pages were omitted and filed separately with the Securities and Exchange Commission.

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“ KCD-Branded Product Category ” means each of the following categories:

Kenmore :

Home Environment (includes Floorcare, Air & Water, among others)

Small Kitchen Appliances & Housewares

Other Kenmore

Craftsman

Handtools & Mechanics Tools

Power Tools

Garage & Storage

Tool Accessories

Spec & Other Powered Equipment

Non-Powered & Watering Equipment

10.

L&G Accessories & Attachments

11.

Other Craftsman (includes Apparel, Toys, Grilling Accessories, among others)

DieHard

12.

Batteries (includes Automotive, Sport & Marine, Alkaline)

13.

Power Accessories

14.

Apparel

15.

Other DieHard

[* * *]

II.

KENMORE ROYALTY CREDIT

The “ Kenmore Royalty Credit ” will be determined by Buyer in accordance with the following:

[* * *]

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“ Buyer’s Balance of Sales in the Home Appliance Category ” means a fraction, expressed as a decimal, (i) the numerator of which is Buyer’s Net Sales during a Buyer fiscal quarter of HTS Products in the Home Appliance Category that are Kenmore-Branded Products, and the denominator of which is Buyer’s Net Sales during the fiscal quarter of HTS Products in the Home Appliance Category (regardless of brand). The “ Home Appliance Category ” means the following product categories:

Cooking & Cleanup—Division 22

Laundry—Division 26

Air & Water Appliances—Division 42

Food Storage—Division 46

Floorcare/Sewing—Division 20

Home Environment—Division 32

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Appendix 5(d)

Average Aggregate Minimum Commission

The “ Aggregate Average Minimum Commission Rate ” on Kenmore-Branded Products in the Home Appliance Category means a commission rate that is not less than [* * *] basis points higher than the average aggregate merchandise commission rate paid by Buyer to owners of Sears Hometown Stores and Franchisees with respect to sales of non-Kenmore-Branded Products in the Home Appliance Category calculated based on Buyer’s customary methods of calculating commission rates payable to owners of Sears Hometown Stores and to Franchisees.

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Appendix 6

Inventory Management Policies and Processes

Definitions used in this Appendix 6

“ Buyer IM Team ” means Seller’s IM employees who are identified by Seller (subject to the approval of Buyer) to provide the IM services described in this Appendix 6 .

“ DOS ” means Seller’s Distribution Operation System

“ Format ” means a Party.

“ IDRP ” means Seller’s Demand Planning System.

“ IM ” means Inventory Management.

“ RIM ” means Store Replenishment System

“ Seller IM ” means Seller’s Inventory Management function.

Charges and Fees

Charges and fees for Seller’s services described in this Appendix 6 are reflected on Appendix A to the Services Agreement.

1.	Separation of Inventory

(a)

Regarding the Logical Separation of DC inventory for Seller and Buyer

(i)

Logical Separation is an Operational Separation

(A)

Seller and Buyer will each have a Logical Separation of DC inventory

(ii)

Calculating Logical Separation of DC inventory for each Party to draw from is a function of Relative Demand Forecasts entered into IDRP based upon

•

Using Relative Demand Forecasts to determine IDRP stocking targets in accordance with Order Feasibility Logic by each Party

•

Entering Relative Demand Forecasts by Item, by Week and by DC by each Party

•

Establishing how much time is required to fulfill demand is a function of Order Feasibility logic parameters within IDRP:

•

Varies by Vendor Production Point of Origin

•

Determined by Vendor Production Planning cycle and Total Lead-times

•

Calculating Demand Forecasts is a function within IDRP generated by:

•

Establishing each Store Reorder Points by users

•

Downloading Store On Hand and Store On Order from RIM

•

Entering Sales Forecasts by users

•

Entering Floor Set Quantities by users

•

Allocating DC On Hand Inventory and Inbound PO’s is performed between IDRP and DOS for the following functions:

•

Store Replenishment

•

Customer Orders

•

Flooring of Newly Assorted Items

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(iii)

Supplying and/or reviewing all demand forecast data is the responsibility of Buyer

(A)

IDRP will continue to provide baseline sales forecast for Buyer. Buyer IM team will review and modify forecasts where appropriate in collaboration with Buyer.

(B)

Entering forecasts into IDRP will be performed by the IDRP Certified Buyer IM team under Order Feasibility parameters based upon IDRP forecasting logic

(C)

Collaborating on forecasts will be performed between Buyer IM teams and Buyer

(D)

Altering forecasts to change prevailing logic of similar item history as the default for IDRP demand forecasts in DC Logical Separation of Inventory calculations will be completed by Buyer IM team.

(1)

Submitting store demand and sales forecasts via IDRP is the responsibility of Buyer

(2)

Communicating demand/sales changes where the Buyer default demand forecast is deemed too high/low is the responsibility of Buyer

(E)

Forecasting Store Reorder Point Increases and Decreases must occur within IDRP along with all other demand factors such as resets, seasonal buys, and promotions by Buyer IM team

(F)

Planning demand where IDRP is not used within Seller, must be communicated to Seller IM teams based on order feasibility by Buyer

(G)

Execution of Inbound DC PO’s is a function of the Seller IM teams

(H)

Supplying plans for Buyer Demand that exceeds prior Buyer forecasts where typical Order Feasibility logic does not supply Vendors ample time to produce larger than normal volumes of product is also required

(I)

Forecasting the demand impacts of New Store Openings and Store Closings must be completed within order feasibility parameters by Buyer or prior demand forecast will dictate logical separation of inventory for Buyer

(iv)

Party Ordering Logic applicable to either Party at the item level:

(A)

Customer Order Parameters

(1)

Filling orders from the DC for customer orders will default to orders being filled from either Party’s specific separation of inventory.

(2)

Filling orders from the DC for customer orders will have an exception process to allow orders from each Party to only draw from a Party-specific logically separated DC inventory

(i)

Exception process to be agreed-upon between both Buyer and Seller IM teams

(B)

Store Replenishment Parameters

(1)

Filling orders from the DC for store replenishment orders will default to orders being filled from either Party’s specific separation of inventory

(2)

Filling orders from the DC for store replenishment will have an exception process to allow orders from each Party to only draw from a Party-specific logically separated DC inventory.

(i)

Exception process to be agreed-upon between both Buyer and Seller IM teams

(C)

Alteration of default Party ordering logic will be performed by Seller IM teams

(1)

Exception process to be agreed-upon between both Buyer and Seller IM teams

(D)

Communication of adjustments by either Party to default format ordering logic will be performed by Seller IM teams where:

(1)

Occurrences where Vendor supply interruptions are uncovered

(2)

Availability of items at any Vendor becomes constrained

(3)

Requirements by law for minimum availability per marketing of promotions where the demand was planned according to Order Feasibility Logic

(4)

Overselling forecasts by either Party where the other Party’s ability to fulfill Demand Forecasts are at risk

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2.	Transition and Assortment Inventory Planning

(i)

Supplying annual calendars with estimated due dates to Buyer is the responsibility of Seller IM teams

(ii)

Establishing forecasts for ROIC, Seasonal and/or Annual demand according to Vendor Production Planning Lead-times including Vendor/manufacturer preseason part procurement planning according to planning calendars will be performed by Buyer.

(A)

Determination of specific timelines and due dates for calendars will be performed by each BU Seller IM Team and communicated to the Buyer IM team as additional information of Vendor requirements for production planning becomes available, impacting future order feasibility.

(1)

Each Seller SHC IM Team will ensure that the calendar incorporates lead times for above mentioned forecasts allow Buyer to review assortments, complete modeling and submit a forecast.

(B)

Common Seasonal areas to note but not exclusive to:

(1)

Annual Power LandG estimates due in early Fall prior to next Spring Season

(2)

Initial Birding set up quantity due Late Spring prior to next Spring Season

(3)

Air Conditioners due Early Fall prior to next Spring Season –

(4)

Outdoor Living annual estimates and floor set quantities due mid-Summer prior to next Spring Season

(5)

Seasonal Christmas estimates early Spring (Trees, Lights, etc)

(6)

Planning for all products is due at the same time as Seller plans for Buyer inclusion in buy plans with Vendors and according to predetermined planning calendars with store flooring needs, replenishment points and sales forecasts established.

(iii)

Documentation of items and programs requiring CAPCON or ROIC approval where Buyer provides requests will be included in total Seller buy review are to be supplied by Buyer –

(A)

Requesting product where Buyer forecasts are not within +/- 10% tolerance of 3 year average historical Buyer sales

(1)

Negotiation of separate exit strategies is required of Buyer prior to confirmation of approvals to minimize negative impact to DC inventory levels including but not limited to:

(i)

Absorbing excess quantities into Buyer store locations determined by item by DC Logical Separation of Inventory

(B)

Exercising one of the following options is required of Buyer where requested product based on Buyer forecasts are within +/- 10% tolerance and where excess inventory remains in DC’s Logically Separated for Buyer

(1)

Receiving all excess quantities at store level

(2)

Complying with Seller Merchandise Control Policies and submit appropriate Pack Away forms for approval

(i)

Upon Approval, Pack Away items will be held in DCs until the next season (handling, storage, etc. will be billed to Buyer )

(ii)

Upon Denial, excess quantities will be receipted at Buyer store level and executed by the Buyer IM team

(iv)

New Product Assortment/Floor Sets

(A)

Adherence to the same lead-times as other Party is required by Buyer regarding initial Flooring Inventory Demand, as this demand has order feasibility requirements

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(B)

Leveraging Logical Separation of DC Inventory will protect flooring quantities by being segregated in the DC’s to ensure flooring needs are filled regardless of New Product Assortment Planning Timeline differences between the Parties

(v)

Following the Seller new Vendor and new item processes is required of Buyer for Buyer exclusive Products by Buyer Merchant and Buyer IM teams

(A)

All aforementioned demand forecast parameters apply to Buyer exclusive items

(vi)

Performance of Record Creation activities for Buyer -unique items will be completed by Buyer’s RIM Certified IM team. Seller Seller’s will continue to use existing Record Creation processes for shared items.

3.	Emergency/Disaster Orders:

(i)

Unpredictable catastrophic event impacting localized emergency demand

•

Forecasting is the responsibility of both Seller and Buyer and include Emergency/Disaster quantities based on a 4 year average; said forecast is the basis for allocation to each Party.

•

Committing to Vendor held stock is the responsibility of the Seller IM team inclusive of aforementioned forecasting for demand for each Party.

•

Where availability is constrained, allocation will be based upon collaboration between selected delegates from Seller IM team and Buyer .

•

Forecasting when and where an Emergency/Disaster will occur is not feasible; therefore, demand will vary based upon where emergency/disasters occur

•

Planning and executing Emergency/Disaster Response is the responsibility of Seller according to the Disaster Program; this includes:

•

Disaster Program Procedures:

•

Notification of District Managers Responsible for each District to the Disaster Program Coordinator is the responsibility of the Field Leadership team for each Party

•

Notifications of Changes to District Managers Responsible is the responsibility of the Field Leadership team for each Party

•

Notification of local demand for emergency/disasters is the responsibility of the Party field District Managers via the Disaster Hotline

•

Handling inbound Disaster Hotline calls is the responsibility of Seller IM team

•

Allocation of Disaster Merchandise both in DC’s and Vendor Held Stock is the responsibility of the Seller IM team based on requests from a Party’s District Managers

•

Where availability is constrained, allocation will be based upon collaboration between selected delegates from Seller IM team and Buyer

•

Event examples

•

Hurricane

•

Tornado

•

Flooding

•

Excessive Snowfall

•

Infrastructure disruption

•

Items Included

•

Wet/dry Vacuums

•

Sump Pumps

•

Snow Throwers

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•

Ice Melt

•

Gas Cans

•

Generators

•

Chainsaws

•

AA, AAA, C and D Cell Batteries

•

Flashlights

4.	Puerto Rico and Guam: Seller’s Affiliates will provide IM services for Buyer Stores in Puerto Rico and Guam that are substantially the same in all material respects as the IM services provided by Seller’s Affiliates for Buyer Stores in Puerto Rico and Guam as of the Effective Date.

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Appendix 7(a)

Payment Due Date

For the first 12 months of the Term :

Invoices for Products: the Payment Due Date is the 10 ^th day following Buyer’s receipt of the invoice.

Royalties: the Payment Due Date is the 10 ^th day following the end of Buyer’s fiscal week or Buyer’s fiscal quarter, as the case may be, in accordance with Section 7(b) of the Merchandising Agreement to which this Appendix 7(a) is attached and forms a part.

If the 10 ^th day is a Saturday, Sunday, or bank holiday, Buyer will pay on the next banking day, which will become the Payment Due Date. Electronic fund transfers initiated on the Payment Due Date will be timely made for purposes of the Merchandising Agreement.

For the remainder of the Term : Seller and Buyer will negotiate in Good Faith to determine the Payment Due Dates, which negotiations will take into account, among other things, then-current market conditions.

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Appendix 9(b)(i)(A)

New HTS Store List


City Name	State	MSA
1. Surprise	AZ	Phoenix-Mesa-Scottsdale AZ
2. Tempe	AZ	Phoenix-Mesa-Scottsdale AZ
3. Culver City	CA	Los Angeles-Long Beach-Santa Ana, CA
4. Danville	CA	San Francisco-Oakland-Fremont, CA
5. Hollywood CA	CA	Los Angeles-Long Beach-Santa Ana, CA
6. Irvine CA	CA	Los Angeles-Long Beach-Santa Ana, CA
7. Lancaster	CA	Los Angeles-Long Beach-Santa Ana, CA
8.Los Angeles	CA	Los Angeles-Long Beach-Santa Ana, CA
9. Oxnard	CA	Los Angeles-Long Beach-Santa Ana, CA
10. Pacoima	CA	Los Angeles-Long Beach-Santa Ana, CA
11. San Jose	CA	San Francisco-Oakland-Fremont, CA
12. Tustin	CA	Los Angeles-Long Beach-Santa Ana, CA
13. Van Nuys	CA	Los Angeles-Long Beach-Santa Ana, CA
14. Westwood	CA	Los Angeles-Long Beach-Santa Ana, CA
15. Aurora	CO	Denver-Aurora, CO
16. Lone Tree	CO	Denver-Aurora, CO
17. Newington	CT	Hartford-W Hartford-E Hartford, CT
18. Christiana	DE	Philadelphia-Camden-Wilmington PA-NJ-DE-
19. Cocoa Beach	FL	Palm Bay-Melbourne-Titusville, FL
20. Delray Beach (east)	FL	Miami-Ft Lauderdale-Pompano Bch FL
21. Jupiter	FL	Miami-Fort Lauderdale-Miami Beach, FL
22. Leesburg	FL	Orlando-Kissimmee, FL
23. Ormond Beach	FL	Deltona-Daytona Beach-Ormond Beach, FL
24. Tallahassee	FL	Tallahassee, FL
25. Savannah	GA	Savannah, GA
26. Ankeny	IA	Des Moines-West Des Moines, IA
27. Post Falls	ID	Coeur d’Alene, ID
28. Huntley	IL	Chicago-Naperville-Joliet, IL-IN-WI
29. Savoy	IL	Champaign-Urbana, IL
30. Springfield	IL	Springfield, IL
31. Fort Wayne	IN	Fort Wayne, IN
32. Shawnee	KS	Kansas City, MO-KS
33. Topeka	KS	Topeka, KS
34. Ashland	KY	Huntington-Ashland, WV-KY-OH
35. Nicholasville	KY	Lexington-Fayette, KY
36. Westfield	MA	Springfield, MA
37. Worcester/Shrewsbury	MA	Worcester, MA

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City Name	State	MSA
38. Davie	MD	Miami-Ft Lauderdale-Pompano Bch FL
39. Edgewood	MD	Baltimore-Towson, MD
40. Towson	MD	Baltimore-Towson, MD
41. Wheaton	MD	Washington-Arlington-Alexandria, DC-VA-MD-WV
42. Ann Arbor	MI	Ann Arbor, MI
43. Franklin	MI	Detroit-Warren-Livonia, MI
44. Lake Orion	MI	Detroit-Warren-Livonia, MI
45. Washington	MI	Detroit-Warren-Livonia, MI
46. Liberty	MO	Kansas City, MO-KS
47. Southpark	NC	Charlotte-Gastonia-Concord NC-SC
48. Cherry Hill	NJ	Philadelphia-Camden-Wilmington PA-NJ-DE-
49. Manchester Township	NJ	New York-Northern New Jersey-Long Island, NY-NJ-PA
50. Marlton	NJ	Philadelphia-Camden-Wilmington PA-NJ-DE-
51. Morganville	NJ	New York-Northern NJ-Long Is NY-NJ-PA
52. Sewell	NJ	Philadelphia-Camden-Wilmington, PA-NJ-DE-MD
53. South Plainfield	NJ	New York-Northern New Jersey-Long Island, NY-NJ-PA
54. Succasunna	NJ	New York-Northern New Jersey-Long Island, NY-NJ-PA
55. Rio Rancho	NM	Albuquerque, NM
56. Las Vegas	NV	Las Vegas-Paradise, NV
57. Reno	NV	Reno-Sparks, NV
58. Delmar	NY	Albany-Schenectady-Troy, NY
59. Highland	NY	Kingston, NY
60. New Rochelle	NY	New York-Northern NJ-Long Is NY-NJ-PA
61. Port Chester	NY	New York-Northern NJ-Long Is NY-NJ-PA
62. Staten Island north	NY	New York-Northern NJ-Long Is NY-NJ-PA
63. Troy	NY	Albany-Schenectady-Troy, NY
64. Bellbrook	OH	Dayton, OH
65. Columbus	OH	Columbus, OH
66. Broken Arrow	OK	Tulsa, OK
67. Oklahoma City	OK	Oklahoma City, OK
68. Homestead	PA	Pittsburgh, PA
69. Shrewsbury	PA	Baltimore-Towson, MD
70. York	PA	York-Hanover, PA
71. Greer/Taylors	SC	Greenville, SC
72. Sioux Falls	SD	Sioux Falls, SD
73. Cordova	TN	Memphis, TN-MS-AR
74. Elizabethton	TN	Johnson City, TN
75. Knoxville	TN	Knoxville, TN
76. Allen	TX	Dallas-Fort Worth-Arlington TX
77. Frisco	TX	Dallas-Fort Worth-Arlington TX
78. Mission	TX	McAllen-Edinburg-Mission, TX
79. Murphy	TX	Dallas-Fort Worth-Arlington TX

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City Name	State	MSA
80. San Antonio 16	TX	San Antonio TX
81. San Antonio east	TX	San Antonio TX
82. San Antonio north	TX	San Antonio TX
83. SW Houston	TX	Houston-Sugar Land-Baytown TX
84. West Plano	TX	Dallas-Fort Worth-Arlington TX
85. Colleyville	TX	Dallas-Fort Worth-Arlington TX
86. Rockwall	TX	Dallas-Fort Worth-Arlington TX
87. Dallas (75229)	TX	Dallas-Fort Worth-Arlington TX
88. Alexandria	VA	Washington-Arlington-Alexandria, DC-VA-MD-WV
89. Arlington	VA	Washington-Arlington-Alexandria, DC-VA-MD-WV
90. Herndon	VA	Washington-Arlington-Alexandria, DC-VA-MD-WV
91. Leesburg	VA	Washington-Arlington-Alexandria, DC-VA-MD-WV
92. Merrifield	VA	Washington-Arlington-Alexandria, DC-VA-MD-WV
93. Roanoke	VA	Roanoke, VA
94. Salem	VA	Roanoke, VA
95. Bothell	WA	Seattle-Tacoma-Bellevue, WA
96. Issaquah	WA	Seattle-Tacoma-Bellevue, WA
97. Appleton	WI	Appleton, WI
98. Green Bay	WI	Green Bay, WI
99. Madison	WI	Madison, WI
100. S Milwaukee	WI	Milwaukee-Waukesha-West Allis, WI

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Appendix 12(a)(iii)

Seller Marks

1.	The KCD Marks

2.	The feature Marks and sub-brand Marks associated with the Seller-Branded Products

3.	The trade dress related to the above Marks

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Appendix 18(a)(i)

Merchandising Operating Committee

Designated by Buyer : Michael Gray; Susan Hilsenbeck; JJ Ethridge

Designated by Seller : Michael Burti; Dean Schwartz; Adam Whitney

Initial Chairperson : Michael Burti

Exhibit 10.7

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SERVICES AGREEMENT

Between

SEARS HOLDINGS MANAGEMENT CORPORATION

And

SEARS HOMETOWN AND OUTLET STORES, INC.

August 8, 2012

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Table of Contents


		Page

ARTICLE I. SERVICES			1
1.01	Services to be Provided.		1
1.02	Quantity and Nature of Service.		1
1.03	Transition Plan.		2
1.04	Standard of Care.		2
1.05	Responsibility For Errors; Delays.		2
1.06	Good Faith Cooperation; Alternatives.		2
1.07	Use of Third Parties.		2
1.08	Assets of SHO.		2
1.09	Ownership of Data and Other Assets.		2
1.10	Contact Person.		3

ARTICLE II. CHARGES AND PAYMENTS FOR SERVICES			3
2.01	Compensation.		3
2.02	Payments.		4
2.03	Taxes.		4

ARTICLE III. TERMINATION			4
3.01	Termination of an Individual Service for Convenience by SHO.		4
3.02	Termination of the Agreement.		5
3.03	Obligations on Termination.		5
3.04	Termination of an Individual Service by SHMC.		5

ARTICLE IV. CONFIDENTIALITY			6
4.01	Confidentiality.		6
4.02	Third-Party Contractor Confidentiality Terms.		7

ARTICLE V. INDEMNIFICATION; LIMITATION OF LIABILITY			8
5.01	Indemnification by SHO.		8
5.02	Indemnification by SHMC.		8
5.03	Procedure.		8
5.04	Limitation of Liability.		9

ARTICLE VI. MISCELLANEOUS			9
6.01	Expenses.		9
6.02	Waiver of Compliance.		9
6.03	Amendment.		9
6.04	Assignment.		9
6.05	Notices.		9

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6.06	Survival.	11
6.07	Headings.	11
6.08	No Third Party Rights.	11
6.09	Counterparts.	11
6.10	Severability.	11
6.11	Entire Agreement.	11
6.12	Force Majeure.	11
6.13	Fair Construction.	11
6.14	No Agency.	12
6.15	Services Operating Committee; Dispute Resolution; Mediation.	12
6.16	Definitions.	13
6.17	Good Faith.	15
6.18	Condition Precedent to the Effectiveness of this Agreement.	15
6.19	Governing Law; Jurisdiction; Waiver of Jury Trial.	15

Appendices


APPENDIX 1.01-A	Schedule of Services

COMPLIANCE		29

EMPLOYEE COMMISSION ADMINISTRATION SUPPORT SERVICES		25

FACILITIES		29

FINANCE & ACCOUNTING		4

HOME SERVICES (Installation & Repair)		65

HUMAN RESOURCES		1

IT SERVICES		63

LOGISTICS & DISTRIBUTION		32

LOSS PREVENTION		21

MARKETING SERVICES		18

ONLINE SERVICES		11

PAYMENT CLEARING AND RELATED FINANCIAL SERVICES		57

REAL ESTATE		73

SEARS DE PUERTO RICO		76

STORE LEVEL LABOR PLANNING AND STAFFING SUPPORT		24

iii

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Exhibits to Appendix 1.01-A

APPENDIX 1.01-B		Effective Date

APPENDIX 1.10		Contact Persons

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SERVICES AGREEMENT

August 8, 2012

This Services Agreement (this “ Agreement ”) is between Sears Holdings Management Corporation , a Delaware corporation (“ SHMC ”), and Sears Hometown and Outlet Stores, Inc. , a Delaware corporation (“ SHO ”). SHMC and SHO each are sometimes referred to as a “ Party ” and together sometimes are referred to as the “ Parties. ” Section 6.16 of this Agreement, which begins on page 13, includes a glossary of defined terms used in this Agreement.

Terms and Conditions

For good and valuable consideration, the receipt of which SHMC and SHO acknowledge, SHMC and SHO agree as follows:

ARTICLE I.

SERVICES

1.01 Services to be Provided . During the Service Period SHMC will provide to SHO the services described on Appendix 1.01-A to the extent not prohibited by Applicable Law (together, the “ Services ”). “ Service Period ” means the period commencing immediately following the “Rights Closing Effective Time” specified in the Separation Agreement (the “ Separation Agreement ”) to be executed and delivered by SHO and SHLD (the date on which the Rights Closing Effective Time occurs, the “ Effective Date ”) and continuing until 5:00 p.m. (Central Time) on the last day of the 66 ^th full month following the Effective Date. The calendar day that becomes the Effective Date will be inserted on Appendix 1.01-B after the Effective Date has occurred. All services that were provided prior to the Effective Date to the businesses operated by SHO after the Effective Date and that after the Effective Date constitute Services will be governed by this Agreement even if such services are not described on Appendix 1.01-A. If a Party identifies such a Service, it will notify the other Party’s Contact Person (as provided for in Section 1.10 below), and the Parties will work together to address such services and respective pricing in an Amendment to this Agreement.

1.02 Quantity and Nature of Service . Except as otherwise provided in Section 1.01 or this Section 1.02, there will be no material change in the scope or level of, or use by, SHO of Services during the Service Period (including changes requiring the hiring or training of additional employees by SHMC) without the mutual written agreement of the Parties and adjustments, if any, to the charges for such Services; provided, however, SHMC may make changes from time to time in the manner of performing Services, notwithstanding that specific third party contractors (at times referred to as “vendors”) may be listed on Appendix 1.01-A), if SHMC is making similar changes in performing or the performance of the same or substantially similar services for itself or its Affiliates. SHO will not resell any Services, provide the Services to any joint-venture or non-wholly owned subsidiary, or otherwise use the Services in any way other than in connection with the conduct of SHO’s internal business.

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1.03 Transition Plan . At least semi-annually, and in the event of a Stockholding Change, at least quarterly, throughout the Service Period, SHO will provide SHMC with current information and reasonable assistance concerning SHO’s plans for transitioning the performance of all Services to SHO or its designees prior to the completion of the Service Period. SHMC will provide SHO with such information as is reasonably necessary to assist SHO with such transition.

1.04 Standard of Care . Except as otherwise set forth in this Agreement, SHMC does not assume any responsibility under this Agreement other than to render the Services in Good Faith, without willful misconduct or gross negligence. SHMC makes no other guarantee, representation, or warranty of any kind (whether express or implied) regarding any of the Services provided hereunder, and expressly disclaims all other guarantees, representations, and warranties of any nature whatsoever, whether statutory, oral, written, express or implied, including any warranties of merchantability or fitness for a particular purpose and any warranties arising from course of dealing or usage of trade. SHMC will only be obligated to provide Services in a manner consistent with past practice (including prioritization among projects for SHMC, SHMC’s Affiliates, and SHO).

1.05 Responsibility For Errors; Delays . SHMC’s sole responsibility to SHO for errors or omissions in Services caused by SHMC will be to furnish correct information, payment or adjustment in the Services, and if such errors or omissions are solely or primarily caused by SHMC, SHMC will furnish such corrections at no additional cost or expense to SHO if SHO promptly advises SHMC of such error or omission.

1.06 Good Faith Cooperation; Alternatives . SHMC and SHO will use Good Faith efforts to cooperate with each other in all matters relating to the provision and receipt of the Services, including acquisition of required third-party contractor consents (if any). If SHMC reasonably believes it is unable to provide any Service because of a failure to obtain third-party contractor consents or because of impracticability, SHMC will notify SHO promptly after SHMC becomes aware of such fact and the Parties will cooperate to determine the best alternative approach.

1.07 Use of Third Parties . SHMC may use any Affiliate or any unaffiliated third-party contractor to provide the Services to the extent the Affiliate or the unaffiliated third-party contractor provides comparable services to SHMC or, if not, if SHO gives its prior written consent (which consent SHO will not unreasonably withhold or delay).

1.08 Assets of SHO . During the Service Period, (i) SHMC and its Affiliates and third-party contractors may use, at no charge, all of the software and other assets, tangible and intangible, of SHO (together, the “ Assets ”) to the extent necessary to perform the Services, and (ii) SHO will consult with SHMC prior to upgrading or replacing any of the Assets that are necessary for SHMC to provide the Services.

1.09 Ownership of Data and Other Assets . Neither Party will acquire any right, title or interest in any Asset that is owned or licensed by the other and used to provide the Services. All data provided by or on behalf of a Party to the other Party for the purpose of providing the

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Services will remain the property of the providing Party. To the extent the provision of any Service involves intellectual property, including software or patented or copyrighted material, or material constituting trade secrets, neither Party will copy, modify, reverse engineer, decompile or in any way alter any of such material, or otherwise use such material in a manner inconsistent with the terms and provisions of this Agreement, without the express written consent of the other Party. All specifications, tapes, software, programs, services, manuals, materials, and documentation developed or provided by SHMC and utilized in performing this Agreement, will be and remain the property of Service Provider and may not be sold, transferred, disseminated, or conveyed by SHO to any other entity or used other than in performance of this Agreement without the express written permission of SHMC.

1.10 Contact Person . Each Party will appoint a contact person (each, a “ Contact Person ”) to facilitate communications and performance under this Agreement. The initial Contact Person of each Party is set forth on Appendix 1.10. Each Party will have the right at any time and from time to time to replace its Contact Person by written notice to the other Party.

ARTICLE II.

CHARGES AND PAYMENTS FOR SERVICES

2.01 Compensation .

(a) Fees . As consideration for the provision of Services, SHO will pay SHMC for the first three years commencing on the Effective Date, (“ First Three Years ”) the annual, quarterly, monthly, and hourly fees for the Services specified on Appendix 1.01-A (the “ Fees ”), payable in equal installments in advance as provided on Appendix 1.01-A. Upon termination of an individual Service, SHO will pay a pro rata portion of the applicable Fee specified on Appendix 1.01-A, calculated based on the portion of the individual Service actually performed, or expense actually incurred, through the date SHMC performs the Service. Transition Fees, if any are specified on Appendix 1.01-A, will be paid with the last monthly installment payment of the Fees under the Agreement. If a Fee constitutes a “Charge” (as that term is defined in the Merchandising Agreement dated August 8, 2012 between (1) SHO, and others, and (2) Sears, Roebuck and Co. (“ SRC ”) and others (the “ Merchandising Agreement ”)), SHO will have no obligation to pay the Fee in accordance with this Agreement to the extent SHO is paying it as a Charge in accordance with the terms and conditions of the Merchandising Agreement. If a Fee duplicates another Fee to any extent, including due to SHMC’s performance of a Service that duplicates to any extent SHMC’s performance of another Service, SHO will have no obligation to pay the portion of the Fee that is duplicative. If the Fees include charges for Services performed by a third party contractor and the third party contractor fees increase during the First Three Years, then SHMC may pass through the increased charges as an increase in the Fees. The Parties will negotiate in Good Faith the Fees for the fourth and fifth years of the Term and the six-month period following the fifth year, which revised fees will be reflected in one or more amendments to this Agreement.

(b) Expenses . In addition to the Fees, SHO will reimburse SHMC for (i) COBRA expenses advanced by SHMC with respect to SHO’s and its Affiliates’ employees who

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incur a qualifying event (as defined under COBRA) prior to the Effective Date, (ii) COBRA expenses advanced by SHMC with respect to SHO’s and its subsidiaries’ employees who incur a qualifying event (as defined under COBRA) on or after the Effective Date until such COBRA liability is transferred to a SHO-sponsored group health plan, and (iii) all other reasonable out-of-pocket expenses actually incurred in its performance of the Services, that are not included in the Fees (“ Expenses ”). To the extent reasonably practicable, SHMC will provide SHO with notice of such Expenses prior to incurring them. (COBRA expenses and Expenses are together referred to as “ Expenses ”). If directed by SHMC, SHO will pay directly any or all third-party contractors providing Services to or for the benefit of SHO.

2.02 Payments . SHO will pay Fees in accordance with Section 2.01(a). SHO will pay all Expenses and Transaction Taxes within 10 days of SHMC’s valid invoice to SHO. Unless otherwise mutually agreed in writing, all amounts payable under this Agreement will be payable by electronic transfer of immediately available funds to a bank account designated by SHMC from time to time. All amounts remaining unpaid for more than 15 days after their respective due date(s) will accrue interest at a rate of the lesser of one and one-half percent (1.5%) per month or the highest rate allowed by law, until paid.

2.03 Taxes . Fees do not include applicable taxes. SHO will be responsible for the payment of all taxes payable in connection with the Services including sales, use, excise, value-added, business, service, goods and services, consumption, withholding, and other similar taxes or duties, including taxes incurred on transactions between and among SHMC, its Affiliates, and third-party contractors, along with any related interest and penalties (“ Transaction Taxes ”). SHO will reimburse SHMC for any deficiency relating to Transaction Taxes that are SHO’s responsibility under this Agreement. Notwithstanding anything in this Section 2.03 to the contrary, each Party will be responsible for its own income and franchise taxes, employment taxes, and property taxes. The Parties will cooperate in Good Faith to minimize Transaction Taxes to the extent legally permissible. Each Party will provide to the other Party any resale exemption, multiple points of use certificates, treaty certification and other exemption information reasonably requested by the other Party.

ARTICLE III.

TERMINATION

3.01 Termination of an Individual Service for Convenience by SHO . Subject to the next sentence, SHO, upon 60-day’s prior written notice to SHMC, may terminate for SHO’s convenience any individual Service at the end of a SHO fiscal month. SHO may not terminate an individual Service if the termination would adversely affect SHMC’s ability to perform another Service.

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3.02 Termination of the Agreement .

(a) Subject to the next sentence, SHO or SHMC may terminate this Agreement in the event of a material breach of this Agreement by the other Party if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within 30 days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Party’s delivery of notice to the breaching Party.

(b) SHO or SHMC may terminate this Agreement (whichever party is entitled to terminate, the “ Terminating Party ”) effective immediately upon 30-days’ advance written notice to the other party if (i) the Terminating Party or any of its Affiliates terminates the Separation Agreement as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Separation Agreement, (ii) the Terminating Party or any of its Affiliates terminates a License Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the License Agreement, (iii) the Terminating Party or any of its Affiliates terminates the Merchandising Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Merchandising Agreement. or (iv) the Terminating Party or any of its Affiliates terminates the Shop Your Way Rewards Retail Establishment Agreement dated August 8, 2012 between SHO and SHMC (the “ SYW Agreement ”) in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the SYW Agreement. “ License Agreement ” means each of the following, each dated August 8, 2012: the Store License Agreement between Sears Authorized Hometown Stores, LLC and SRC; the Store License Agreement between Sears Home Appliance Showrooms, LLC and SRC; the Store License Agreement between Sears Outlet Stores, L.L.C. and SRC; and the Trademark License Agreement between SHO and SRC.

(c) SHMC may terminate this Agreement if a Stockholding Change occurs.

3.03 Obligations on Termination . Upon termination of this Agreement (a) each Party will promptly return or destroy all Confidential Information received from the other Party in connection with this Agreement without retaining a copy thereof, other than one copy for record keeping purposes, (b) SHO will return to SHMC, as soon as reasonably practicable, all equipment or other property of SHMC, whether owned, leased, or licensed, and (c) SHO will pay all outstanding Fees for Services rendered and Expenses incurred through the date this Agreement is terminated in accordance with its terms and for all Transition Fees.

3.04 Termination of an Individual Service by SHMC .

(a) If an Affiliate of SHMC that provides a Service is unwilling or unable to provide the Service, (i) the Affiliate of SHMC does not provide a similar service to SHMC or its other Affiliates on terms that are comparable to the terms of this Agreement, and (ii) SHMC is unable to retain a replacement service provider to provide the Service on terms that are comparable to the terms of this Agreement, SHMC, upon providing 90-days’ prior written notice to SHO, may terminate the Service, but the termination of the Service will have no effect upon the provision of the other Services to SHO. If an unaffiliated third-party contractor of SHMC or an Affiliate that provides a Service is unwilling or unable to allow SHO to use the Service under the existing (or comparable) terms, and SHMC is unable to retain a replacement service provider to provide the Service on terms that are comparable to the terms of this Agreement, SHMC, upon providing 90-days’ prior written notice

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to SHO, may terminate the Service, but the termination will have no effect upon the provision of the other Services to SHO. If SHMC is unable to give SHO 90-days’ prior written notice to SHO due to such third-party contractor’s refusal to allow SHO to use the Service for 90 days, then SHMC will provide as much notice as possible.

(b) If the Parties fail to agree upon and execute an amendment regarding a Fee for one or more individual Services for the fourth or fifth year of the Term or the six-month period following the fifth year, SHMC may terminate the individual Service or Services upon 60-days’ prior written notice to SHO.

ARTICLE IV.

CONFIDENTIALITY

4.01 Confidentiality .

(a) Confidential Information ” means all non-public information received by a Party, its Affiliates, and their respective Representatives (together, the “ Receiving Party ”) relating to the other Party, its Affiliates, and their respective Representatives (together, the “ Disclosing Party ”), in connection with this Agreement, including information concerning pricing, service history, customer information and lists (except to the extent that these may be shared under privacy laws and regulations), employee information, sourcing and third party contractor information, costs, product specifications and methods of operations, business plans, strategies, financial information, information technology information, and other proprietary information, regardless of the manner or medium in which it is furnished to or otherwise obtained by the Receiving Party; provided , that the term “Confidential Information” does not include information which (i) is or becomes generally available to the public other than as a result of a disclosure by the Receiving Party in violation of this Agreement, (ii) is or was available to the Receiving Party on a non-confidential basis prior to its disclosure to the Receiving Party by the Disclosing Party, provided that such information did not become available to the Receiving Party, from a Person who, to the Receiving Party’s knowledge and at the time of receipt by the Receiving Party of the relevant information, is bound by a confidentiality agreement with respect to such information with (or other confidentiality obligation to) the Disclosing Party or another Person or (iii) was or becomes available to the Receiving Party on a non-confidential basis from a source other than the Disclosing Party, provided that such source is or was (at the time of receipt of the relevant information) not, to the Receiving Party’s knowledge, bound by a confidentiality agreement with respect to such information with (or other confidentiality obligation to) the Disclosing Party or another Person.

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(b) The receiving Party will not disclose, and will cause its Affiliates and Representatives not to disclose, any Confidential Information of the Disclosing Party to any Person; provided , however, that each Party will be responsible in any event for the acts or omissions of its Affiliates and Representatives to whom it discloses the Disclosing Party’s Confidential Information; and provided , further, that Confidential Information may be disclosed only:

(i) to the receiving Party’s Affiliates and Representatives in the normal course of performance of Receiving Party’s obligations under this Agreement;

(ii) by the Receiving Party to the extent required by Applicable Law, rule or regulation (including complying with any oral or written questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process to which such Party is subject), with prior notice, if legally permitted, to the Disclosing Party;

(iii) by the Receiving Party, if such Person determines in Good Faith that such disclosure is required in order to comply with such Person’s obligations under the federal or state securities laws, rules or regulations, the rules of the NASD or the Nasdaq Stock Market or any other similar body), with prior notice, if legally permitted, to the Disclosing Party; or

(iv) with the prior written consent of the Disclosing Party.

(c) Nothing contained herein will prevent the use (subject, to the extent possible, to a protective order) of Confidential Information in connection with the assertion or defense of any claim by or against the other Party.

(d) Each Party acknowledges that if it breaches this Agreement, the other Party may be irreparably and immediately harmed and may not be made whole by monetary damages. Accordingly, the Disclosing Party, in addition to any other remedy to which it may be entitled in law or equity, is entitled to pursue any injunction or injunctions to prevent breaches of this Agreement and to compel specific performance of this Agreement, without the need for proof of actual damages.

4.02 Third-Party Contractor Confidentiality Terms . If SHMC’s agreement with an unaffiliated third-party contractor performing Services (“ TP Agreement ”) includes confidentiality terms that are less restrictive than this Article IV (i.e., the TP Agreement permits broader sharing or disclosure of confidential information than permitted in this Article IV), then, notwithstanding anything in this Article IV to the contrary, the less-restrictive confidentiality terms of the TP Agreement will (i) control over this Article IV and (ii) govern SHMC’s rights and obligations in this Article IV regarding the sharing of SHO Confidential Information with the unaffiliated third-party contractor, but in each circumstance only to the extent necessary to permit the unaffiliated third-party contractor to perform the Services.

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ARTICLE V.

INDEMNIFICATION; LIMITATION OF LIABILITY

5.01 Indemnification by SHO . SHO will defend, indemnify, and hold harmless SHMC and its Affiliates and their respective Representatives from and against any and all costs, liabilities, losses, penalties, expenses and damages (including reasonable attorneys’ fees) of every kind and nature arising from third-party claims, demands, litigation, and suits related to or arising out of this Agreement (together “ SHO Claims ”), except to the extent that such SHO Claims are found by a final judgment or opinion of an arbitrator or a court of appropriate jurisdiction to be caused by: (i) a breach of any provision of this Agreement by SHMC; or (ii) any negligent act or omission, or willful misconduct of SHMC, its Affiliates, or their respective Representatives in performance of this Agreement.

5.02 Indemnification by SHMC . SHMC will defend, indemnify, and hold harmless SHO and its Affiliates, and their respective Representatives, from and against any and all costs, liabilities, losses, penalties, expenses and damages (including reasonable attorneys’ fees) of every kind and nature arising from third-party claims, demands, litigation, and suits, that: (i) relate to bodily injury or death of any person or damage to real and/or tangible personal property directly caused by the negligence or willful misconduct of SHMC or its Affiliates during the performance of the Services, or (ii) relate to the infringement of any copyright or trade secret by an Asset owned by SHMC or its Affiliates and used by SHMC in the performance of the Services (together, “ SHMC Claims ”). Notwithstanding the obligations set forth above in this Section 5.02, SHMC will not defend or indemnify SHO, its Affiliates, or their respective Representatives to the extent that such SHMC Claims are found by a final judgment or opinion of an arbitrator or a court of appropriate jurisdiction to be caused by: (a) a breach of any provision of this Agreement by SHO; (b) any negligent act or omission, or willful misconduct of SHO, its Affiliates, or their respective Representatives in performance of this Agreement; or (c) with respect to infringement claims: (I) SHO’s use of the Asset in combination with any product or information not provided by SHMC; (II) SHO’s distribution, marketing or use for the benefit of third parties of the Asset; (III) SHO’s use of the Asset other than as contemplated by this Agreement; or (IV) information, direction, specification or materials provided by or on behalf of SHO. SHO Claims and SHMC Claims are each individually referred to as a “ Claim. ”

5.03 Procedure . In the event of a Claim, the indemnified Party will give the indemnifying Party prompt notice in writing of the Claim; but the failure to provide such notice will not release the indemnifying Party from any of its obligations under this Article except to the extent the indemnifying Party is materially prejudiced by such failure. Upon receipt of such notice the indemnifying Party will assume and will be entitled to control the defense of the Claim at its expense and through counsel of its choice, and will give notice of its intention to do so to the indemnified Party within 20 business days of the receipt of such notice from the indemnified Party. The indemnifying Party will not, without the prior written consent of the indemnified Party, (i) settle or compromise any Claim or consent to the entry of any judgment that does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the indemnified Party of a written release from all liability in respect of the Claim or (ii) settle or compromise any Claim in any manner that may adversely affect the Indemnified Party other than

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as a result of money damages or other monetary payments that are indemnified hereunder. The indemnified Party will have the right at its own cost and expense to employ separate counsel and participate in the defense of any Claim.

5.04 Limitation of Liability . Except for (i) each Party’s indemnity and defense obligations as set forth in Sections 5.01, 5.02, and 5.03 and other liabilities to unaffiliated third parties, (ii) a party’s breach of its confidentiality obligations, and (iii) breach of Section 1.09, in no event will either Party be liable for any consequential, incidental, indirect, special, or punitive damages, losses or expenses (including business interruption, lost business, lost profits, or lost savings) even if it has been advised of their possible existence. The sole liability of SHMC and its Affiliates for any and all claims in any manner related to this Agreement will be the payment of direct damages, not to exceed (for all claims in the aggregate) the Fees received by SHMC under this Agreement. Notwithstanding anything in this Agreement to the contrary, SHMC will not be liable for damages caused by SHMC’s third-party contractors; however, to the extent permitted in a TP Agreement, SHMC will pass through to SHO applicable rights and remedies under the respective TP Agreement.

ARTICLE VI

MISCELLANEOUS

6.01 Expenses . Except as otherwise provided herein in connection with the provision of the Services, each Party will bear its own expenses with respect to the transactions contemplated by this Agreement.

6.02 Waiver of Compliance . Any failure of a Party to comply with any obligation, covenant, agreement or condition in this Agreement may be waived in writing by the other Party, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

6.03 Amendment . Subject to the next sentence, this Agreement may not be amended except by a written amendment signed by each Party.

6.04 Assignment . SHO may not assign its rights or obligations under this Agreement without the prior written consent of SHMC, to be withheld in SHMC’s absolute discretion. A Stockholding Change will constitute an assignment of this Agreement by SHO for which assignment SHMC’s prior written consent will be required. SHMC may freely assign its rights and obligations under this Agreement to any of its Affiliates without the prior consent of SHO; provided that any such assignment will not relieve SHMC of its obligations hereunder. This Agreement will be binding on, and will inure to the benefit of, the successors and assigns of the Parties.

6.05 Notices . All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement must be in writing and will be deemed to have been duly given (i) when delivered by hand, (ii) three business days after it is mailed, certified or registered mail, return receipt requested, with postage prepaid, (iii) on the same

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business day when sent by facsimile if the transmission is completed before 5:00 p.m. recipient’s time, or one business day after the facsimile is sent, if the transmission is completed on or after 5:00 p.m. recipient’s time or (iv) one business day after it is sent by Express Mail, Federal Express or other courier service, as follows:

(a)

if to SHMC:

Sears Holdings Management Corporation

3333 Beverly Road B5-119A

Hoffman Estates, Illinois 60179

Attention: Senior Vice President-Finance

Telephone: (847) 286-8991

Facsimile: (847) 286-1699

with a copy to:

Sears Holdings Management Corporation

3333 Beverly Road, B6-210B

Hoffman Estates, Illinois 60179

Attention: General Counsel

Telephone: (847) 286-5933

Facsimile: (847) 286-2471

(b)

if to SHO:

Sears Hometown and Outlet Stores, Inc.

3333 Beverly Road B4-150A

Hoffman Estates, Illinois 60179

Attention: Senior Vice President and Chief Operating Officer

Telephone: (847) 286-9741

Facsimile: (847) 286-7838

with a copy to:

Sears Hometown and Outlet Stores, Inc.

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attention: General Counsel

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or such other address as the person to whom notice is to be given has furnished in writing to the other Parties. A notice of change in address will not be deemed to have been given until received by the addressee.

6.06 Survival . The provisions of Articles II (Charges and Payments for Services), III (Termination), IV (Confidentiality), V (Indemnification; Limitation of Liability), and VI (Miscellaneous) will survive any termination or expiration of this Agreement.

6.07 Headings . The article and section headings contained in this Agreement are inserted for reference purposes only and will not affect the meaning or interpretation of this Agreement.

6.08 No Third Party Rights . Except for the indemnification rights under this Agreement of any SHMC or SHO indemnitee in their respective capacities as such, this Agreement is intended to be solely for the benefit of the Parties and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the Parties.

6.09 Counterparts . This Agreement may be executed by facsimile and in any number of counterparts, each of which will be deemed to be an original, and all of which together will be deemed to be one and the same instrument.

6.10 Severability . If any provision of this Agreement is declared by any court of competent jurisdiction to be illegal, invalid, void or unenforceable, such provision will (to the extent permitted under applicable law) be construed by modifying or limiting it so as to be legal, valid and enforceable to the maximum extent compatible with, and possibly under, applicable law, and all other provisions of this Agreement will not be affected and will remain in full force and effect.

6.11 Entire Agreement . This Agreement (including the Schedules hereto) constitutes the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof.

6.12 Force Majeure . Neither Party will be responsible to the other for any delay in or failure of performance of its obligations under this Agreement, or under any order placed pursuant to this Agreement, to the extent such delay or failure is attributable to any act of God, act of terrorism, fire, accident, war, embargo or other governmental act, or riot; provided, however, that the Party affected thereby gives the other Party prompt written notice of the occurrence of any event which is likely to cause any delay or failure setting forth its best estimate of the length of any delay and any possibility that it will be unable to resume performance; provided, further, that said affected Party will use its commercially reasonable efforts to expeditiously overcome the effects of that event and resume performance.

6.13 Fair Construction . This Agreement will be deemed to be the joint work product of the Parties without regard to the identity of the draftsperson, and any rule of construction that a document will be interpreted or construed against the drafting Party will not be applicable.

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6.14 No Agency . Nothing in this Agreement creates a relationship of agency, partnership, or employer/employee between SHMC and SHO and it is the intent and desire of the Parties that the relationship be and be construed as that of independent contracting parties and not as agents, partners, joint venturers or a relationship of employer/employee.

6.15 Services Operating Committee; Dispute Resolution; Mediation .

(a) Services Operating Committee . SHO and SHMC will form a committee (the “ Services Operating Committee ”) that will address all day-to-day operational, financial, and other issues that may arise with respect to the Agreement, including its interpretation, the Parties intent reflected in this Agreement, and the policies and practices between SHMC and its Affiliates and the businesses comprising SHO’s businesses in effect immediately prior to the Effective Date, and all Disputes. The Services Operating Committee will discuss all of these issues and will attempt to resolve informally all Disputes in accordance with Section 6.15(b)(ii). The Services Operating Committee will consist of three employees of each Party that the Party designates. The initial members are listed on Appendix 1.10. Each Party may replace one or more of its members at any time upon notice to the other Party. Each Party will promptly fill all of its Service Operating Committee vacancies as they arise by notice to the other Party. Unless the members of the Services Operating Committee unanimously agree otherwise, the Services Operating Committee will meet at least once every calendar month during the Term on the dates determined by the members of the Services Operating Committee. If the members of the Services Operating Agreement cannot agree on a date or a time for a particular monthly meeting the meeting will occur at 1:00 p.m. Central Time on the second Thursday of the month at the offices of SHLD, 3333 Beverly Road, Hoffman Estates, IL 60179 B6-D. At all times one of the members of the Services Operating Committee will serve as the Services Operating Committee’s Chairperson. The initial Chairperson is listed on Appendix 1.10 and the other Services Operating Committee members each will serve thereafter as Chairperson, on a monthly basis, rotating between SHMC’s designees and SHO’s designees. The Chairperson (i) will request that Services Operating Committee members provide meeting agenda items and (ii) will distribute to members, at least two business days in advance of each Services Operating Committee meeting, an agenda for the meeting.

(b) Dispute Resolution by the Services Operating Committee .

(i) If a Dispute arises, neither Party may take any formal legal action (such as seeking to terminate this Agreement, seeking mediation in accordance with Section 6.15(c), or instituting or seeking any judicial or other legal action, relief, or remedy with respect to or arising out of this Agreement) unless the Party has first (i) delivered a notice of dispute (the “ Dispute Notice ”) to all of the members of the Services Operating Committee and (ii) complied with the terms of this Section 6.15. At the first monthly meeting of the Services Operating Committee following the delivery of the Dispute Notice (the “ Dispute Meeting ”) the Operating Committee will attempt to resolve all of the Disputes that are the subject the Dispute Notice. Each Party will cause its members on the Services Operating Committee to negotiate in Good Faith to resolve all Disputes in a timely manner. If by the 10 ^th day following the Dispute Meeting the Services Operating Committee has not resolved all of the Disputes (the “Resolution Failure Date”) the Parties will proceed to mediate the unresolved Disputes (“ Unresolved Disputes ”) in accordance with Section 6.15(c) .

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(ii) Subject to the next sentence, “ Dispute ” means each claim, controversy, dispute, and disagreement between, on the one hand, SHO or any of its Affiliates, or any of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns and, on the other hand, SHMC or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a Party’s performance, or failure to perform, one or more of its obligations in this Agreement. Disputes do not include disagreements with respect to compliance with Article IV or payment obligations with respect to amounts due in accordance with the terms and conditions of this Agreement that are not reasonably in dispute.

(c) Mediation of Unresolved Disputes . SHMC and SHO will in good faith attempt to resolve all Unresolved Disputes by non-binding mediation. SHMC and SHO will negotiate in Good Faith to determine the mediator, the mediator’s compensation and related costs, and the applicable rules for the mediation. If by the 15 ^th day following the Resolution Failure Date SHMC and SHO have been unable to settle an Unresolved Dispute the obligations of SHMC and SHO in this Section 6.15 will terminate with respect to the Unresolved Dispute.

6.16 Definitions . The following defined terms include the singular and the plural form of the terms.

(a) “ Affiliates ” means (solely for purposes of this Agreement and for no other purpose) (i) with respect to SHO, its subsidiaries, and (ii) with respect to SHMC, SHLD and the subsidiaries of SHLD.

(b) “ Applicable Law ” means all applicable laws, ordinances, regulations, rules, and court and administrative orders and decrees of all national, regional, state, local and other governmental units that have jurisdiction in the given circumstances.

(c) “ Stockholding Change ” means the occurrence of any transaction or event, whether voluntary or involuntary, that results in a Competitor becoming, or as a consequence of which a Competitor becomes, directly or indirectly, at any time after the date of this Agreement and by whatever means, the beneficial owner of more than 50% of the total voting power of outstanding securities entitled to vote in, or carrying the right to direct the voting with respect to, directly or indirectly and by whatever means the election of the board of directors of SHO or any of its subsidiaries. “ Competitor ” means, solely for purposes of this Agreement and for no other purpose, Amazon.com, Inc., Best Buy Co., Inc., hhgregg, Inc., The Home Depot, Inc., Lowe’s Companies, Inc., Target Corporation, Tractor Supply Co., Wal-Mart Stores, Inc., each other retailer that competes in any material respect with the major home appliance business or the power lawn and garden business operated by subsidiaries of SHLD, and the Competitor Affiliates of each of them. “ Competitor Affiliates ” means each individual or entity that directly or indirectly, and by whatever means, controls, is under common control with, or is controlled by, a Competitor.

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(d) “ COBRA ” means Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

(e) “ Governmental Authority ” means any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other legislative, judicial, regulatory, administrative or governmental authority.

(f) “ Person ” means an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability company, any other entity and any Governmental Authority.

(g) “ Representatives ” means employees, partners, members, directors, officers, counsel, investment advisors, third-party contractors, and other representatives.

(h) “ SHLD ” means Sears Holdings Corporation.

Additional Defined Terms:


Term		Section Where Defined
“Assets”		1.08
“Stockholding Change”		6.16(c)
“Claim”		5.02
“Confidential Information”		4.01(a)
“Contact Person”		1.10
“Disclosing Party”		4.01(a)
“Disputes”		6.15(b)(ii)
“Dispute Notice”		6.15(b)(i)
“Effective Date”		1.01
“Expenses”		2.01(b)
“Fees”		2.01(a)
“First Three Years”		2.01(a)
“Good Faith”		6.19
“Initial Chairperson”		6.15(a)
“Merchandising Agreement”		2.01(a)
“Party”		Introductory paragraph
“Receiving Party”		4.01(a)
“Separation Agreement”		1.01
“Service Period”		1.01

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Term		Section Where Defined
“Services”		1.01
“Services Operating Committee”		6.15(a)
“SHMC”		Introductory paragraph
“SHO Claims”		5.01
“SHO”		Introductory paragraph
“Transition Fees”		2.01(a)
“TP Agreement”		4.02
“Transaction Taxes”		2.03
“Unresolved Disputes”		6.15(a)

In this Agreement (i) “ include ,” “ includes ,” and “ including ” are inclusive and mean, respectively, “include without limitation,” “includes without limitation,” and “including without limitation,” (ii) “ or ” is disjunctive but not necessarily exclusive, (iii) “ will ” expresses an imperative, an obligation, or a requirement, (iv) numbered “ section ” and “ article ” references refer to sections and articles, respectively, of this Agreement unless otherwise specified, (v) unless otherwise indicated all references to a number of days will mean calendar days unless otherwise specified and all references to months or years will mean calendar months or years, and (vi) $ or Dollars will mean U.S. Dollars.

6.17 Good Faith . SHMC and SHO each will exercise Good Faith in the performance of its obligations in this Agreement. “ Good Faith ” means honesty in fact and the observance of reasonable commercial standards of fair dealing in accordance with Applicable Law.

6.18 Condition Precedent to the Effectiveness of this Agreement . This Agreement will not become effective until it has been approved by the Audit Committee of the Board of Directors of SHLD.

6.19 Governing Law; Jurisdiction; Waiver of Jury Trial .

(a) This Agreement will be governed and construed in accordance with the laws of the State of Illinois, without regard to any choice or conflicts of law provision that would cause the application of the laws of any other jurisdiction. This Agreement will not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.

(b) Each of the Parties irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any Illinois state court or Federal court of the United States of America, in either case sitting in Cook County, Illinois, and any appellate court to any thereof, in any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of any judgment relating thereto, and each of the Parties irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such courts, (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such Illinois state court or, to the extent

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permitted by law, in such Federal court, (iii) waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any such action or proceeding in any such Illinois state or Federal court, and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such Illinois state or Federal court. A final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 6.05. Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by law.

(c) Each Party acknowledges that each controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, it irrevocably and unconditionally waives all rights it may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party certifies and acknowledges that (i) it understands and has considered the implications of such waivers, (ii) it makes such waivers voluntarily, and (iii) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 6.19.

[signature page follows]

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SEARS HOLDINGS MANAGEMENT CORPORATION

By:		/s/ William Phelan
William Phelan
Senior Vice President-Finance

SEARS HOMETOWN AND OUTLET STORES, INC.

By:		/s/ W. Bruce Johnson
W. Bruce Johnson
Chief Executive Officer and President

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Appendix 1.01-A


Service or Business Area	Services	Fees

HUMAN RESOURCES	All Human Resources services will be provided by SHMC on an as-requested basis by SHO, upon reasonable advance notice to start or discontinue services. If less than all of the services described under any heading are requested, or if services are requested for fewer than all employees of SHO, the parties will negotiate reasonable adjustments to the stated monthly fees to reflect the reduced level of effort required.

	Payroll Administration: • Manage the associate time and attendance system and process. • Manage the creation and reporting of payroll payment processing regardless of method – electronic, paper, paycard, etc. This includes exempt and non-exempt associate population. • Administer garnishment process. • Calculate associate commission income and administer the reporting for commission payments. • Manage payroll taxes and related deductions. • Manage the processing and distribution of W-2 statements, both for 1/1/12 through 8/31/12 and for 9/1/12 through 12/31/12.	$52,400 per month

	Benefits administration: • Support management in maintaining relationships with insurance benefits providers (healthcare, dental, life, STD/LTD). • Manage 2013 associate benefit enrollment and open enrollment for new hires and incumbents. • Administer pension plan, 401K plan, retirement savings plan, WorkLife solutions. • Manage voluntary benefits programs and maintain company programs for service anniversaries and associate purchase discount cards. • Maintain administrative processes for associate communications and HR Policy development.	$4,200 per month

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Appendix 1.01-A


Service or Business Area	Services	Fees
	Talent Acquisition: • Manage recruiting for salaried and hourly associates. • Utilize applicant tracking system to mine, recruit and hire exempt and non-exempt associates. • Recruit via college/campuses, military programs, community engagement. • Administer job postings and search management activities. • Conduct market searches and utilize data to source and recruit talents. • Administer referral programs. • Perform assessment, background check, drug screening and I9 verification for exempt and non exempt candidates. • Conduct on-boarding activities (orientation, training, relocation management, etc.) for newly-hired associates. • Administer the transfer of Sears, Roebuck and Co. associates and Sears Holdings Management Corp. associates to appropriate SHO entity, including issuing offer letters, transferring payroll, tax records, and benefits records and collecting employee acknowledgements of SHO’s Code of Conduct, Handbook, and Policy.	$26,000 per month

	Talent Management: • Maintain business processes for management to conduct performance reviews bi-annually for exempt and non-exempt associates • Transfer data of SHO associates who were on a Performance Improvement Plan prior to Separation. • Provide management with various tools to manage and assess associates and assist them in developing succession plans. • Manage the reporting and analytics of talent development data for all corporate and field associates. • Manage labor relations, fair employment and other employment compliance issues.	$3,700 per month

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Service or Business Area	Services	Fees
	Compensation: • Assist management in developing strategy, execution and compliance of executive, salary and hourly compensation programs. • Administer corporate incentive (LTIP, AIP, etc.) and field commission programs. • Transition SHC stock and cash rights (vested and unvested) of eligible associates to SHO, as authorized by appropriate corporate action and SHMC legal direction. • Track eligibility, and payment of retention awards (issued pre-Separation). • Transfer Long-Term Incentive Program (LTIP) payments information to SHO (for Q2 2012 performance, payable in 2013) (SHMC to bear cost for performance before Separation, SHO for performance after Separation). Provide information to track associates’ quarterly data under the LTIP plan to SHO. • Transfer new-hire sign-on bonus information to SHO, including retention requirements. • Transfer Executives Severance Agreements and associated data to SHO.	$3,000 per month
	Talent Development and Learning: • Assist management in defining and implementing a strategy for talent development and learning. • Assist management in developing the learning curriculum and content for both salaried and hourly associates. • Offer instructor-led (at the Hoffman Estates Support Center) and eLearning training for associates. • Manage and conduct LEAD program, merchant academy, compliance course management and leadership development programs (BUILD, BA, TLP, BAP) • Maintain processes to track learning and compliance.	No Charge
	Associate Relations • Provide use of call center to receive associate inquiries. • Manage the reporting and support of associate change requests and other employment-related questions. • Assist management in managing employee relations cases. • Assist management in establishing an associate termination process including termination decision matrix and termination process (return of assets, exit interview, final pay, data security, etc.). • Assist management in establishing an expense reimbursement process within SHO.	$31,100 per month

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Service or Business Area	Services	Fees
	Diversity/Associate Networks: • Assist management in creating processes to welcome the efforts of associates to establish diversity and associate networks	Included in Talent Acquisition
	Analytics and Reporting: • Perform ad-hoc and cyclical reporting and Workforce Analytics (WFA) administration. • Conduct human capital analytics projects.	$2,900 per month
	Compliance • Assist management in using various tactics to promote the adherence to associate relations policies and programs • Assist management in managing and negotiating collective bargaining contracts. • Assist management in developing programs for leave administration; fair employment and affirmative action support, as may be needed. • Offer counseling, training and support on all labor-related matters and employment practices compliance.	$2,100 per month
	Support Center Benefits • SHC benefits provided to Support Center employees	$39,900
FINANCE & ACCOUNTING
Finance and Accounting
General Ledger	Provide SHO access to the SHMC finance general ledger system to process all accounting related activities for SHO business. This includes, but is not limited to, the Peoplesoft system for recording all financial transactions along with all necessary systems that feed data into the general ledger such as NAI, Accounts Payable, Mechanized R&D, Point-of-Sale, Inventory Systems, Markdown Management Systems, SOLAR payroll processing, Waste Recon, and other external feeds.	Maintain PeopleSoft accounting system and Stock Ledger (SL) merchandise and margin systems: $12,000 per year

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Service or Business Area	Services	Fees
Accounting Services	Perform daily, weekly and monthly transaction processing of all entries and feeds into the general ledger system. Compile and load general ledger information for SHO into Essbase financial reporting databases, EIS and Financial Transaction Databases to be used for internal reporting and analysis by SHO. SHMC will inform SHO of any processing errors or data feed issues which would impact the financial results of SHO. • Accounts Payable – access to SHMC finance Accounts Payable system to process all invoices and purchase orders for SHO. • Fixed Asset Management – maintain all SHO fixed assets in the SHMC finance fixed asset system. Also provide necessary support to add new locations or assets into the system as new stores are opened or assets are procured by current locations.

	Cash Management • Cash settlement as currently handled by SHMC • Cash clearing accounts • Daily investment • Cash forecasting • Cash flow	$164,000 annually.

	Physical Inventory/Shrink Process Reporting • Contract with RGIS or similarly qualified vendor for physical inventory process • Perform inventory shrink reconciliations and reporting

	AP Processing and Accounting Reporting • Prepare/distribute statements which summarize results and financial position • Data extraction (FTD) financial transaction data base and financial,management and external reporting • Maintain PeopleSoft accounting system and SL (stock ledger) merchandise and margin systems • Maintain Essbase reporting databases which warehouse financial information • Data extraction for general ledger (PS), Fixed Assets and Capital tracking. • Maintain general ledger and supporting record as necessary

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Service or Business Area	Services	Fees

	Disbursements • Process accounts payable • Match merchandise receipt to invoice • Approve invoices • Cutting checks to and receiving checks from vendors • Correspond with vendors • Retain records • AP write-offs by vendor by department • Receivable collection related to AP accounts • Import reconciliation • Process other disbursements • Pay approved disbursements • Process travel and entertainment • Lease Payment System(LPS) • Data Extraction for Invoice Processing System (IPS), payment processing (NAP), mechanized R&D (NDJ), Purchase Order Writing System (POWS) and LPS • General Ledger • Process journal entries • Maintain integrity of balances • Monthly reconciliation of balance sheet accounts • Annual recording of book-to-physical inventory adjustments • Variance analysis of unit income statement balances and identify potential errors • Maintain fixed asset records
Reporting Services	Compile and produce Monthly, Quarterly, and Annual External financial statements for SHO including, but not limited to Income Statements, Balance Sheets, and Statement of Cash Flows. In addition, the Quarterly and Annual financial statements will include all notes, tables and supplemental information necessary for external audit and SEC filing requirements.	$150,000 per year.

	Vendor Allowance Reporting • SHMC will process all SHO vendor allowance agreements and provide a monthly report of the vendor allowances that are paid to SHO and reporting to show non-shared vendor allowances as determined by the Service Level Agreements between SHO and SHMC. At the request of SHO, SHMC will conduct periodic audits of SHMC allowances collected to confirm that the Service Level Agreements are in compliance.	$25,000 per year.

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Service or Business Area	Services	Fees

	Peoplesoft Projects Module • Provide SHO with access to SHMC finance Peoplesoft Projects Module to set up new capital and/or expense projects including all necessary feeds to create purchase orders, feeds to the SHMC finance A/P and feeds to the SHMC finance Fixed Asset System.

Tax	Tax Returns and Certain Other Filings : Required Tax Services 1. Federal income tax a. Prepare return and remit tax due b. Prepare estimated tax and extension filings and remit tax due c. Prepare LIFO tax calculations (if business adopts LIFO) d. Prepare supporting workpapers e. Prepare tax elections f. Foreign tax credit calculations g. If SHMC stops providing applicable HR services to SHO, SHO will be responsible for providing SHMC with data necessary to report any available employment-related tax credits (e.g., WOTC) either directly or through a third party 2. State income tax a. Prepare returns and remit tax due b. Prepare estimated tax and extension filings and remit tax due c. Prepare supporting workpapers d. Prepare tax allocations for periods when part of SHLD unitary returns 3. Financial Accounting a. Quarterly tax provision, effective tax rate calculations, tax accounting journal entry support b. Analysis of uncertain tax positions and quarterly tax reserve calculations and journal entry support (if necessary) c. Tax footnote disclosures for Form 10-K and Form 10-Qs d. Return-to-accrual calculations and necessary journal entry support 4. Sales and use tax a. Prepare tax returns and remit taxes due b. Maintain tax tables in POS system (if continue to use Sears POS system)	Required Tax Services $239,800 per year “As-Needed” Tax Services $55/hour Service Level Increases If service levels increase due to change in business or change in legal requirements, cost to be adjusted to reflect increase in SHMC costs to provide Services (if any) Out-of- Pocket Costs Travel and other expenses and third party fees charged-through at cost

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Service or Business Area	Services	Fees
	5. Property tax a. Personal property tax filings b. Real estate tax filings; landlord reimbursements c. Accrual estimates d. Monthly summary of tax bills paid along with recommended changes in current monthly estimate of tax liability per location e. Appeals and audit defense, where appropriate 6. Business license filings; gross receipts tax filings and accrual estimates 7. Annual report/franchise tax filings 8. Foreign tax (Puerto Rico, Guam) a. Work with SHO outside tax advisors in preparing necessary tax returns, estimated tax filings and extension filings (e.g., income, property, gross receipts) and facilitating payment of tax b. Work with SHO outside tax advisors, when appropriate, to prepare supporting tax workpapers and accounting method changes and tax elections c. SHO will engage a third party tax advisor to prepare its Guam and Puerto Rico tax filings and estimated tax filings; to provide any necessary audit defense; and to provide any other foreign tax services that may be required. “As-Needed” Tax Services 1. Audit support (other than for property tax as provided above) 2. Preparation of accounting method changes 3. $10,000 cash receipts reporting (when necessary; based on information provided by business) 4. Federal excise tax return (if applicable) 5. Maintain tax tables in POS system (if new POS system implemented) 6. Transition tax functions from SHMC to SHO

Audit	As requested by SHO and as agreed to with Internal Audit management, Field Audit services will be provided at a rate of $480/day which includes travel expenses. IT general computing controls testing the IT Audit team to support SOX compliance.	$480/day No charge

Procurement	1. Provide SHO with sourcing, negotiation, contracts handling, supplier management and advisory services for procurement (of appropriate dollar value) for capital and expense equipment, materials, supplies and services, as requested by SHO. Procurement Services include competitive sourcing and bidding processes and tools to assist SHO in obtaining the best total cost. Additional Services requested will be scoped, costed and passed to SHO at additional cost when identified and agreed to in writing by the Parties.	$296,000 per year plus all third party contractor costs, some of which are set forth in this section below.

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Service or Business Area	Services	Fees

	2. Purchase Order handling and processing of requests entered by SHO or SHMC within the Peoplesoft system, Purchase Order Writing System, Enterprise Contract Management and/or when available Ariba system. Included is the Schwarz Supplies order entry and IMA tool for consumables supplies ordering for the term of its deployment and use of the DocuSign system to electronically execute agreements. (In the event that rights must be secured, they will be scoped, determined and shared with SHO for approval to acquire and pass all costs involved). DocuSign use by SHO is limited to the number of envelopes remaining after the Effective Date from the 1500 envelopes purchased by the Sears Hometown Stores business prior to the Effective Date. SHMC will also perform resolution assistance with suppliers related to purchases or payables matters, when requested. If SHMC must perform additional Services to re-configure or revise SHMC (owned or licensed) systems SHO will be charged at cost for any and all Services required to make these accommodations (including IT efforts). 3. Use of SHMC agreements (if permitted in the respective agreements) for (non-merchandise) goods and services. If rights from third party contractors need to be secured, they will be scoped, evaluated, costed and passed to SHO for approval. Any costs associated with acquiring rights will be passed to SHO at cost. Travel Services – provide access to the Concur travel system and American Express travel services along with all preferred pricing for airfare, hotels and car rentals that may be made available to SHO employees. Use of FBU Procurement credit cards and Travel credit cards to be made available to all current SHO employees (if provider banks agree and such use is not in conflict with governance and policy). New employees to SHO can be added to the travel card program with the prior written approval of SHO. SHMC will provide quarterly reporting of travel expenses from Concur.	Hourly rate for special projects and additional procurement Services not set forth in this Agreement: $62.00 per hour
		Travel Services:

	4. Associate Lease Vehicle program – Vehicle leasing through SHMC’s lease company provider, lease vehicle maintenance programs and fuel buy programs (if not in conflict with governance and policy) for all SHO employees in the program as of the Effective Date. SHO may allow additional SHO employees to participate in the program, upon SHMC receipt of SHO approval of the respective employees. Any additional effort involved and changes to administration or processing required by SHO may trigger additional cost effort which will be identified, agreed and passed to SHO at cost.	Third party contractor cost for each transaction (i.e. time and expense report processed), which as of the Effective Date is $2.35 per transaction.

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Service or Business Area	Services	Fees
	5. Temporary labor Services handling and processing. 6. Other Assistance – Such other procurement Services as is requested and defined by SHO, which will be scoped, costed and agreed upon by the Parties prior to proceeding.	Travel Services (American Express), which as of the Effective Date is $62,500 per year;

Risk Management & Insurance	Risk Management and Insurance : 1. Data Extraction and Tracking and Administration of: • Workmen’s Comp • Auto Insurance • General Liability • Property Insurance • D&O Insurance 2. Claims review 3. Consultation in connection with the purchase of insurance 4. Maintain insurance claims records and provide access to tools for viewing this information, for the following types of insurance: • General Liability • Workers’ Compensation • Auto Liability • Property Insurance • D&O Insurance	1. $100/hr. if SHO cannot get information direct from third-party contractor (e.g., Sedgwick, Liberty) 2. $75/hr. 3. $150/hr. 4. $100/hr. if SHO cannot get information direct from third-party contractor (e.g., Sedgwick, Liberty)

Treasury	1. Cash Management Services: Cash Management services, including but not limited to, establish banking structure, opening and maintaining new and existing bank accounts, daily consolidation of funds, calculation of daily cash position, movement of funds as necessary, reconciliation of accounts and maintenance of balances, development of funding forecasts and future cash needs, support for banking and armored car services for the Outlet Stores and company operated Hometown stores, administration of users access to Treasury website and banking software, ordering deposit slips and stamps from service providers, approving armored car purchase orders	Monthly Fees 1238 stores
		$7,169
		Note: In the event the store count doubles (2476 stores), the projected monthly fees are $10,744

	2.Credit Facility Administration	$3,403

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Service or Business Area	Services	Fees

	Advise on credit facility structure implementation or renewals and obtain lenders. Execute borrowings, provide monthly bank reporting and validate facility compliance and fees.	Note: In the event the store count doubles (2476 stores), the projected monthly fees are $3,403
	Total	$10,572
	Total	Note: In the event the store count doubles (2476 stores), the projected monthly fees are $14,147

ONLINE SERVICES

Online Business Unit	SHMC will assign a Senior Account Management Executive to be the primary point of contact for SHO and provide the following: • Work directly with SHO to plan/support/prioritize new initiatives and business requirements • Provides escalation support for day to day activities	No cost to SHO provided the annual spend with Online is greater than $3M. (refer to Exhibit 1 for details regarding pricing structure for SearsOutlet.com account support.)

E-Mail Support	SHMC will continue to provide for support for distributing promotional and trigger e-mails 1. Promotional E-Mails (Non-SYWR) a. SHMC will continue to provide Sears.com standard promotional e-mails to SHO customers including specific business line/category promotional offers • E-mails will continue to be distributed to SHO customers at SHO’s discretion • SHO will be provided the opportunity to opt-out of the e-mail distribution (or to alter creative at SHOs expense per the rate card documented in the SYWR agreement) when an offer/e-mail is not in the best interest of SHO b. SHMC will provide SHO with promotional space in Sears.com e-mails in both the hero banner and/or promotional “slices” c. SHMC will continue to provide support for the following promotional e-mails: • SearsOutlet.com Deal of the Day E-Mail	Sears.com standard promotional e-mails will continue to be provided to SHO customers at no cost to SHO Rates for promotional banner placement within sears.com promotional e-mails charged per the SYWR Service Agreement SearsOutlet.com Deal of the Day e-mail will continue to be provided to SHO at the rate of $3.50 CPM

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Service or Business Area	Services	Fees

	2. Trigger emails a. SHMC will continue to provide support for the following trigger e-mails: • Shopping Cart abandonment e-mails on SearsOutlet.com • Post Order e-mails on SearsOutlet.com • Shopper Recap E-Mails generated via DBC • Digital receipt e-mail • Post order emails for in store purchases (e.g. thank you for your purchase)	Trigger e-mails will continue to be provided to SHO customers at the rate of $3.50 CPM All rates for other e-mail related services will be set forth in the SYWR Service Agreement

Sears.com Banner Ads	Placement of promotional banner advertisements on sears.com home page and category pages	Rates will be provided based on inventory availability at the time of request, based on the 2012 Display Ad Rate card provided in Exhibit 1.

Fraud Solutions		All prices/rates are performed by a 3 ^rd party contractor. Current price is noted below:

	1. RSA – Retail Services Agreement* Store Pick-Up Order is picked up by another person. Customer has the online capability of having a 3 ^rd party pick up their order at a store. * unable to determine if expenses were incurred for these services	RSA: $1.00 per order

	2. RED (Retail Decisions) – is a service provider that reviews every order via systemic rules Review potential fraud orders for outlet • Hometown – $612 in RED costs; 24,480 orders in 2011 • Outlet – $1,575 in RED costs; 63,000 orders in 2011 • Hardware – $578 in RED costs; 23,139 orders in 2011	RED: $0.025 per transaction

	3. Fraud outsorts – triggered by RED rules and the orders are reviewed by OBU’s fraud team in Tempe, AZ. Fraud outsort cost applies only to outsorted orders (about 3.6% of orders on average) • Hometown – $6,372 in fraud/outsort costs; 24,480 orders in 2011 • Outlet – $16,398 in fraud/outsort costs; 63,000 orders in 2011 • Hardware – $6,023 in fraud/outsort costs; 23,139 orders in 2011	Fraud / outsorts: $7.23 per order

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Service or Business Area

Services

Fees

Sears.com Functionality

1. Store-to-Home (S2H) Web Order Fulfillment

a. SHMC will provide SHO ability to enter customer orders on in-store kiosks, point of sale systems and Facebook ecommerce pages to be fulfilled using existing S2H functionality and business rules.

b. SHMC will recognize the sale and assume responsibility for order fulfillment.

c. SHMC will pay SHO SPRS margin for all Sears.com S2H orders originated in Sears Hometown Stores, Sears Appliance & Hardware, and Sears Appliance Showroom formats, excluding those products sold via Sears.com Marketplace.

d. SHMC will pay SHO a 30% commission on all Sears.com S2H orders originated in the Sears Outlet format stores excluding those products sold via Sears.com marketplace.

e. SHMC will pay SHO a 13% commission on all S2H home orders fulfilled via marketplace

f. SHO will pay SHMC for 3% commission for S2H orders that originated on Sears.com.

g. SHO will pay SHMC a 3% commission on hybrid delivery sales.

2. Web-To-Store (W2S) Fusion Sales Functionality

a. SHMC will continue to display SHO store locations on Sears.com as pickup points for orders placed online for in-store pick-ups

b. Revenue and associated margin will transfer to SHO and SHO will be responsible for order fulfillment

c. SHO will pay SHMC for 3% commission for W2S orders that originated on Sears.com.

e. SHO will reimburse SHMC for any hybrid delivery that originated on sears.com.

3. Store Locator

a. SHMC will maintain all SHO store locations on the Sears.com store locator functionality

4. SHMC Web Property Integration

No cost to SHO

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Service or Business Area	Services	Fees

	a. SHMC will provide current linkage to all SHO websites allowing customers to navigate from sears.com to SHO websites through existing display banner/ribbon in sears.com header b. SHMC will maintain functionality for single sign-on and shared customer profile database 5. SHMC will continue to provide existing support/functionality via all mobile (phone or tablet) websites or applications.

SearsOutlet.com Functionality and Support	SHMC will continue to provide the following design, development, project management, QA and system/functionality support services for SearsOutlet.com: 1. Full development and engineering resource support as outlined in the FY12 Sears Outlet: Retainer Services Agreement (included as Exhibit 1). 2. Full order and post-order management support via OMS including financial reporting (via a daily tranfile) that is generated by OMS and fed into SHMC core financial systems. 3. Full online customer profile support accessed via CAS 4. Full support of existing “Single Sign-on” functionality and related databases which allows customers to migrate freely between existing SHMC websites 5. Provide product data and related content from SPIN (Sears.com content management system) as well as existing access rights to SPIN for SHO employees 6. Support existing employee discount functionality in online shopping cart/checkout 7. Provide product and customer review information and content currently managed by ViewPoints (3 ^rd party provider). Support should continue at current levels if provider changes or SHMC develops proprietary/internal customer/product review functionality. 8. Provide full support credit card authorization, fraud checks, and tax calculation 9. Continue to support (a) integration with critical SHMC system infrastructure and (b) access to all production databases housing critical online inventory, fulfillment, and order information including (but not limited to):	See Exhibit 1 for FY12 fee structure as outlined in the FY12 Sears Outlet: Retainer Services Agreement Future engineering, development, project management, & design support will be priced at FTE hourly rates commensurate with the fee structure included in Exhibit 1. Future hosting/maintenance fees will be priced commensurate with the fee structure included in Exhibit 1. Beyond January 2013, SHO and SHMC must agree in writing on the number of FTEs and hours required for all future projects. SHMC will be responsible for providing SHO with a monthly report detailing the monthly expense, number of supporting FTEs, and hours worked on a monthly basis.

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Service or Business Area

Services

Fees

• SCIM/DOS systems for fulfilling online delivery orders. Functionality includes scheduling deliveries, ordering installation services, and fulfilling protection agreements.

• NPOS – for 991 inventory and price feed

• RIM – for non-991 inventory feed

• PMS – non-991 price and Vendor Direct price feed

• CORE – for accessory and protection agreement details, Hierarchy details

• DOS – for details regarding zip code and MDO mapping data

• Home Services – for delivery charge price feed

• RTI – for inventory/order management and non-991 shipping items quantity feed

• Ciboodle – Guest user address validation service

• SHMC Customer Data Warehouse (CDW) – Promotional email feed (CDW integrates with UNICA to validate and create email distribution lists)

10. Continue to provide hosting, production, and database support on servers located in the Sears Data Center.

11. Continue to provide QA and testing environments as in today’s environment.

12. Continue to provide full issue escalation support via ESOC and other supporting groups/units within SHMC

13. Continue to provide full integration with Shop Your Way Rewards platforms to allow for earning and redemption of points

14. SHMC will continue to provide full integration support for all third-party vendors:

• Commission Junction – affiliate marketing network provider Omniture

• Responsys – for production/distribution of all trigger and promotional e-mails order e-mails

• UNICA – integration with CDW to generate promotional e-mail lists

• PSIGEN – support of integration to manage, store, retrieve merchandise images station images for display on searsoutlet.com

• SCENE7 – product images (data is provided by SPIN and the S7 URL is used for displaying image on website)

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Service or Business Area	Services	Fees
	• Commerce Hub – vendor direct orders/functionality • Skava – mobile/tablet website provider for SearsOutlet.com • Bloomreach – dyanamic onsite content creation to optimize paid & organic search programs • Monetate – software as a service platform to enhance onsite merchandising • Channel Intelligence – product information data feeds for inclusion in online shopping engine sites

SearsOutlet.com Online Sales Commissions	If SHMC business units elect to have their products available for sale on SearsOutlet.com, a commission will be paid to SHO according to the below rate table for the length of this agreement for all sales originating from SearsOutlet.com. This commission rate will be charged monthly based upon fusion sales reporting by SHO SHO has the option, after review with SHMC Business Unit, to remove product from the Outlet website.


Business Unit	CommissionRate
Consumer Electronics		10	%
Home Appliances		15	%
Sears/Kmart Apparel		n/a
Home Fashions, Mattress, SKA		15	%
Lawn & Garden		15	%
Outdoor Living		15	%
Sporting Goods		15	%
Tools		15	%
Toys		15	%

Vendor Direct on SearsOutlet.com

SHMC will provide support of online vendor direct to customer fulfillment channel on SearsOutlet.com

• Connection fee is $3,300 per month.

• Every setup / change is $400 each

• Monthly vendor fees are $25 per month, per vendor

• Transportation expenses would be billed at calculated expense

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Service or Business Area	Services	Fees
		• Currently, this business is not in place and SHMC would need to secure staffing to support any growth this business creates. SHO would need to reimburse SHMC.

Sears.com Marketplace	SHMC will provide support of SearsOutlet.com integration with Sears.com marketplace: 1. SearsOutlet.com selling merchandise via Sears.com Marketplace as a Marketplace Seller. 2. SearsOutlet.com is in the process of developing the functionality to onboard third-party vendors onto SearsOutlet.com. Engineering / development required to complete – will be funded by SHO	• Engineering/development support required to complete integration funded by SHO at a rate agreed upon in writing prior to the implementation of services. • SHO does not currently leverage the marketplace platform to onboard third-party vendors

Digital Business Card and Shopper Recap	SHMC will continue to provide full support and access to Digital Business Card (DBC) and Shopper Recap e-mail functionality 1. SHMC will continue provide maintenance/support of DBC/Shopper Recap functionality as needed 2. SHMC will continue to provide supporting analytics and reporting for DBC/Shopper Recap performance 3. SHMC will reimburse SHO for all DBC purchases made on Sears.com originated by SHO in accordance with the Sears.com Store-to-Home rate structure provided above. 4. SHO will pay a 30% commission to SHMC for all DBC purchases made on Sears.com	No cost to SHO for use of Digital Business Card E-Mail rates commensurate with those outlined previously in this schedule of services

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Service or Business Area	Services	Fees
TEC Recommendations	Continue to provide personalization and product recommendations across multiple channels including Shopper Recap e-mails, Abandoned Cart e-mails, Digital receipt and future integration to SearsOutlet.com. • Currently TEC is only providing recommendations through email to SHO customers. TEC is not providing recommendations on SHO websites. This could change in the future, which SHO would incur the costs.	• 2% of sales attributed to the TEC Campaign Management System • Email sends will be billed at email rates. • Any future integration work to add TEC to SearsOutlet.com to be paid for by SHO

3 ^RD Party Support & Integration	1. SHMC will continue to provide support/functionality via the following third-party service providers: • YEXT – All SHO locations will be included within the facilities feed updates to aggregators who publish store listings within their network of online search directories. This is an annual update which includes the Name, Address, Phone, and URL for each location. A content worksheet will be sent separately that will populate store description, hours of operation, and photos • Omniture Site Catalyst (Adobe) – full website site analytics platform • Bright Tag – onsite pixel management technology • Akamai – content delivery network	No charge to SHO
SHOP Sears Service	SHMC will continue to provide full support of SHOP Sears functionality including any necessary maintenance/changes to supporting systems or hardware.	No charges to SHO
Community Support & Integration	SHMC will continue to provide support for SHOs full integration with ManageMyHome and SearsCommunity platforms.	No charges to SHO
MARKETING SERVICES
Marketing	Print placement and analytics . Currently provided through NSA/Alliance media and Valassis, SHMC will continue to provide ongoing support for the following functions: Vendor management including contract negotiations, coordinating placement and quantities, development, implementation and communication of run sheets with newspapers and printers, cost estimations, distribution analytics and recommendations, invoice reconciliation, development of new store profiles, and conflict resolution for non performance between media vendors and SHO.	HTS=$592,764 per year AHS=$56,448 per year HAS=$0 OUT =$0 * If SHMC changes to another vendor for these Services, then fees may be either directly billed to SHO or billed by SHMC to SHO.

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Service or Business Area	Services	Fees
	Fees and expenses will be billed by SHMC directly to SHO. Fees are for 2012 and are estimated based on planned volume.
	Other media placement and analytics . Currently provided primarily through MPG and Digitas, SHMC will continue to provide ongoing support for MPG and Digitas.	No charge by SHMC* MPG & Digitas HTS=$0 AHS=$0 HAS=$0 OUT =$0 * If SHMC changes to another vendor for these Services, then fees may be either directly billed to SHO or billed by SHMC to SHO.
	Point of Purchase (“POP”) and Offset Signing Procurement : • Planned Offset Signing & POP Elements: SHMC will provide visibility to storewide offset signing and POP elements, to the extent applicable to SHO. SHMC will provide advance notice of pricing inclusive of shipping to FastPak, creative proofs, and specifications. SHO may purchase these items at cost. • SHO exclusive signing projects: SHMC will assist SHO in the competitive bidding process for signing projects exclusive to SHO.	• Total = 50K Annually • Ad-Hoc support and/or unique support requested by SHO will be provided by SHMC at a cost of $45/hr. Plus Procurement Support
	Print vendor management : SHMC will continue to coordinate execution of printed materials for the SHO preprint program, including execution from the receipt of completed files to the delivery to each newspaper vendor including freight/freight execution, and quality control to established SHMC standards, including a review of final Epson proofs prior to printing.	$82,500 per year Plus Procurement Support
	Financial Reconciliation for preprint program . Provide estimated and actual costs to execute each marketing event on a job by job basis.	Included above
	3 ^rd party and internally available marketing analytics . Provide SHO with regular reporting, access to systems or fulfillment of ad hoc requests for marketing related data including, but not limited to, internal and external CSAT data on a weekly basis, market share data on a quarterly basis and ad tracking reports. Reporting will include SHO specific reporting as agreed upon in writing by the Parties.	CSAT (CLASS) $135,000 per year for SHO Other market share reports have no incremental cost for SHO
	POS offer execution . This includes creation and execution of barcodes, offers at POS (on receipt), and any updates to marketing functionality (e.g. offers based on market basket).	No incremental cost for SHO

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Service or Business Area	Services	Fees
	Need further details on all services provided under this category and the requirements needed from SHO (with lead times) in order to perform/execute these POS activities.
	APT (Applied Predictive Technologies) Test and Learn Tool (service provided by APT) – Access to APT Test and Learn Tool with all HTS data. SHMC to bill SHO directly for all services provided by APT	$30,000 per year
	Access and Maintenance of Systems: SHMC will continue to maintain functionality and provide SHO access to dependent marketing systems. If SHMC modifies or replaces existing SHO dependent systems, then SHMC must provide notice in writing 180 days prior. Note: PMI and AdPlan are replaced by IMPACT These systems include:	System Support-(price support/training/coaching/holiday support/problem resolution)—$88K annually. If SHO desires its own dedicated line for support, it will cost more


System		Function
PMI		Legacy Pricing System

RES/ Sign Riter		Item level signage

Deal Management		Supports creating and maintenance of Sears coupons and barcodes

Aprimo		Soft-proofing system for reviewing, annotating and approving pages. Creation of activities in Aprimo supports future pricing out of IMPACT and accounting.

Deal Management		Supports creating and maintenance of Sears coupons and barcodes

Digital Asset Management (DAM)		Photography, logos and finished pages library

MARS		Accounting

IMPACT		Marketing Planning/Production /Financial Management tool

Ad Plan		Pricing information

Access to Digital Asset Management (DAM) , FTP sites or any system which may host images. SHO will have access and rights to use all product level images and branding images/treatments. The same access will be made available for franchisees of SHO.

$12,000 annually for self-serve access.

Access to Aprimo soft proofing functions in IMPACT . SHO will continue to use IMPACT as a soft proofing system until the point where IMPACT interfaces with all internal & external vendors. SHO needs will be supported by enhancements to IMPACT, however until IMPACT can fully support the needs of SHO access will be provided to all legacy systems including PMI and AdPlan.

On-going access to all IMPACT related systems—$1.33 million (5% of total assessed IT costs for base and support based on 2012 costs)

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Service or Business Area	Services	Fees
	Local Ad Online digital circular	$170,000 per year
LOSS PREVENTION General Inventory Safety	Provide inventory Services for SHO including but not limited to: Initial physical inventory scheduling Consecutive rescheduling requests will be handled at a rate of $62/hour Inventory service provider management Physical inventory process management (data feeds to/from vendor/store/corp/) Point of contact for inventory related questions, rescheduling requests, concerns Disaster related inventory assistance	$ 35,000 /year
	Provide Technology, Merchandise Protection & Physical Security Management including but not limited to: Update of merchandise protection standards for various store formats Planning, management and deployment assistance of third party contractor guard coverage as needed (limited to third party contractors retained by SHMC) Manage third party contractors for repairs, upgrades as needed Manage burglar alarm & fire alarm systems (“BA/FA”) maintenance agreement and facilitate needed repairs Manage electronic article surveillance (“EAS”) systems maintenance and facilitate needed repairs Administration and processing services for payment of SHMC Loss Prevention business unit related invoices Provide Close Circuit TV consultation & solutions for new store construction, existing site improvements/retrofits ($55/hour rate)	$ 35,000 /year
	Provide Crisis & Emergency Management Services Weather monitoring and notification Services Crisis response and planning Services Risk assessment models Mitigation strategies Consultative services as needed ($65/hr) Manage public sector partnerships (FEMA/Department of Homeland Security) Critical incident reporting and management system	$ 30,000 /year

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Service or Business Area	Services	Fees
	General Safety Management Access to safety & health manuals, training and procedures Access to hazmat shipping manual, training, and procedures Regulatory agency (OSHA, Fire Department, and Department Of Transportation (“DOT”)) issue management Core safety processes development and management • Accident prevention plan, • Safety team, • Safety inspection Identification and management of personal protective equipment and safety supply lists Accident reporting and investigation training programs • Return to work • Customer handling processes Food safety training for storage, transportation, and recall handling. Manage pest control service contract and inspections Administration and management of awareness program and material Management of hazardous materials • Identification • Storage and handling Classification	$ 65,000 /year
	Critical Safety Management ($62/hour per SHMC employee as needed for Services, third party contractor resources at actual contractor fees plus expenses). SHMC will determine, in its discretion, when a SHMC or third party contractor resource is used. Critical accident management (amputations, fatalities, etc.) • Communication • Investigations • Management and guidance Critical Health Management • Bed bugs • TB, other infectious diseases Regulatory Agency Activity Management • Citation review • Investigations Informal conference, negotiation and settlement	$ T&M —

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Service or Business Area	Services	Fees
	Ongoing Safety Expenses by SHO businesses: ($62/hour per SHMC employee as needed for Services, third party contractor resources at actual contractor fees plus expenses). SHMC will determine, in its discretion, when a SHMC or third party contractor resource is used. Personal protective equipment procurement (gloves, apron, eyeglasses, shoes, etc.) Associate Employee training Equipment repair (compactor, motorized material handling equipment (“MMHE”), ladders, etc.) Safety Equipment Purchase (ladders, MMHE. etc) OSHA settlement payments Fire department citation payments DOT settlement payments Hazmat permits and license fees Miscellaneous safety purchases, fees, equipment, etc. Annual fire and extinguisher inspections	$ T&M —
	Provide Loss Mitigation and Resolution Services to SHO including but not limited to: Awareness program and training material to mitigate exposure to losses (limited to SHMC program material, may require third party contractor resources at actual contractor fees plus expenses ) Cycle shrink reporting (additional analysis and research will be at $62 hour rate) Civil demand & restitution collection management. Provide chain loss prevention support for investigative purposes (Detail Control Center (“DCC”) support for research, analytics, case resolution) Investigative system usage: • Aspect usage • Lexis, phone trace, etc • Hierarchy updates for Wazagua and Aspect Background / social network investigations ($62/hour rate) Business / owner investigations ($62/hour rate) Theft investigation management to resolve and apprehend dishonest customers and employees ($62/hour rate)	$ 50,000 /year
	Provide Loss Prevention (“LP”) Database Administration and LP System Support Services to SHO including but not limited to: Case/incident management Refund management support Content management for LP related materials

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Service or Business Area	Services	Fees
	Management of LP audit solution Fraud mitigation & investigation of SHMC supported e-commerce and payment systems Reporting and application environments for LP related content New applications or system enhancement will be at $71/hour rate	$ 30,000 /year
	Total LP Services	$245,000 /year
STORE LEVEL LABOR PLANNING AND STAFFING SUPPORT Outlet and Hardware stores formats (non-franchised)	Basic Support Services 1. Annual Labor hours/dollars plans developed by a Store staffing unit and Store location a. Annual plan by month by staffing unit and by Store b. Plans based on sales and relevant planning assumptions provided by SHO c. Plans delivered by SHMC within 20 business days of receipt of final sales and assumptions provided by SHO 2. Monthly plan hours/dollars reporting a. Excel file – current state plan provided to SHO business leaders 3. Weekly labor utilization/expense reporting a. Excel file provided to SHO business leaders b. Information provided by store and staffing unit within store 4. Weekly Employee Overtime reporting a. Excel file provided to business leaders 5. At the point when SHMC no longer actively maintains the HR management system for SHO, which contains all up-to-date employee information needed by SHMC to perform the store level labor planning and staffing support Services, SHO will be responsible for either arranging and paying for the necessary consents to permit SHMC to access SHO’s HR management system, or timely providing the necessary employee data as requested by SHMC. Franchised locations are excluded from the Services above. Post-Annual event Re-Plan 6. Store labor plan development for Store locations added during the plan year a. Plans delivered by SHMC within 10 business days of receipt of final sales and assumptions b. On a per-request basis	Service Level Increases If SHO requires a change in basic support services and/or frequency of services beyond what is outlined in the Agreement, costs may be adjusted to reflect increase in costs to provide services (if any). All requests for additional services or change in frequency must be provided in writing and cost for such services must be mutually agreed upon by both parties before a change in services will be instituted.

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Service or Business Area	Services	Fees
	“As Requested” Services 7. Additional services as mutually agreed upon in writing by the Parties. Each additional service priced individually based on mutually agreed-upon scope of work and requested delivery time
EMPLOYEE COMMISSION ADMINISTRATION SUPPORT SERVICES	Basic Support services – all SHO Store location types as of the Effective Date 1. Maintain record of current store population by store type for proper commission compensation a. Franchised, non-franchised, Hometown, Outlet, Hardware, Home Appliance Showroom b. Store location moves to/from franchised status require 4 business days lead time*	If SHO requires a change in basic support services and/or frequency of services beyond what is outlined in the Agreement, costs may be adjusted to reflect increase in costs to provide services (if any). All requests for additional services or change in frequency must be provided in writing and cost for such services must be mutually agreed upon by both parties before a change in services will be instituted.
Franchised and non-franchised locations	Basic Support services – non-franchised locations 2. Maintain record of employee compensation plans in place by format, location and scheduling unit a. Moves between compensation plans require 4 business day lead time* 3. Provide commission rate reporting in excel file format (or other format agreed upon by the Parties) – for SHO use in communicating to selling employees (updated when rates changed) 4. Based on business decisions communicated by SHO, set up commission rates / fixed dollar amounts by product category and/or line, by store location
	a. As of the Effective Date, non-franchise Hometown format store commission rates currently follow the Sears Full Line Stores structure for Home Appliances. b. Commission Administration support team is not responsible for developing new commission rate/fixed dollar amount values 5. Provide bi-monthly commission expense tracking (excel file format (or other format agreed upon by the Parties)) 6. Research / respond to commission help ticket issues/questions Basic Support services – franchised locations 7. Commission rate set up and maintenance (for SADI system) New/changed rates require 2 business day lead time* “As Requested” Services 8. Additional services as mutually agreed upon in writing by the Parties. Each additional service priced individually based on mutually agreed-upon scope of work and requested delivery time	Out-of- Pocket Costs Travel expenses and third party fees charged-through at cost

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Service or Business Area	Services		Fees
Retail Services

New Store Opening/PMM Support	As needed, SHO may require SHMC/PMM support to open new store locations. These services will be provided on an as needed basis and will include all responsibilities as documented below.		$2,566 per week Agreed upon cost is all inclusive and reflects labor + travel.

	SYSTEMS:

	DSL or Satellite installation (permanent power required in building)	Coordinated by HAS SHO team

	Connect 16 port Ethernet hub	Assigned PMM Support

	Build Dell workstation	Assigned PMM Support

	Install and program Lexmark printer	Assigned PMM Support

	Build Human Resources computer	Assigned PMM Support

	Program registers	Assigned PMM Support

	IBM installers will assist with build/programming of computers, printers and registers	SHO – Store Mgr or District Mgr

	FIXTURES:

	Verify you have the latest floor plan version	Assigned PMM Support

	Track fixture orders from all vendors	Assigned PMM Support

	All damages must be reported at receipt of fixtures. Possible hidden damage should be noted on bill of lading.	Assigned PMM Support

	MERCHANDISING:

	Lead/supervise day to day activities of 4-8 general laborers completing tasks on workflow supplied by SHMC.	Assigned PMM Support

	Print and position current Plan-O-Grams	SHO – Store Mgr or District Mgr

	Verify all merchandise orders have been placed through replenishment	HAS – Inventory Team

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Service or Business Area	Services		Fees
	Coordinate shipment of merchandise with RRC/DDC contacts. Ask for release of code 6 and break packs as coded for new stores. Have regular shipments begin the following week.	Assigned PMM Support

	All damages must be reported to the appropriate RRC/DDC within 48 hours	Assigned PMM Support

	Unload, unbox and deluxe all appliances for display on sales floor	Assigned PMM Support

	Position all merchandise according to plan-o-grams / floor plan	Assigned PMM Support

	Supply power to appliances where applicable for display purposes- (coordinate with Construction PM)	Assigned PMM Support

	Item number should be written on back of all appliances with permanent marker.	Assigned PMM Support
	SIGNING
	Track new store signing package for delivery to store	SHO – Store Mgr OR District Mgr

	Apply all sign holders per HAS Presentation Guide	Assigned PMM Support

	Print basic and promotional SignRiter price signs	SHO – Store Mgr OR District Mgr

	Hang Sears HAS and promotional overhead signing packages	Assigned PMM Support

	Apply basic and promotional SignRiter price signs	Assigned PMM Support
	GENERAL
	Install selling solution station computers	Assigned PMM Support

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Service or Business Area	Services		Fees
	Computer require separate high speed service – (coordinate with Construction PM and SHMC Telecom)	SHO – Store Mgr OR District Mgr

	Three phones lines required one with rollover capability, the other for fax – (coordinate with Construction PM)	SHO – Store Mgr OR District Mgr

	Floors should be waxed prior the fixture assembly and touched up after merchandising complete. (Coordinate with Construction PM)	SHO – Store Mgr OR District Mgr

	Arrange for dumpster to accommodate cardboard from initial trucks. Approx.200 appliance boxes. – (Coordinate with Construction PM) – Someone needs to contact landlord so that the dumpsters arrive in a timely manner. Contract usually calls for (3) 40 yd dumpsters to be provided	SHO – Store Mgr OR District Mgr
Utility Management	ECOVA’s services include: • Bill consolidation and payment services for each facility • Utility rate monitoring and optimization • Financial reporting including accruals • 13 Month Rolling Budget Development including a detailed site level budget for Electric, Gas, Water, and Sewer services • Energy procurement services		$158,000
In-Store Music	As allowed under applicable agreements, SHMC will continue to provide in-store music services for all locations requested by SHO.		SHO will be charged the lower of the following rates: • Current annual charge per unit prior to separation • Any renegotiated rate with in-store music providers

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Service or Business Area	Services	Fees
FACILITIES	SHMC agrees to provide the following services to SHO: • On an as needed basis, SHMC will provide SHO with general facilities maintenance and support including but not limited to the following: • HVAC Maintenance (Heating/Cooling Start-Up) • Exhaust Fan Inspections/HVAC Air Distribution & Transfer Unit Maintenance • Roof Repairs • Fire Protection/Alarm System Repairs/Maintenance • Compactors & Bailer Repairs/Maintenance • Energy Management – Service & Repairs • On an as needed basis SHMC will provide major maintenance and construction services to SHO. The rate(s) for required services will be negotiated on an as needed basis and will require prior approval from both parties. These services include but are not limited to the following: • Project manager and/or Project Coordinator support for (SHO) build out or Landlord (LL) build out of Outlet location. • Project manager and/or Project Coordinator support for (SHO) build out or LL build out of Home Appliance Store location. • Provide space and equipment for generation of Architectural and Design elements necessary for (SHO) construction projects. • Provide Architectural and Design assistance to consultants employed by (SHO). (Does not include production of or stamping of A&E documents.)	All maintenance & repairs will be billed to SHO at the agreed upon rate of $40/hr. This rate shall not increase by more than 5% annually and cannot be adjusted without prior written approval from both parties.
COMPLIANCE
Environmental	SHMC will continue to provide SHO services and support for Environmental Affairs at a rate of $25,000 Annually plus the direct cost for any necessary 3 ^rd party services required to address and resolve Environmental Issues attributed to SHO. 1. Asbestos Management , Lead Paint, Indoor Air Quality and Mold Assistance 2. Environmental permitting/registration preparation and management (e.g. hazardous materials, wastewater and hazardous waste),	$25,000 Annually plus the direct cost for any 3 ^rd party services required. Additional support for Environmental Services may be available at the request of SHO. Each service will be priced individually based on mutually agreed-upon scope of work and requested delivery time”

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Service or Business Area

Services

Fees

3. Regulatory report preparation and submittal,

4. Review and Processing environmental permitting and reporting fees,

5. Spill response and cleanup,

6. Addressing regulatory issues (such as, Notices of Violation of Environmental Requirements),

7. Coordination of hazardous and special waste removal and disposal/recycling,

8. Addressing property owner inquiries regarding environmental issues (such as, environmental due diligence requests related to refinancing or real estate transactions),

9. Work to assess and address environmental risks during store leasing activities (such as, Phase I environmental assessments or other environmental investigations)

10. Support for other environmental issues that may arise (e.g. wastewater, storm water, hazardous waste),

11. Hazardous and Special Waste Removal and Disposal/Recycling,

12. Environmental Hotline and Material Safety Data Sheet Support,

13. Environmental Management System Maintenance and Usage

14. Engineering Consultant Support (when necessary to assist with complex issues),

1. Third party contractor costs.

2. Third party contractor costs.

3. Applicable regulatory fees. If no regulatory fees apply, $200 per event plus all third party contractor costs and out of pocket expenses.

4. Applicable regulatory fees. If no regulatory fees apply, $200 per event plus all third party contractor costs and out of pocket expenses

5. Third party contractor costs.

6. Fixed fee of $500 per event plus all third party contractor fees and out of pocket expenses.

7. Third party contractor costs.

8. Fixed fee of $1,000 per event plus all third party contractor fees and out of pocket expenses.

9. Fixed fee of $1,200 per event plus all third party contractor fees and out of pocket expenses.

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Service or Business Area	Services	Fees
	15. Asbestos Abatement Contractors (as needed to support renovation and maintenance activities).	10. Fixed fee of $500 per event plus all third party contractor fees and out of pocket expenses. 11. Third party contractor costs. 12. $2.50 per month/store 13. $1.50 per month/store 14. Third party contractor costs. 15. Third party contractor costs.

Product Safety	1. Routine notifications of stop sale/recall information for SHLD branded product

	SHMC uses a tiered approach to product reviews, technical advice and consultation.	Tier 1

	2. Direction on applicable standards and regulatory issues	Consultation, data review

	3. Review and interpret technical data and/or laboratory testing reports (including #2)	0-5 reviews $150 6 or more reviews $250

	4. Product testing and review (including #s 2 and 3 in this Section above)	Tier 2 Product testing/review (includes contact with third party test facilities, vendors etc) 0-5 reviews $250 6 or more reviews $300

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Service or Business Area	Services	Fees
Corporate Compliance	Assist SHO General Counsel in transition, development and implementation of SHO Code of Conduct, key corporate policies, and SHO Ethics Hotline and continuing support of SHO offsite records management program.	$20,000 per year.

Global Compliance	Monitor and enforce compliance by vendors and manufacturers with applicable local law, SHLD internal standards, and other SHLD social compliance requirements with respect to child labor, wages, hours, benefits, pay, discrimination, harassment, environment, and health, and safety. To the extent SHO or its Affiliates may sell any products that are labeled or marketed under an SHLD-owned brand, SHO agrees to perform its own factory audits for these products through a third party, at SHO’s own cost, and a program approved by SHLD, and will provide the results of those audits to SHLD.	No charge

LOGISTICS & DISTRIBUTION	Services performed in accordance with the Merchandising Agreement dated , 2012 between SHO, Sears, Roebuck and Co., and others, including those set forth in Section 6 of the Merchandising Agreement.

Transportation	1. International Transportation: Ocean Carriers • SHMC manages the shipment of goods on ocean vessel from foreign port to US destination. • If final destination of the shipment is inland US, this service also includes the truck or rail transportation movement and cost to deliver the goods from the US port of arrival to the Distribution Center (DC) destination. • Optimizes routing to minimize transit times and costs, negotiate contracts with carriers, provide volume forecasts, oversee performance and timely delivery of shipments to deconsolidation centers and distribution centers. • Expedites shipments as necessary using alternate transportation modes, carriers and routing.	Transportation Services: Freight Charges will be passed through to SHO at cost. Ad Hoc Services $75 per man hour Transportation Overhead: SHO will be billed for Transportation Overhead based upon the percentage of total DC handling expenses (fixed and variable) attributed to SHO. Fee Adjustments: On each anniversary of the Effective Date of this Agreement, SHO’s fees are subject to an annual adjustment per SLS’s cost structure.

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Service or Business Area	Services	Fees
		Freight Cost Allocation: SLS will allocate freight costs to SHO as follows: The total transportation cost of each shipment is allocated to SHO based on the percentage of each SHO destination’s shipping volume to the total volume shipped in that transport. Rates and costs are subject to change based on rate negotiations with SLS’s carriers’ as outlined in the carrier contracts and as warranted by changing market conditions.

	2. Freight Forwarding. Services provided by Forwarders : • SHMC serves as liaison between vendors and ocean carriers to create booking (reservation) for goods to ship on designated vessels. • Manages exceptions and obtain approval from SHMC for shipments outside tolerance • Freight Forwarders provide consolidation services overseas to optimize container loading utilization. • Forwarder verifies the shipment quantity and provides the Advance Ship Notice (ASN) to alert SHMC systems of the shipment details • Oversees performance, ensuring optimal container loading, timely and accurate data transmissions • Provides shipment tracking tools to SHMC users • Creates transit matrix which establishes lead time from vendor delivery to store delivery

	3. Customs : • Brokerage Services: SHMC provides the services of customs agents who file Customs entry for import merchandise shipments on behalf of SHO, following all of the applicable rules and regulations for US Customs and other Government Agencies to allow goods to enter the commerce of the United States

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Service or Business Area	Services	Fees
	4. Costs incurred : • SHMC pays taxes due the US Government, including Duty, Harbor Maintenance Fees, Merchandise Processing Fees, etc. • SHMC pays the fees for Customs Broker services

	5. Other costs incurred for import shipments reported to US Customs : • SHMC pays royalty fees for SHO to have the right to sell goods with a brand or trademark which is owned by another company • SHMC pays commissions due to Buying and Selling agents who have assisted with the purchase of foreign goods, usually a percent of the cost • SHMC declares classification according to the US Harmonized Tariff Schedule for every imported item • SHMC determines the duties owed and establishes costs that must be reported to US Customs • Oversight of Customs Broker performance: on time filing, accuracy (including annual audit), and timely clearance

	6. Deconsolidation • SHMC provides processes and facilities to break down (“deconsolidate”) large imported shipments into quantities that can be distributed efficiently to the various distribution centers that serve SHO retail locations and then ships them to those distribution facilities. At SHMC’s Third Party Operated Flow-Through facilities, SHMC: • Takes in ocean containers shipped from multiple countries and use the Inventory Allocations to build outbound loads to inland distribution centers, optimizing US freight costs, acting as deconsolidation and consolidation center • Moves full truckloads of merchandise from Deconsolidation center to distribution centers or stores • Cost includes the facility handling costs as well as domestic transportation cost from Decon center to inland DC • Provides direction and forecasts to ensure efficient and timely flow of goods, continuously monitor performance • Expedites shipments as necessary by prioritizing cargo, employing alternate transportation modes, carriers and routing

	7. Domestic Transportation : • Inbound. SHMC transports vendor freight collect merchandise to the various distribution centers that serve SHO retail locations. As part of this service, SHMC: • Manages all vendor freight collect to DC transportation

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Service or Business Area	Services	Fees
	• Establishes vendor routing guides and monitor compliance • Dynamically optimizes daily freight movements using the Transportation Management System to determine the least cost flow alternative to meet the specified dates • Tracks, traces and expedites individual shipments to meet desired specified business needs • Manages claims asserted by or against carriers, such as cargo damage, demurrage, etc. • Manages and ensures consistent evaluation of carrier performance • Outbound. SHMC transports goods from its distribution centers to stores. This service includes: • Contracting for domestic inbound/ outbound transportation through a sequential combinatorial bid process using historical lane volumes and store clusters. Lanes awards to carriers take into account the least cost alternative that meets the service requirements • Managing flow of merchandise from DC to all SHO locations • Managing a 24/7 operation for load planning, tracking and tracing of home delivery from Direct Delivery Centers (“DDC”) to store and to Market Delivery Operations (“MDOs”) • Establishing store delivery schedules from DC’s to store based on historical volumes.

	8. Special Services • Provided upon request at an agreed to rate

	9. IT System • System integration • Network security and system access

Inventory Management	See description of services and processes set forth in Appendix 6 of the Merchandising Agreement .	$121,000 for each FTE associate dedicated 100% to serving SHO’s business.
	New Merchandising Implementations 1. Submit new unique items to Flow Path Team that require DC stocking following established Flow Path process

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Service or Business Area	Services	Fees
	• Submit items before the items are entered in IMA. • A SKU count of 5% or more will materially change productivity service costs and storage expectations. • SHO must provide 90 day advance notice regarding SKU additions of more than 5% over SKU count Plan. • SHO must provide volume forecast of new SKUs at time of submittal (inbound, outbound, storage as described under forecasting requirements 2. Contact Manager of Supply Chain Operations (single point of contact) for planning assistance with new product launches seasonal sets, new or closing stores, flow path decisions and operational issues. 3. Provide feedback via digital Load Quality Surveys 4. Provide complete and proper build of online items with all necessary artifacts 5. Provide competent inventory management to drive inventory productivity and space utilization

Space Management	1. Planogram Support SHMC will provide Planogram support to the Hardware store format at the same level as performed before Separation (not more than 525 planogram changes per year and support of not more than 500 active planograms). Prior to Separation, this planogram work has been driven by assortment changes in the Sears FLS format, which then affect the Hardware store format. These planogram changes are first developed for Sears FLS, then will be passed over to SHO Hardware stores for review/modification, and approval before assignment to stores. A new requirement for Hardware stores is to support planogram changes specific to Hardware stores only in the same capacity. This planogram work is independent of Sears FLS. In either of the above cases, the SHO planogram team will modify planograms as necessary and provide to the SHMC team for quality review and import to the SHMC Space Management systems. SHMC will assign a incremental dedicated Space Planning person to support the Hardware format. This resource will manage the incremental demand of the SHO driven planogram changes, guarantee responsiveness to demand, and ensure quality deliverables/service levels according to this SOW.	$38.50 per hour

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Service or Business Area	Services	Fees
	SHMC Planogram services: • Facilitation of weekly Merchandise Transition Calendar project meetings. • Monitoring and reporting of merchandise transition critical milestones. • Receive/cascade Sears FLS assortment changes to the Hardware store merchant teams for review/adjustment/additions/changes. • Create, update, quality review planograms as necessary to support assortment decisions from by the merchants. • Provide assortment grids for approval to ensure item/planogram/store assignments are in alignment. • Address any rework or changes as requested by SHO. • Review planogram quality controls and import planograms to the corporate SHC database. • Maintain the Merchandise Transition Calendar and any other necessary systems to support the current SHMC level of service. • Maintain/update planogram groups and store models to ensure accurate store/planogram assignment. • Post planograms to the SHMC Store Plot Planogram system. • Generate planogram PDF and incorporate to the Days to Check applications. Note : Planogram support is provided for the SHO Hardware store format only. Other SHO formats are currently out of scope of this unit of services.

	2. Floor Plan Support • Floor planning services were not provided for any SHO format prior to Separation. Should future Floor Planning services be desired, a new statement of work will be developed at that time.

	3. Transition Management The SHMC Merchandise Transition Calendar is utilized to schedule and manage every planogram group transition in Hardware stores. Critical milestones will be monitored and reported to the SHO Hardware Transition project team each week.

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Service or Business Area	Services	Fees
	SHMC Transition Management services include: • Coordination of project planning with stakeholders during reset planning and execution including (but not limited to) business unit merchants, inventory planning, procurement, and signing. • Establishing and leading weekly project meetings as appropriate for scope of the reset ensuring all stakeholders are involved and accountable. • Providing weekly project critical milestone tracking/reporting to all stakeholders • Monitoring all approval points within the project timelines escalating as appropriate • Providing access to the Merchandise Transition Calendar and any reporting available within this system.

	4. System Support Services • SHMC will provide SHO system support services through SHMC’s IT support function (and under its support services requirements), not through SHMC’s Space Management staff. • SHO may participate in regularly scheduled SHMC Space Management training services. Scheduling of training sessions specifically for SHO will be billed as appropriate. • SHO will continue to have access to the SHMC Days to Check suite of applications. • No direct user access to the SHMC Space Management JDA Intactix Knowledge Base (“IKB”) will be granted. • SHO has access to no more than 8 JDA Space Planning desktop user licenses. SHO will need to separately procure any additional licenses directly from JDA Software, Inc. SHMC will cooperate reasonably with SHO’s efforts to do so. • SHO will continue to have access to the SHMC product library to support SHO’s internal planogram development efforts. This product library is supported by SHMC I&TG.

	5. Special Services-Store AutoCAD projects The SHMC Space Management team offers store plan (AutoCAD) drafting services for store sales floor/fixture plans. This service is specifically for those requests that involve the design in AutoCAD of new stores or changes/updates to fixtures, sales floor space, and simple architectural elements within an existing building plan. Requests for this service will follow the below process. Charges will be based on time/materials and

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Service or Business Area	Services	Fees
	billed via the current time entry methods. SHMC will use commercially reasonable efforts to process SHO’s AutoCAD project requests as in the ordinary course of business, without giving more or less priority to SHO’s requests than any other’s. The relative importance of specific projects might dictate a reordering of those priorities in favor of or against SHO’s requests from time to time. Project scope, resource availability, timelines, and deliverables (as outlined below) will be communicated at the time the service is requested.

	6. Service Level Commitment • The SHMC Space Management team will strive to assign all planograms to stores within 4-6 weeks of receiving complete and accurate assortment information from SHO and also within the required lead time by Inventory Management to support ordering product. • SHC Store Planning (AutoCAD) services are project based. Resource allocation, timelines, and deliverables will be established at the time of each specific project request.

	7. IT System • Currently 8 JDA Space Planning desktop licenses are available for use by SHO. The SHMC IT support organization supports a link to the SHMC JDA IKB product library to support planogram development efforts for SHO. • Access to the SHMC Days to Check suite is available through the RCS process. • Network security and system access is not applicable in regards to the SHMC space management applications.

	8. Administrative Support • Reporting Services • Project management critical milestone tracking and meeting recaps • Weekly Planogram Reset Status reports (red/yellow report) • Inventory Instock Reporting 2 weeks prior to reset + week of reset • Billing of Services • Nature and frequency

Warehouse Distribution	1. Inbound Receiving • Receive Goods on behalf of SHMC and update appropriate systems based on receipt • Unload, count and verify • Reconcile actual receipts to PO using vendor ASN

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Service or Business Area	Services	Fees
	• Update on hand and on order • File OS & D’s on behalf of SHMC • Follow standard seal control process • Receive Goods and Advance Ship Notices (ASN) directly from a Vendor or customer. • Receive replenishment stock Goods as well as flow-through Goods • Receive via three inbound modes • Drop trailer/ container • “Live” unload appointment (minimum 24 hour advance notice) • Small package • Take delivery of shipments per SHMC requirements • Receiving vendor compliance • Pass receipt information to existing SHMC Vendor Compliance • Liquidate and dispose of problem receipt items per SHMC defined disposition rules • Carton inspection • Provided as a Special Services as SHO requests • Receive goods with priority given to age of trailer on lot and demand for product • Receiving documents retention • Maintain electronic data for receipt to PO visibility (At least 120 days for RRC; At least 180 days for DDC) • Keep hard copy Bills of Lading and Vendor Manifests for period specified by SHMC • Unload and Put-away • Unload and put away/ store SHMC items per recommended handling vendor packaging guidelines and SLS current operating processes.

	2. Outbound Shipping • Fill Customer Orders by shipping on Point of Sale assigned date dependent on inventory availability. • Ship Customer orders as priority over store replenishment orders. • Receive Orders throughout the day, everyday • Fill Replenishment Orders dependent on inventory availability • Ship replenishment orders on requested ship date with ability of DCs to pull forward or push out based upon current parameters with SHMC • Ship Layaway orders if SHO elects Layaway when SHO removes ‘layaway pend’ at Point of Sale.

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Service or Business Area	Services	Fees
	• Exception Handlings • At time of order filling, if item is not available to fulfill a customer order: • Customer orders – we will pick except to backorder • Home delivery – electronically notify Home Services/CCN to reschedule/ re-reserve order • Back to store – electronically notify SHMC POS (SCIM) • RIM orders (store replenishment) – we will pick except/cancel • Replenishment systems will reorder as needed • Place fulfilled orders onto outbound trailers • Generate an outbound ASN (EDI 856 Electronic Shipping Notice) which matches contents of the trailer to support store receiving process • Create a Bill of Lading which supports the Department of Transportation (DOT) requirements • Ship to the stores on regular delivery schedule and communicate any changes/ exceptions to the store • DC will provide Seal Control log with each shipment for Loss Prevention verification to ensure trailer integrity. For multi-stop trailers DC SHMC will provide the number of seals for each stop to ensure integrity between stores. • Support current Loss Prevention and Quality Assurance processes • Provide shipping services to the 50 US states, District of Columbia, Puerto Rico, Guam and Bermuda. For export shipping, we will ship to selected offshore freight forwarder. SHO is responsible for providing necessary export documentation to their freight forwarder

	3. Inbound Vendor Cross Docking • Cross dock cartons by 2 forms: • Cross dock Inbound Vendor cartons from upstream DCs and move cartons to stores while providing systemic information of contents (JIT, RIM Flow and Central Stocking processes) • Cross dock Vendor Direct to Store cartons via servicing RRC (EMP Expedited Merchandise Process) • RRC acknowledges the carton ID (no receipt) as arrived at RRC and ships out on next store delivery • RRC passes vendor provided information via ASN to store. Store receipt triggers payment to vendor. • Move cross dock cartons to stores on next outbound delivery. DCs do not stock cross dock product • Support stores that ship directly from SLS distribution centers (DDCs and RRCs). HAS (Home Appliance Showrooms) do not have cross dock services (break pack, EMP, JIT, multiple items/multiple stores per carton) available.

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Service or Business Area	Services	Fees
	4. Storage • SHMC will provide the real estate footprint to accommodate DC planned inventory. • If SHO misses forecasts which results in exceeding available capacity SHMC will, at SHMC’s discretion, obtain additional capacity whether it is storage trailers, short term leased space or 3 ^rd party providers. • Capacity available will be based on plan; rate will be dependent on rate addendum. If actual storage is 110% or more to plan, the rate will increase by 20%. Storage will be defined in cubic feet for RRCs and square feet for DDCs. • If SHO comes in under planned storage usage, the storage charges will reflect a reduction in the variable costs. Fixed costs will remain the same.

	5. Physical Inventory – Ownership : At no point in time will ownership of the inventory be transferred to SLS. • Title of Goods • Unless otherwise specified in an SOW, title to Goods and any proceeds of such Goods will remain at all times with SHMC and shall not pass to SLS under any circumstances. However, SLS through an SOW can facilitate acquisition of Goods by SHO. • It is agreed that title to such Goods will pass to SHO upon receipt at a Hometown Store or an Outlet store or appropriate SHO facility. • Physical Responsibility: • Inventory responsibility will not transfer from SHMC entity to SLS until Goods are identified and receipted in at point of unloading and confirmed receipts verified. • Inventory responsibility will be concluded as product is loaded and confirmed out of the facility via the printing of a trailer BOL by the DC. • Inventory Accuracy • Processes will be consistent with SHMC and continue as in past • Cycle count program will continue to follow current SHMC Audit Program • Cycle counting will be performed at a rate of 12% (locations) per month for nine consecutive months

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Service or Business Area	Services	Fees
	• Conduct an annual Sampling • An annual sampling is completed at each Distribution Center in the spring with a % of bins identified in advance which are counted on the designated date by an independent auditing team. Results are compared and verified. • Inventory shrink is calculated based on comparison of book (General Ledger) vs. perpetual (DOS). An inventory shrink/gain allowance is in effect with SHMC and current process will remain in place. SLS is not liable to SHO for inventory shrink/gain.

	6. Special Services • Requests from SHO which are not part of our base Receiving, Order Filling or Shipping will be handled via a Special Project Request at Special Project rate. • All Special Project Requests will be handled through SLS assigned Manager of Supply Chain Operations for Hometown and Hardware Stores and through the SLS Director of Return Logistics for Outlet Stores. • Special Requests are defined as not normal day to day business of receiving, order filling and shipping which may include but are not limited to: • Product/ carton Inspection • Out of area shipping • Vendor or item specific on hand verification • QA Issues like product re-labeling, re-ticketing, re-cartoning etc. • On demand cycle counts • Stop Sale and/or Stop Shipping (lock bins) • Full Truckload special off-site store sales • Store Openings • Store Closings • Planned • Unplanned • Other services not specified in Logistics Services SOW

	7. Disposition of Unsalable, Defective and Obsolete Goods • Process DC returns to Vendor via RA/RGI procedures (Return Authorization/Return Goods Invoice) • Provide liquidation service (sell to salvager, destroy/deface and dispose) per SHMC direction

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Service or Business Area	Services	Fees
	• Manage the liquidation of damaged merchandise (assigned to damage bin) per SHMC guidelines • SLS manages store liquidation recoveries such as ‘Craftsman Tool Returns’ and Store RA/RGI flowing via our reverse logistics network.

	8. Facility Operations • Description of the facilities available to SHO and Facility hours of operations • These services are performed from SLS’s network of approximately 37 distribution facilities in the U.S • Facilities operate year round with the exception of Holidays as per SLS’s standard operating procedures. • Access to facilities will be accommodated in accordance with SLS’s standard operating procedures

	9. Logistics Administrative Services • Customer Service • SHMC will assign a Manager of Supply Chain Operations (MSCO) to act as single point of contact for Hometown and Hardware Stores. The following services are included: • Works with business on new initiatives and defining new requirements • Provides escalation support for day to day activities • Logistics Planning as described below. • Expedited Shipments (Inbound & Outbound) • Inventory Transfers • QA Issues, such as product re-labeling • Product Inspection • Vendor or item specific on hand verification • Out of area shipping • Vendor Support • Facilitate Vendor Returns

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Service or Business Area		Services		Fees

• Support initial and seasonal sets, and new product launches

• Participate in early planning sessions with Business

• Assist in flow path decisions

• Communicate volume and timing to Transportation/DC prior to product flowing

• Act as conduit within the Supply Chain network

• Identify cost/service impacts for business initiatives

Note: Vendor Inbound Shipment/ Tracking services are performed between order entry inventory management and transportation

• Store Support Department (SSD)

• Provide a single national contact phone # of the servicing distribution center - the Store Support Department (SSD)

• Provide a load quality survey with every shipment to allow stores to provide electronic feedback to the Distribution Centers

• Work on behalf of store:

• For claims – Overs/Shorts/Damages (OS & Ds)

• Trailer damage to property

• Transportation Management Visibility (OTM

• Provide a Website link for stores to see their truck delivery time and current shipment planned ETA and summary of contents

• DC/Store Support

• Review specific business requirements with Managers of Supply Chain Operations and translate into a prioritized action plan for Logistics Services, Inventory Management, Transportation and Distribution Centers

• Coordinate resolution with Corporate SHMC/SHO businesses for DC service issues

• Provide corporate project management and process directions to the Distribution Centers

• Develop and document business function operating policies

• Assist with the development and implementation of strategic planning

• Work with operations teams to determine optimal product placement and handling strategies

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Service or Business Area

Services

Fees

• Manage and perform any special requests as required within the network

• Execute Network Realignments as needed; communicate with various stakeholders; monitor so that necessary tasks are completed at correct times.

• Approve all ‘Reverse Flow’ (store back to DC) requests; execute properly for each retail format

• Logistics IT System and Support

• Provide distribution center warehouse management system to support, control and report inventory transactions such as receipts, order filling, storage and shipping

• Provide Project Management for all distribution center IT initiatives

• Provide 24x7 escalation support to DC’s

• Provide on-going support to DC network system infrastructure

• WMS, YMS, Order Management software

• Communicate details of installs, upgrades and changes

• Communicate planned outages

• Provide first level escalation for urgent help desk issues

• Hardware for DCs

• Assist with installation and set-up of IT approved hardware/devices

• Assist with IT certification of new devices

• Maintenance agreements / contingencies

• Network

• Assist with design of LAN to support DC devices and processes

• DC System integration

• Provide project creation and gather business requirements for requested IT enhancements

• Participate in DC contingency planning exercises

• DC System security

• Coordinate and assist with Sarbanes Oxley audits

• Network Design and Flow Path

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Service or Business Area

Services

Fees

• Provide long term network plan based on the mid to long term corporate initiatives

• Incorporate SHO stores (both Hometown and Outlet) into Network Planning Models for alignment to the Distribution Centers while keeping Home Delivery dependencies intact

• Work on four-walls continuous improvement projects by simulating and mathematically modeling DC Operations

• Work with Supply Chain Finance and Industrial Engineering to establish rates for activities performed

• Approve SHO unique items under current SHMC approved product lines for stocking in the distribution centers following Flow Path New Item Review process.

• Assist “SHO” with distribution options for new product lines.

• Conduct Flow Path Analysis of distribution options. Provide feedback for expense and inventory levels. Analysis to be provided under terms of the Billing Methodology.

• Import vs. Domestic Buy

• Flow vs. DC Stock

• Direct to Store vs. DC Stocking

• Case Pack vs. Repack

• Special Projects as requested will be provided under terms of LOS (Level of Service) Addendum

• Project Management resources

• Web Enabled Commerce Support

• Manage and operate online fulfillment centers

• Support online assortments

• Project Management for “SHO” initiatives impacting the Logistics network

• Approve items for stocking in online fulfillment centers

• Support Inventory transfers

• Provide inventory cycle counts, inventory sampling and/or physical inventory as prescribed.

• Provide support for parcel and freight shipments

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Service or Business Area	Services	Fees
	• Out of Scope: Handling of Hazardous items • Provide reporting related to online fulfillment centers to business • Provide assessorial services (non-fulfillment related) for activities performed in online fulfillment centers at prescribed rate outlined in Schedule 2. • Support vendor return and product liquidation processes at the online fulfillment centers • Return Logistics (Central Return Centers) • Manage all Vendor return and product liquidation processes/ agreements • Third Party Warehouse Management • Procure and manage 3 ^rd party DC relationships and contracts as needed to meet SHO requirements. • Short-term and long-term project management

	10. Home Delivery for Puerto Rico (Puerto Rico Warehouse) • Delivery services to customer’s homes in Puerto Rico market unless otherwise agreed upon as a ‘Hybrid’ delivery market (same as mainland Home Delivery services). • Haul away of existing customer product (s) (as applicable) • Basic hook-up / overview of product in the customer home will be offered (as applicable) • Fly by and Fly Back • Pick up customer sold product at the store for delivery which is an additional stop charge expense. • Provide merchandise pick-up (MPU) from warehouse for customer orders • ROR’s (Record of Return) • ROR process in Puerto Rico will be consistent with SHMC mainland processes and rates.

	11. Outlet store scope with SLS Central Return Centers : SHMC (through the SLS Central Return Centers) will deliver Goods to SHO’s Outlet Stores. “Goods” (non-hazardous) include: (1) Non-resalable merchandise;

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Service or Business Area	Services	Fees
	(2) Merchandise that Sears, Roebuck and Co. (“ Sears ”) or Kmart Holding Corporation (“ Kmart ”) has received back from its customers or its stores; which excludes defective goods. (3) End-of-season merchandise; Perform facility management and data processing services for SHO at the CRC Facilities. 1. Acceptance of Goods : Receive and verify receipt of all Goods and scan or enter product information into the data processing system. 2. Loading and Handling : Direct the loading of the Goods so as to promote safety of the Goods in transit and ease of handling in delivery. SLS shall mark, stencil, apply bill of lading information (as applicable) and segregate all Goods and shall block, brace and/or gate the containers, trailers or trucks as appropriate. 3. Shipping Schedules and Load Factors : Adhere to the shipping and departure schedules mutually agreed upon by SLS and SHO. SHO agrees to provide shipment destination information on each completed load within 2 business days of being notified that the load is ready for shipping. 4. SLS Transportation : Maintain shipping schedules while achieving an acceptable load factor, in cooperation with SLS Carrier Management on all truckload shipments. 5. Documentation : Prepare and maintain bills of lading and other shipping documents. Bills of lading and other shipping documents shall be made available to carriers at the scheduled shipping or departure times, in a form that facilitates the receipt of Goods at the designated receiving location and the filing of claims by SHO or its vendors against carriers for Goods lost or damaged in transit, if necessary.

Global Sourcing	1. Merchandising Support • SHO Merchant Support

	• Familiarize and remain up-to-date with SHO’s sourcing, supply and merchandise needs, policies and requirements, including but not limited to a complete understanding of all information on SHO’s website.	Global Sourcing Services are offered as part of current Logistics Support. SHMC’s

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Service or Business Area

Services

Fees

• Market Trend & Country of Origin advantage: Provide up-to-date market information, trends competitor information and productivity by category by country to help SHO Merchant in identifying suitable products and Vendors.

• Facilitate communications between SHO and the Vendors and, when necessary, act as a translator for SHO’s representatives in meetings with Vendors and potential Vendors.

• Use best efforts to assist SHO in the investigation and prosecution of any manufacturer, supplier or other party suspected of infringing upon SHO’s proprietary rights.

• If SHO’s Merchant rejects delivery of any of the Merchandise for whatever reason, use its best efforts to enforce and monitor compliance with SHO’s trademark guidelines and prevent the Vendor from disposing of such Merchandise without removing Trademarks, labels, brand names or other markings (e.g., logos) which may be attached to the Merchandise or collateral material (e.g., hangtags, packaging).

• Vendor Qualification and Assessment

• Vendor Qualifications: based on vendor’s product strength, production capacity, U.S. market and Retail direct experience, annual business volume, internal quality control, company terms including payment terms, defective policy, UTC, PLI, their service level in terms of communication and follow up, response time based on our request

• Assist SHO in working with selected Vendors on product selection, price negotiations, packaging development and Order placement.

• Procure from prospective Vendors the information required by SHO’s applicable company or factory profile questionnaire.

• Work with Vendors to comply with the applicable provisions of the manuals and vendor import guidelines.

• Product Development

• Product Development Stage – based on SHO’s need and requirements, source and designate the potential vendor matrix

• Advance sample approval – ensure the product being produced at the factory is the same level or higher standard per SHO’s approval sample

agent performing these services is Sears Holdings Global Sourcing (SHGS) Any change to the current services provided to SHO businesses will be billed based on an agreed upon rate.

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Service or Business Area	Services	Fees
	• Packaging approval – ensure the packaging quality used on the product is per SHO’s requirement • Use all commercially reasonable efforts to ensure that the Design Materials used in or obtained or ordered for the manufacture of Merchandise are not used for any purpose other than the production of Merchandise solely for the account of SHO “Design Materials” includes (without limitation) documents, designs, drawings, artwork, sketches, patterns, photographs, images, fabric and/or samples in whatever form, whether written, physical or electronic. • Costing • Costing Stage – Solicit with vendors on quotation, sample preparation and align Cost vs. Design requirements as defined by SHO • In accordance with the SHO Merchant’s instructions, place Orders and use commercially reasonable efforts to negotiate and achieve the combination of price, quality and delivery most favorable to SHO for Merchandise which complies with the Merchandise Specifications, with the explicit understanding that SHO’s Merchant shall have the right, but not the obligation, to directly participate in all such negotiations.
	2. Production Management • Order Management – Order processing, training vendor base on SHO’s testing, inspection and factory audit requirements, monitor sample approval, packaging approval and vendors’ production and on-time performance • Regularly follow-up on production and shipments under Orders. • Keep close contact with all Vendors to ensure that production of the Merchandise is running according to the delivery schedule set by SHO’s Merchant for each item. • After becoming aware of any delivery delays, other noncompliance with the applicable T&C’s or Order, or other problems, promptly inform SHO’s Merchant, and use reasonable efforts to implement SHO’s decisions regarding new delivery terms and/or cancellation of Orders. • Unless otherwise instructed by SHO’s Merchant in writing, instruct vendors that Merchandise is not to be shipped to SHO after the shipment or cancellation date specified in the applicable Order without SHO’s prior written consent. • In the event of claims, assist in negotiations with the Vendors and shippers on behalf of SHO to obtain settlement in the best interest of SHO.

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Service or Business Area	Services	Fees
	• Use all commercially reasonable efforts to ensure that the transshipment of Merchandise to conceal the true country of origin or the labeling of Merchandise with information that is deceptive as to the true country where the Merchandise was manufactured does not occur in the manufacture of Merchandise for purchase by SHO. • If specifically requested to do so by SHO’s Merchant and agreed to by SHMC’s agent, confirm that quota has been secured for Merchandise and, when requested by SHO’s Merchant, SHMC’s agent shall secure quota, if required, for the account of SHO and issue bills to SHO for the cost of said quota pursuant to this Agreement.
	3. Quality Assurance and Technical Support • Testing & Inspection – Product Specifications and requirements are verified through pre-production / production testing as well as in-line & final inspections. • Conduct reasonable sampling inspections of Merchandise procured for SHO (including at the Vendor’s facility, if SHO’s Merchant so requests) to assure that the Merchandise meets the Merchandise Specifications and all fabric, quality, labeling, packaging and other standards and requirements prescribed by SHO’s Merchant. • A certificate verifying the conduct of and results of the final inspection shall be submitted upon request by SHO’s Merchant. SHO shall have the right to inspect those inspection records which relate to product ordered by and shipped to SHO. • Inspections will not relieve the Vendor of its responsibility to SHO for the quality and quantity of the products or services supplied and SHMC’s agent shall instruct all Vendors of their responsibility in this regard. • Technical / Color Approval Support (For Apparel, Soft Home, Footwear, Fashion Accessories) – ensure the measurement, fitting and colors are within tolerance set forth by SHO’s Merchant.
	4. Social Compliance factory audit – • SHMC’s SHGS compliance team monitored a total of 1,619 active factory base under Steton system, which provide factory audit history for merchandising team to understand up-to-date social compliance performance and corrective action plan and timeline by factory by vendor

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Service or Business Area	Services	Fees
	• Comply at all times with all laws applicable to the conduct of SHMC’s agent, including those of the country in which the Merchandise is manufactured. • Encourage and monitor Vendors’ compliance with (i) legal requirements, including but not limited to, CPSIA safety testing requirements as it may relate to any product categories, and (ii) the terms of applicable Orders, T&C’s, Merchandise Specification and other contractual requirements. • Use all commercially reasonable efforts to ensure that no child, forced or convict labor in violation of the local laws of the country in which the Merchandise is manufactured, or to which the Merchandise is being exported, is used in the manufacture of Merchandise. • Immediately identify to SHO’s Merchant any financial interest or family relationship that any employee or shareholder/owner of SHMC’s agent has, had or may have with an existing or potential Vendor or export supplier. • If SHO purchases Merchandise from a Vendor or export supplier with whom the SHMC’s agent, agent’s employee(s) and/or agent’s shareholder(s)/owner(s) have, had or may have a financial interest or family relationship, SHMC’s agent shall provide written assurances to SHO that (i) such interest or relationship will not affect the agent’s ability to perform the services described herein and (ii) the agent shall not share profits or other proceeds with such Vendor or export supplier from any transaction resulting from the agent’s performance of its services.
	5. Logistics Support • Facilitate the processing of export documentation necessary for customs clearance in the port of entry, • Monitor Merchandise shipping for compliance with Orders. • Monitor compliance with and advise SHO’s Merchant as to shipping logistics and delivery terms required in Orders or otherwise specified by SHO’s Merchant. • Promptly after becoming aware of the same, advise SHO’s Merchant of any non-compliance with the above and obtain the written approval of SHO’s Merchant for non-compliance or changes in requirements. • Prior to the exportation of the Merchandise to the United States (or such other country as SHO’s Merchant shall designate), SHMC’s agent shall facilitate the collection of and provide all documents, certificates, forms, statements and information appropriate or necessary for exportation to and importation into the United States, or other country of destination.

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Service or Business Area	Services	Fees
	• Analyze best flow path per SHO’s target in-store dates and provide ocean freight and in-land shipping cost estimation / options • Secure Vessel bookings • ensure shipping documentations are reflecting the correct details per SHO purchase orders for smooth customs clearance • Others – See details in Warehouse Distribution & Logistic services section of this Schedule
	6. Finance Support • Statutory Reporting: External reporting to local statutory and tax authorities through filing of audited financials and tax returns. • Management Reporting: Internal management reporting to SHMC executives, branch managers and department heads. • Claims Processing • Creation of claims against vendors for SHGS local services • Creation of claims against vendors on behalf of SHO • Monitor offset of claims receivables against FOB payable • Implement routine and necessary collection efforts • Exercise hold payment if necessary as leverage • Resolve disputes through co-ordination with different SHMC business units. • Letter of Credit (LC) and payment processing • Processing steps leading to issuance of LC to vendors • Attend to all routine and ad hoc issues relating to LC processing • Process wire transfer payments • Product Liability Insurance Compliance • Monitor Product Liability Insurance applications • Ensure vendor compliance to Product Liability Insurance • Diligence and internal control Steps

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Service or Business Area

Services

Fees

• Recording and exercise custody steps over cash and fixed assets

• Ensure proper authorization over all expenditure

• Maintain segregation of duties and promote internal control steps

BILLING METHODOLOGY

1. Logistics Billing Methodology

• Variable handling billing

• Rates for the RRCs are by flow path and by product size (Small, Medium, Large and Extra Large). Each Div-Line is placed into a size group at the beginning of the year based on last year’s average inbound carton cube for that Div-Line.

• Rates for the DDCs are by flow path and division.

• SHO will be billed based on disbursement volume out of the distribution centers.

• Fixed handling billing

• Fixed Handling represents the portion of logistics cost that does not vary with volume and that is not related to storing merchandise.

• SHO will be charged the 2012 plan level for fixed handling (plan is based on the SHO 2011 actual charge for fixed handling by network).

• Storage billing

• Cost is based on usage of DC inventory space.

• SHO will be billed based on cubic feet of RRC inventory space and square feet of DDC inventory space.

• Cubic/Square foot space usage is allocated to SHO based on the % of total division level volume attributed to the business.

There are, as of the Effective Date, no charges for RDC services to SHO. SHO will be charged variable handling rates for RDC services for merchandise shipped directly from an RDC to a SHO store, if that service is requested.

2012 Storage and Handling Rates by Flow Path are listed in Exhibit 2- 2012 Logistics Rates.

2. CRC Handling and Transportation

• CRC handling services are billed on a per scan basis.

• Transportation rates are based on the average size of the item. SHO is assigned a rate based on the average cube per selling unit.

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Service or Business Area

Services

Fees

• Salvage revenue is derived from recovery of salvageable merchandise. Rate is set in accordance with our agreement with third party(s).

• Freight and handling planned revenue is based on 2011 average actual rate.

3. Billing of Overhead Expenses

• SHO will be billed for other Logistics Overhead expenses based on the percentage of total DC handling expenses (fixed and variable) attributed to SHO. Other Overhead Expenses are defined as Supply Chain Management overhead minus Inventory Management, Space Management and Global Sourcing.

4. DC Markdowns

• DC Markdowns include inbound damage, price change markdowns, price protection subsidy, and damage caused during storage and handling at the DC.

• Allocation of charges to SHO for DC markdowns is based on the percentage of division level store markdowns attributed to SHO.

5. Online Fulfillment Services – No Charge

6. Special Projects

• Special requests for non-standard services, such as re-ticketing or re-cartonization, will be charged to SHO on a per project basis.

• Amount of the charge will be equal to the number of hours worked on the project multiplied by $50 (the hourly special project rate).

• The project must be pre-approved by submitting the Special Project request form. SHO should contact its MSCO if it requires a Special Project.

7. Third Party Warehouse Management

Third Party rates and billing will be agreed upon by SHO, SHMC and the Third Party where Third Party services are determined by SHO and SHMC to be the best option.

8. Supply Chain Charges will be billed monthly and trued-up to the actual expense at the end of each quarter. This will involve a comprehensive review of all supply chain charges.

9. Puerto Rico Warehousing – No Charge

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Service or Business Area	Services	Fees

	10. Puerto Rico Home Delivery : SHO will be charged the carrier expense for home deliveries.SHO stores will be billed a percentage of the total MDO monthly carrier expense equal to SHO’s percentage of total home delivery stops completed in Puerto Rico during the month.

PAYMENT CLEARING AND RELATED FINANCIAL SERVICES

SEARS FINANCIAL SERVICES (SFS)
Third Party Payment Acceptance	2.1 SFS manages the payment acceptance process of authorization and settlement for the acceptance of third party credit and debit cards through contracts with Discover, American Express, and First Data (for the acceptance of Visa and Mastercard-branded cards). In addition, SFS will manage SHO’s Telecheck relationship for the acceptance and settlement of checks. Sears Financial Services manages third-party partner SLA performance, PCI and regulatory compliance, technical enhancements and tender optimization Each tender type accepted for payment at SHO has an interchange rate associated with it, which rates SHO will pay on a pass-through basis.	Each month, Sears Financial Services will charge out the direct liability for third party payment costs associated with SHO’s merchandise sales for that month. The total payment cost and total payment cost as % of sales will vary from month to month based on merchant promotional activity (e.g. tied-to-Sears-credit offer). Sears Financial Services will provide monthly reporting for SHO so they can better understand the drivers of the payment costs they incurred in each month.

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Services

Fees

Consumer Credit Cards

2.2 SFS manages lending relationships (currently with Citibank and Capital One) for the provision of Sears-branded credit to SHO through either a private label or a general purpose credit card. Provision of credit to SHO (1) reduces payment costs, (2) builds the business partner data warehouse of marketable households and transactional activity, (3) gives business partners access to financing to purchase goods from SHO, (4) offers merchants a vehicle for targeting promotional offers (including 0% financing), and (5) generates an incremental revenue stream from lending relationships.

The acquisition of and ongoing business partner use of Sears-branded consumer credit cards creates a number of benefits for SHO. Lending partnerships include a variety of revenue, expense and subsidy streams that can be tapped to help SHO grow sales, manage down its third party payments costs, and offset the expense of select promotional offers (when tied to credit).

The successful optimization of Sears consumer credit programs requires the alignment of incentives across Financial Services and SHO. To this end, SHMC will distribute the credit revenues associated with the Sears credit programs according to the following table:


	Financial Services			SHO
Net New Account Revenue		25	%		75	%
Non-0% Credit Revenue		25	%		75	%
Associate Incentive					100	%
Tied-to-Credit Subsidy					100	%

Net New Account Revenue represents the fees paid by Citi and Capital One for a new approved, activated credit card account. For Citi and Capital One underwritten accounts, the fee paid to SHO is the per account amount paid by Citi and Capital One to SFS.

Non-0% Credit Revenue is earned only on Sears Cards issued by Citi. It is subject to a sliding rate schedule (outlined in the Citi-Sears Program Agreement) which is based on the Dollar Volume of SHO Merchandise sales and the Dollar Volume of 0% Sears Card sales.

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Service or Business Area

Services

Fees

SHMC pays for the $2 Associate Incentive earned by SHO associates for every credit card application generated. From time to time, SHMC will fund additional incentive contests where it will pay up to $4 for every credit card application generated

In addition, SHMC will work with SHO to design, develop, and execute merchant offers tied to credit that generate Non-0% credit revenue for SHO. These offers may be eligible for incremental Tied-to-Credit Subsid y from Citi which will be negotiated on a one-off basis based on the business case developed between SHMC, Citi and SHO.

0% Promotional Financing is another promotional tool that can be leveraged by SHO to incent merchandise sales. SHO will be assessed a Merchant Discount Rate (MDR) equal to the MDR that SHMC is assessed by Citi based on the duration of the promotion.

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Service or Business Area	Services	Fees
	Payment Settlement SHMC will provide payment settlement services for merchandise sales proceeds from Sears Card transactions (processed by Citibank) until such time as SHO establishes with Citibank a separate service agreement and fund flow. SHMC will pay SHO the Sears Card Merchandise Sales proceeds on the day following Citibank’s settlement with SHC of Sears Card Merchandise Sales. Upon establishment of a separate fund flow for SHO, payments by customers for Discover or Sears credit cards will be remitted by SHO to SHC the day following receipt into SHO’s bank account. SHMC will also provide SHO payment settlement services for American Express, Visa, and MasterCard (First Data) transactions until such time as SHO has entered into agreements with these service providers.	These activities will be performed at no charge to SHO.
Gift Cards	2.3 SHMC manages the product development, operational support, vendor management, marketing budget, and state-by-state compliance for Sears/SHO branded gift cards. Gift cards offer SHO a convenient gifting option to offer its customers when they cannot find or do not know what color/size/brand/style merchandise their recipient would like most. It gives Sears/SHO an opportunity to market Sears, Sears/SHO outside of stores through Gift Card Malls and Rewards programs nationwide. Plus Sears/ SHO gift cards carry no fees and never expire. The interchange rate on Sears/SHO gift cards will be 200bps of gift card value redeemed. This Gift Card Fee covers the cost of running the gift card program, i.e., ValueLink processing costs, plastics, B2B discounts (associated with third party sales of Sears/SHO gift cards outside Sears and SHO stores), etc. Requesting custom gift cards for specific promotions will incur direct fees associated with custom card production. These will vary by promotional requirements and volumes and will be executed according to terms that will be mutually agreed to by the parties separately.
Gift Card Acceptance	2.4 SHC and SHO will accept each other’s gift cards as a tender type and will be reimbursed for the “same as cash” value of the gift card redemption regardless of where the gift card originated. Sears Financial Services and SHO will agree to partner on the development and implementation of periodic “Spend and Get” promotions which will be offered to consumers in Sears/SHO as a means of driving incremental traffic and revenue.

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Service or Business Area	Services	Fees
	Financial Summary of Spend & Get Promotions:


Accounting Activity/Description	Account	Timing

At time of reward card issuance, SHO is charged 100% of reward card value	Gross Margin Adj 50181	At Activation

SHO receives 25% discount on reward card issuance expense	Gross Margin Adj 50181	At month end close for the month in which promotion was run

SHO receives 75% of breakage benefit for expiring states	Gross Margin Adj 50181	The month following the promotional expiration date

SHO receives 75% of breakage benefit for non- expiring states	Gross Margin Adj 50181	The month following the promotional expiration date

SHO Receives 25% charge on any redemptions taking place within their Format	Gross Margin Adj 50181	The month following the promotional expiration date


	Requesting custom Spend & Get cards for specific promotions will incur direct fees associated with custom card production. These will vary by promotional requirements and volumes and will be executed according to terms that will be mutually agreed to by the parties separately.

Installment Loans	2.5 SHMC manages the lending relationship with GE who provides the capability for our business partners to buy our product and services over a fixed term with equal monthly payments. Installment loans provides our associates with a tool that allows them to promote the low monthly payment option as a vehicle to increase sales ticket, improve attachment and grow accessory sales. Provision of installment loans gives SHO and its merchants a unique advantage over its major hardline competitors as they do not currently offer this product	.

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Service or Business Area	Services	Fees
	Similar to the utilization of 0% promotional financing in section 3.2, Installment Loans are another promotional tool that can be leveraged by SHO to incent merchandise sales. SHO will be assessed a Merchant Discount Rate (MDR) based on the duration and consumer interest rate of the promotion. The expense table for Installment Loans is included below. By way of example, the 2012 MDR table is listed below.


36 Month Term
APR	MDR			Monthly Payment on $1,000 Purchase
4.99%		10.42	%	$	29.97
7.99%		7.37	%	$	31.33
9.99%		5.24	%	$	32.26
12.99%		3.23	%	$	33.69

48 Month Term
APR	MDR			Monthly Payment on $1,000 Purchase
4.99%		13.42	%	$	23.02
7.99%		9.40	%	$	24.41
9.99%		6.72	%	$	25.36
12.99%		4.00	%	$	26.82

Layaway

2.6 SHO will continue to have available at point of sale and be able to
offer customers Layaway options in all retail locations. SHMC will
continue to provide access and support for the existing layaway
functionality.

Reporting & Support

SHMC will provide SHO with a month by month forecast for annual Financial Services revenue and expense items by product (e.g. Sears Credit, Third Party Payments, Layaway, Gift Card).

SHMC will provide weekly reporting of SHO sales by tender type for the purposes of enabling your organization to forecast monthly revenues, expenses, opportunities and risks.

SHMC will provide a single point of contact for SHO to address questions that it may have as well as assist SHO in the design and execution of promotional programs for optimizing benefits and reducing expenses.

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Service or Business Area	Services	Fees

IT SERVICES

IT SERVICES Base Operations for 2012 THIS SECTION IS SUBJECT TO EXHIBIT 3 WHICH INCLUDES THE 2012 I&TG SERVICE CATALOG VERSION 1.1-MAR 2012 AND THE SERVICE LEVEL AGREEMENT	Technology Product Domain Business Strategy & Operations: • Enterprise Learning & Development • Enterprise Process Management • Enterprise Project / Program Management	$12,004 $32,744 $48,821
	Business Strategy & Operations Total	$93,569
	Information Analytics & Innovation • BI Administration • BI Application Support • BI Data Monitoring • BI Delivery Administration • BI License Management & Support • Supply Chain Management	$11,306 $266,063 $46,829 $57,532 $62,870 $374

	Information Analytics & Innovation Total	$444,974
	Network & Security Services: • Compliance • Media Services • Non-retail Asset Maintenance • Retail Asset Maintenance • Security • Telecom Provisioning & Management • Telecommunications Data • Telecommunications Voice	$89,867 $22,337 $82,513 $53,404 $460,099 $305,188 $4,095,582 $647,057

	Network & Security Services Total	$5,756,047

	Operational Services: • Associate & Customer Desktop Support • Data Center Operational Services • Distributed Environment Services • Storage Services	$65,393 $660,421 $961,213 $208,106

	Operational Services Total	$1,895,133

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Appendix 1.01-A


Service or Business Area	Services	Fees

	Retail Services: • Core Retailing Transaction Support • Customer Facing Transaction Support • Hardware Support Services	$310,871 $68,673 $377

	Retail Services Total	$379,921

	Service Management: • Administration • Business Continuity • IT&G Service Quality Management • IT&G Service Support • I&TG Service Support – Corporate Desktop Support • Learning & Development • Performance & Service Management	$959 $27,439 $14,416 $2,254 $168,341 $1,720 $11,784

	Service Management Total	$226,913

	BASE OFFERING GRAND TOTAL	$8,796,557

IT Support Services	Business Strategy & Operations Development & Support Services: • Fixed team minimum to support and maintain services, multiple enhancements, external variable charged, as needed	$811,200

	BUSINESS STRATEGY & OPERATIONS SUPPORT SERVICES TOTAL	$811,200

IT Service Costs – Base Components	Service costs of Base Components for SHO will not exceed $9.6M for 2012, assuming SHO usage and requirements are consistent with that experienced in 2011. Services will be billed according to plan as reflected in the “fees column” in the Schedule of Services and Fees, with an exception for Mainframe computing, Cloud computing, Teradata data, and Hadoop data services for which SHO will be billed “actual” expenses. • Annual increases to the Base Component and Systems Access/Maintenance service costs will be capped at five-percent (5%) with the exception of increases to 3 ^rd Party services which will be passed through to SHO. • Any additional increases will be subject to negotiation and agreement by both parties in advance of any applicable increase. Labor Rates actual spend is based on the time and materials cost associated with Service Requests determined on a project-by-project basis, as well as by the skill sets required to deliver the Services.

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Appendix 1.01-A


Service or Business Area	Services	Fees

	I&TG Standard Rates for Sears Holdings Corporation (SHC) and Sears IT & Management Services India Private Limited (SHI) Associates for Fiscal Year 2012:


Labor Type	Skill Set	Hourly Rate
SHC Associate	Associate	$	65.00
SHI Associate	Off-shore Engineer	$	35.00
SHI Associate	On-site Engineer	$	65.00
3 ^rd Party Contractor	Variable		TBD	*

* Hourly rates will be reviewed with and approved by SHO

HOME SERVICES (Installation & Repair)

Services performed in accordance with the Merchandising Agreement dated , 2012 between SHO, Sears, Roebuck and Co., and others, including those set forth in Section 11 of the Merchandising Agreement.

1. Home Delivery

Delivery Services will be made available to all SHO markets unless a market is otherwise agreed upon as a “Hybrid” delivery market.

Haul Away of existing customer product(s) (as applicable)

Basic hookup / overview of product in the customer home will be offered (as applicable)

Pickup of returned goods (RORs) from consumer

The rates cover all carrier and 4-wall MDO expenses and related carrier management, carrier negotiation, site management, routing, customer engagement and containment, infrastructure costs and all Customer Care Network (CCN) costs.

The Customer Care Network (CCN) costs cover the services related to customer engagement and satisfaction.

The rate is per stop - if multiple products are delivered on a single retail customer stop, only 1 charge will be incurred.

The Delivery rates stated for SHO Store locations do not include a potential fuel surcharge (see fuel surcharge table).

Delivery Fee

SHO (Outlet) Customer Standard Delivery Charge is based on the Outlet Market Delivery Rate Table. Home Services will reimburse SHO (Outlet) for any Market Delivery Rates that exceed $69.99 on a store-by-store basis.

SHO (Hometown – HTS, HAS or AHS) Standard Delivery Charge is based on Market Delivery Rate Table.

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Appendix 1.01-A


Service or Business Area	Services	Fees

	The Delivery rates for SHO (HTS, Outlet) are included in the Outlet Market Delivery Rate Table and Hometown Market Delivery Rate Table. Both Market Delivery Rate Tables are included in Exhibit 4 to this Appendix 1.01-A Schedule of Services and Fees. Rates as shown in the Market Delivery Rate Tables are for the first year of this Agreement, and then reviewed and agreed upon annually by SHMC and SHO during the length of the agreement. Hybrid Delivery Market Process A Hybrid Delivery Market is a market that is either serviced out of a Sears, Roebuck and Co. full-line department store (SDO) or out of a SHO Store (by the SHO Store owner). SHO and Home Services Delivery will review and agree on the customer location zip codes that identify Hybrid Delivery Markets. SHO will assign the Delivery Rate for each zip code and transmit the completed zip code file with the rates to Home Services Delivery for entry into the POS (Point of Sale) system. When a Sears full-line store sells merchandise for delivery into a Hybrid Delivery Market zip code that is assigned to a SHO store, the delivery service revenue is transferred from the Sears full-line store to the SHO store performing that delivery.
	Home Delivery Fuel Surcharge In addition to the fees for Home Delivery services set forth in the Agreement, SHO agrees to pay to SHMC an additional amount to compensate SHMC’s Home Services business unit for increases in the retail cost of fuel for trucks used to provide the Services (a “Fuel Surcharge”) when such cost equals or exceeds $4.40 per gallon (National Averages), calculated as follows: On the last day of each calendar month, SHMC shall establish the retail cost of its truck fuel by reviewing average price for the month based on the “Gasoline and Diesel Fuel Update” as published by the U.S. Department of Energy’s Information at: http://www.eia.gov/petroleum/gasdiesel/ . When the “Gasoline and Diesel Fuel Update” average price for any calendar month is equal to or greater than $4.40 per gallon, SHMC shall charge and SHO agrees to pay SHMC a Fuel Surcharge as described in the chart below.	Fuel Surcharge table is included.

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Appendix 1.01-A

Service or Business Area

Services

Fees

Home Delivery Fuel Surcharge Table


Monthly Average Diesel Price				Fuel surcharge per billed stop
At Least		But Less Than		Fuel surcharge per billed stop
$	2.40	$	4.40
$	4.40	$	4.60	$	0.36
$	4.60	$	4.80	$	0.72
$	4.80	$	5.00	$	1.08
$	5.00	$	5.20	$	1.44
$	5.20	$	5.40	$	1.80
$	5.40	$	5.60	$	2.16
$	5.60	$	5.80	$	2.52
$	5.80	$	6.00	$	2.88
$	6.00	$	6.20	$	3.24
$	6.20	$	6.40	$	3.60
$	6.40	$	6.60	$	3.96
$	6.60	$	6.80	$	4.32
$	6.80	$	7.00	$	4.68


		In the event the fuel cost increases above $7.00 per gallon, an additional Fuel Surcharge of $.36 will be added for each $.20 increment.

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Appendix 1.01-A


Service or Business Area	Services	Fees
	When the “Gasoline and Diesel Fuel Update” average price for any calendar month is equal to or less than $2.40 per gallon, SHMC shall rebate SHO a Fuel Surcharge as described in the chart below.


Monthly Average Diesel Price				Fuel surcharge per billed stop
At Least		But Less Than		Fuel surcharge per billed stop
$	2.20	$	2.40	($	0.36	)
$	2.00	$	2.20	($	0.72	)
$	1.80	$	2.00	($	1.08	)
$	1.60	$	1.80	($	1.44	)
$	1.40	$	1.60	($	1.80	)
$	1.20	$	1.40	($	2.16	)
$	1.00	$	1.20	($	2.52	)

In the event the fuel cost decreases below $1.00 per gallon, an additional Fuel Surcharge of $.36 will be rebated for each $.20 increment.

Merchandise Pick-Up (MPU)

Merchandise Pick-Up (MPU) represents Home Appliances product picked up at an MDO for delivery or installation by anyone other than a Home Services Delivery carrier.

This MPU fee will be billed by division to the selling unit. MPU does not qualify as a billable stop.

Merchandise Pick-Up Fee

The rate for MPU service will be a flat rate of $10.00 per deliverable unit. Home Delivery Services will rebate $5.00 for each Retail Installation contractor pickup (excluding Outlet Stores).

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Appendix 1.01-A


Service or Business Area	Services	Fees
	MDO Concessions / Damage Charges Charges are related to: Customer Accommodation Costs (Gift Cards) related to concealed damage. Merchandise Depreciation / Markdowns on Concealed Damages for Saleable and Non-Saleable items. Depreciation rates on saleable items are set between the SHMC BUs and SHO (Outlet business). Hard Inventory Markdowns on Merchandise in the MDO Inventory. Charges to SHO are based on percentage of SHO ROR stops to total ROR stops by merchandise division.	For SHO (HTS/HAS/AHS only), SHMC has agreed to rebate $5.00 per Home Appliance MPU related to a Retail Installation contractor pickup. The installation must be sold at POS as that data is used to determine the rebate.
	2. Installation Services Retail Installation Services provided include: Garage Door Opener, Garbage Disposal, Hot Water Heater and Built In Appliance	Retail Installation Services Fees are market specific and loaded in the SHO POS system.
	Commission Rate: SHMC (through its Retail Installation Services unit) will pay 15% commission on the Net Revenue (after cancellations) of the installation sale sold in SHO locations. Fee Basis is per Installation order sold – net of cancelled customer orders. SHO receives a Sell Short chargeback at month end for installations sold below the set installation price at POS.	Commission Rate is 15% on the Net Revenue
	Take the Lead Program (Installation): SHMC will pay a commission to SHO from Installed Net Sales generated from the qualified leads at SHO locations through the Take the Lead Program. “Installed Net Sales” are the total sales proceeds received from the homeowner on sold jobs that have been completed less allowances, cancellations and credit rejections as settled by SHMC. The SHO (HTS owner) commission is 7.5% of Installed Net Sales and will be listed on Line 12 of their current commission statement. SHMC will pay SHO an additional 1% of installed Net Sales as a corporate commission.

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Appendix 1.01-A

Service or Business Area

Services

Fees

3. Product Repair Service

SHMC will provide product repair services for Collect (customer paid) and In-Warranty repair customers via In-Home repairs, Carry-In repairs and repairs at SHO locations.

Home Services’ services include, and SHO’s damaged rate covers: all costs incurred for each service event including:

All tech, management and support labor and all parts supply

All CCN services related to customer engagement and satisfaction

All parts sourcing and related management

All truck expense, including lease, maintenance, fuel and insurance

All Supply chain / distribution services related to parts

All Product Quality Management and Overhead expenses

All claims management services

All capital investment to support In Home and Carry-In Operations

Store Stock Repair Fees

SHMC will perform SHO (Outlet) Store Stock repairs at the rates listed below for each completed service call


Store Stock Repair Fees

ON-SITE SERVICE COSTS

Division		Rate
HO	Div 3	$	184.79
REC	Div 6	$	144.31
HW	Div 9	$	113.97
HA	Div 20	$	113.30
HA	Div 22	$	126.96
HA	Div 26	$	130.15
WT	Div 32	$	119.66
HC	Div 42	$	118.21
RF	Div 46	$	156.90
CE	Div 57	$	63.75
LG	Div 71	$	160.57

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Appendix 1.01-A


Service or Business Area	Services	Fees
	Service Order Transfer Fee (SOTF) : is defined as the Carry-In service order transfer fee that reimburses the Store for the creation of the service order, material handling of the customer’s product, and the collection and close of the service order at time of customer product pick-up.	Service Order Transfer Fee (SOTF) is $10.50 per service order.
	Misdirect fee : is defined as incorrect or repair-ineligible products that are sent to the Carry-In repair centers. Stores should refer to the Carry-In Brand & Product eligibility matrix before accepting customers’ products for repair.	Misdirect Fee is $40.00 per service order.
	Diagnostics fee : is defined as the minimum Carry-In service fee to transport, diagnose, create customer estimate, and return the product back to the Store. Diagnostics fee will be applied to all customer service orders when repair services are declined by the customer.	Diagnostics Fee is $40.00 per service order.
	4. Service Contracts SHMC will continue to offer Sears Service Contracts to customers shopping in SHO Stores. SHMC pays an acquisition fee to SHO for the sale of Sears Protection agreements / Sears Purchase Protect agreements. Service Contract Fee/Reimbursement Schedule: 50% of Protection Agreement Sales will be paid to SHO as a commission on all Service Contract sales. The 50% commission is calculated on the Net Revenue (after cancellations). Fee Basis is per protection agreement or Sears Purchase Protect agreement sold – net of cancelled customer orders. This commission rate remains in place provided that SHMC remains the exclusive provider for Service Contracts on all merchandise sold through SHO retail locations to SHO customers	Service Contract Fee is 50% of the Net Revenue from PA Sales.

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Appendix 1.01-A


Service or Business Area	Services	Fees
	Commissions to SHO’s Outlet business employees and HTS owners are the responsibility of SHO. SHMC and SHO must review and agree before any percentage adjustments are made to the commission paid to SHO employees and HTS owners.
	5. Sears Parts Direct Services The Sears Parts Direct team will maintain and continue providing access to all SHO dependent Parts Ordering Systems. These Services include but are not limited to: Sourcing, purchasing, shipping and handling of all Parts Orders. Providing sales and commissions files for all Parts Orders placed by SHO will be handled by sears.com or Parts Direct. Parts Direct collects 100% of all shipping charges on customer part orders. SHMC and SHO must agree to any adjustments to the commission percentage paid to SHO’s HTS owner. SHO earns a 33.5% commission on customer part orders through Parts Direct of which the SHO (HTS owner) receives 25% commission. SHO assumes responsibility for resolving all SHO (HTS owner) commission payment disputes. SHMC and SHO require agreement before any adjustments are made to the commission percentage paid to SHO (HTS owner).	Parts Direct Fees and Commissions: SHMC will pay SHO a 33.5% commission on customer part orders through Parts Direct.
	Bulk Part Orders are placed through the Sears Commercial Parts account. The bulk order must meet a minimum purchase requirement of $400 to qualify for a 25% discount on the transaction and free ground shipping. Transactions less than $400 will not receive a discount or free shipping consideration. All bulk transactions will be handled as a Commercial Parts transaction and the Commercial return policy applies, with a $25 minimum to return, 25% restocking fee, 90 days to return. Authorization is required on all returns. SHO (HTS Ops) receives no financial consideration on bulk transactions.
	Store Charge is used to replace a missing or damaged part on a Store display or to replace a missing or damaged part for a customer on a product purchased from the Store. The charges are absorbed by SHO at a cost of (Parts Direct Cost + 25%). Parts that are ordered via the Store Charge process are not returnable unless damaged or defective. Damaged or defective parts will be replaced or refunded.

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Appendix 1.01-A


Service or Business Area	Services	Fees
REAL ESTATE
Market Research	Mapping Off Shore Market Reviews (Excludes Outlets)	$100 per map No Charge
Estoppels	Estoppels	$1,000 per estoppel
Asset Management	Notice of Tenant Obligations	No Charge
Real Estate Transition Services (mo-to-mo for up to 6 months)	Transition Services Package includes: Asset Management: • Lease Interpretation/Research • Enforcement of Landlord Developer Obligations • Notice of Tenant Obligations (SHO-owned or leased units only) • Curing Defaults (Outlets only) • Resolving Signee Issues • Evaluating Landlord Requests for Changes for Approval • Negotiating Lease Renewals • Site Plan Reviews for Store Impact (Outlets only) Lease Administration: • Document Abstracting • System Maintenance for New Documents • Payment of Monthly Rent and Charges (HTS transition stores and Outlets only) • Track Renewals (Hardware and Outlets only) Finance: • Prepare CAM Reconciliations (Outlets only) • Prepare SOAR Billings (Outlets only)	For Transition Services Package: $125 per unit per month. (SHO may remove units from the Transition Services Package, as it migrates those units to its own Real Estate Administration program. Removals will be effective the first day of the following month. SHO will give 14 days advance notice of removals.)

Store Rents	Reimbursement for sub-leased stores and embedded Outlet units as agreed upon by the parties.	Separate Lease Agreements

Corporate Rent	Headquarters space	Separate Lease Agreements

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Appendix 1.01-A


Service or Business Area	Services	Fees
Licensed Businesses
Licensed Business Hometown Stores	Budget Truck & Car Rental 1 Contractual Obligations : Agreement permits Budget Truck and Budget Cars to establish independent License Agreements with SHO Hometown Stores for the purpose of renting cars and trucks. Budget shall enter agreements directly with the SHO Store owners (Participation Agreements). Transactions are processed through Sears POS. Moving supplies are non-commissionable. SHMC will remit 100% of all cash, check, and Sears Card transactions back to Budget. Either party may terminate a location with 30 days notice. 2 Marketing Support : Budget is responsible for all marketing initiatives. Avis/ Budget group will frequently coordinate national marketing campaigns through the Licensed Business Marketing Director. All local marketing initiatives are subject to SHMC approval. 3 Operational Support : SHMC shall work with Budget’s performance managers as needed for any auditing processes and issues that arise. SHMC remains final authority on floor presentation in each SHO Store. Changes to layout or signage must be approved by SHMC. SHMC will provide an account for the SHO Store owner to process the moving supplies funds (flow-thru account used for the sale of Budget supplies which are 100% reversed back to the SHO Store during settlement). SHMC will allocate the 4’x4’ floor space, and must approve all signage.	Licensed Business Fees : Budget pays SHMC 17% of gross sales, minus SHMC’s portion of BART charges once a month via check. SHMC pays 99% of the Budget payment to SHO, retaining 1% as administrative fee. BART charges are allocated 30% to SHMC, and 70% to SHO. SHMC’s portion of BART charges cannot exceed $28.50 per month.
	Travel Concepts 1 Contractual Obligations : General contract maintenance (contract renewals, insurance monitoring, location additions/deletions, etc). Support use of Sears POS and standard settlement processes (exception of special travel tax that is accessed in Puerto Rico which is processed on a weekly basis). 2 Marketing Support : Travel Concepts is responsible for marketing initiatives which are subject to SHMC Licensed Business Marketing Director’s approval. 3 Operational Support : The SHMC Licensed Business Operation Team supports Licensee’s space and location requirements, in accordance with the License Agreement.	Licensed Business Fees : SHO to receive all licensed business royalty income except for 1% to be retained by SHMC as administrative fee.

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Appendix 1.01-A


Service or Business Area	Services	Fees

	Miracle Ear 1 Contractual Obligations : General contract maintenance (contract renewals, insurance monitoring, location additions/deletions, etc). Support use of Sears POS and standard settlement processes. 2 Marketing Support : Miracle Ear is responsible for marketing initiatives which are subject to SHMC Licensed Business Marketing Director’s approval. 3 Operational Support : The Licensed Business Operation Team supports Licensee’s space and location requirements, in accordance with the License Agreement.	Licensed Business Fees : SHO to receive all licensed business royalty income except for 1% to be retained by SHMC as administrative fee.
Licensed Business Outlets Stores	Budget Truck & Car Rental 1 Contractual Obligations : Third & Fourth Amendments to Affiliation Agreement between SHMC and Avis Budget Group permit the leasing of both cars and trucks 2 Marketing Support : Budget is responsible for all marketing initiatives. Avis Budget group will frequently coordinate national marketing campaigns through the Licensed Business Marketing Director. All local marketing initiatives are subject to SHMC’s approval. 3 Operational Support : The Licensed Business Operation Team supports Licensee’s space and location requirements, in accordance with the License Agreement.	Licensed Business Fees : Fees for Outlet Stores shall be 6% of net sales. SHO to receive 99% of Fees; SHMC to retain 1% of Fees as administrative fee.
	Universal Vending 1 Contractual Obligations : General contract maintenance (contract renewals, insurance monitoring, location additions/deletions, etc). Support use of Sears non-POS settlement processes. 2 Marketing Support : NA 3 Operational Support : Location of Vending Machines are coordinated and supported by Licensed Business Operations Team in accordance with the License Agreement.	Licensed Business Fees : SHO to receive all licensed business commission income except for 1% to be retained by SHMC as administrative fee.
Licensed Business Hardware Stores	CPI (Portrait Studios) 1 Contractual Obligations : General contract maintenance (contract renewals, insurance monitoring, location additions/deletions, etc). Support use of SHMC’s Off-Premise Reporting process and settlement processes. 2 Marketing Support : CPI is responsible for its marketing initiatives and subject to SHMC Licensed Business Marketing Director’s approval	Licensed Business Fees : SHO to receive all licensed business royalty income except for 1% to be retained by SHMC as administrative fee.

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Appendix 1.01-A


Service or Business Area	Services	Fees
	3 Operational Support : The Licensed Business Operation Team supports Licensee’s space and location requirements, in accordance with the License Agreement.
New Licensed Businesses Opportunities	New Business Opportunities • All new businesses opportunities will be brought to SHO for review. • The SHMC Licensed Business Team will explore, create and develop business opportunities that fit and complement the new company customer.	Licensed Business Fees: Any cost incurred in the business development activities will be included in the revenue share of the business.
SEARS DE PUERTO RICO (SDPR)	• Marketing / Promotional Planning – • SHO will be included along with PR FLS in all activities associated with the marketing, advertising signing and vendor relations associated with the Marketing/Promotional process. This includes, but is not limited to all print, electronic, digital and outdoor advertising and public relations. • SHO will participate, along with PR FLS in all monthly sales planning meetings (MSP meetings).	1% of SHO sales revenue in Puerto Rico
	• Finance • SHMC will handle governments tax related issues involving SHO such as: • new SHO stores sales tax registration • annual gross receipt tax returns • annual personal property tax returns • Treasury Dept. information requests.	As requested Billed at Cost
	• Miscellaneous • SHMC will handle Department of Consumer Affairs notifications and stores fines in coordination with SHO.	No Charge
	• Merchandising/Assorting /Inventory – • Select all merchandise for SHO locations in Puerto Rico • Maintain pre-determined inventory levels of merchandise appropriate to maximize promotions and drive sales increases • Support inventory requirements for each new store in Puerto Rico • Provide regular updates with inventory status, significant changes, forecasts • Review SHMC and SDPR promotional inventory to ensure that SHO is included in all events

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Appendix 1.01-A

Service or Business Area

Services

Fees

• Maintain all merchandising systems with current status identification

• Include SHO in all seasonal / promotional buys both from SHMC mainland and SPDR specific purchases

• Maintain all prices for SHO locations in Puerto Rico

• Maintain all POG’s for SHO locations in Puerto Rico

• Partner with and provide SHO the opportunity/ability to add special one time buys for SHO locations

• Participate in monthly updates with SHO to review current merchandising performance and upcoming events

• All subsidy collected by SDPR will be allocated based on SHO balance of sales, not inclusive of Outlet merchandise sales, to SHO

• SDPR will include SHO in key meetings and vendor discussions

• SDPR and SHO will notify each other of strategic changes with vendors or direction in promotional activity in order to avoid potential issues before they are created

• SHO and SDPR will share with each other any business information that could be used to leverage additional sales/margins with the Sears stores in Puerto Rico

• SDPR will support SHO with any key strategic initiatives by providing any available data, research or insights that could assist in executing such key strategies

• SHO will share key strategic initiatives with SDPR leadership on a regular basis

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Appendix 1.01-A

Service or Business Area

Services

Fees

• Logistics

• Provide all logistics support for shipments of merchandise to and from SHO locations in Puerto Rico

• Pricing / rates for Logistics services will be consistent with SHC rates for non SHO location in Puerto Rico

• Any rate changes will be reviewed with SHO 60 days prior to implementation, and be consistent with SHC rate changes

• Provide all logistics support for the delivery of merchandise to Customers sold via Home Delivery

• Any rate changes will be reviewed with SHO 60 days prior to implementation, and be consistent with SHMC rate changes

• Provide all logistics support necessary to complete store or customer generated RORs

• ROR process in Puerto Rico, including transfer rates, will be consistent with SHMC mainland processes and rates

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EXHIBITS TO APPENDIX 1.01-A TO THE SERVICES AGREEMENT

APPENDIX 1.01-B

APPENDIX 1.10

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ONLINE SERVICES

OBU Project Outline


Requesting Business Unit:		Sears Outlet		Requestor:		Beau Warren


Project Name:		Sears Outlet: Retainer Services Agreement – 15311
WorkLenz ID:		15311

1	Statement of Work

1.1

Project Description

The OBU will provide design, development, project management, QA and Support services for the evolution and maintenance of the Sears Outlet platform. The aim of this understanding is to provide a basis for close co-operation between the Sears Outlet Organization and the Online Business Unit (OBU) in support of Sears Outlet and supporting functionality, but does not address promotions, marketing or related capabilities thereby ensuring a timely and efficient support service is available.

Objectives of Service Level Provision

To define the service structure and associated resources allocated to support the Sears Outlet business needs.

To provide a common understanding of service requirements/capabilities

To define the cost structure associated with the service level provision with the intent to achieve a price/value relationship that exceeds what can be managed/sourced via competitive bid from outside SHC vendor/partners.

To define the commencement of the understanding, its initial term and the provision for change required throughout the lifecycle of the understanding.

1.2

Team

The OBU will provide both dedicated and shared resources based on and offshore to drive and support Sears Outlet development.

The current and proposed team and timing can be found in Appendix A for a full listing of all the roles working on Outlet projects as well as Appendix B that will highlight the ramp-up

Sears Holdings Corporation – Confidential and Proprietary Information

EXHIBIT 1 TO APPENDIX 1.01-A

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ONLINE SERVICES

•

Hiring and Recruiting: OBU is solely responsible for recruiting resources including compensation, bonus etc. However, OBU will work closely with Sears Outlet to manage their requirements for specific skills. OBU is solely responsible for determining use of full time employees and/or contract resources.

•

Performance Management: On unsatisfactory resource performance, Sears Outlet will provide in writing the resource name and examples of poor performance. There after OBU will determine how to handle resource issues (e.g. coaching, performance improvement plan, reallocate tasks/roles, interchange resources, etc.)

•

Resource Replacement and backfill: Online will attempt within commercially reasonable effort to backfill departing team members. OBU will continue to meet deliverable deadlines by adding temporary resources, working overtime, or other implementing other contingencies.

•

Team Location: Dedicated resources will be based either at Hoffman Estate or offsite.

•

Temporary Resources: additional temporary resources may be added to augment team and/or meet specific skill set needs. This work will be quoted and contracted separately.

Sears Holdings Corporation – Confidential and Proprietary Information

EXHIBIT 1 TO APPENDIX 1.01-A

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ONLINE SERVICES

2	Project Costs & Timeline

2.1

Project Costs

Outlet 2012 Engineering & Ux – Budget / Exec Summary

Cost Category


	Amount (in $)
Labor	$	3,110,375
OBU	$	3,072,680
Ux	$	450,667
Onshore	$	1,560,693
Offshore	$	1,061,320
Infosys	$	383,292


Total Labor	$	3,455,972


Total Labor Bill (at 10% Discount)	$	3,110,375


Other Expenses	$	47,000
Site Hosting & Support	$	169,000
Site Hosting & Support (after $122K Discount)	$	47,000

Hardware and Software – Purchase and Install		TBD

Total Bill – (Labor & Other Expenses) – To Outlet BU	$	3,157,375

Budget Basis and Key Assumptions:

•

Includes Labor for Core Outlet – Engineering & Ux Delivery Team Only

Assumes the Core Team is ramped up slowly to full staffing level proposed and not a 100% ramp up right from Day 1 of FY 2012

•

Doesn’t include

•

New Infrastructure (h/w & Software planned for 2012)

•

Delivery work from OBU (Outside of Core Team, I&TG or other SHC resources)

Sears Holdings Corporation – Confidential and Proprietary Information

EXHIBIT 1 TO APPENDIX 1.01-A

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ONLINE SERVICES


		**Each month, chargeback will occur according to the below cost
Monthly Cost		table. This cost could increase or decrease depending on ramp-up
		and availability of resources targeted for that planned month.


	Feb			Mar			Apr			May			Jun			Jul			Aug			Sept			Oct			Nov			Dec			Jan			Feb
Monthly Labor Bill – To Outlet BU	$	184,204.80		$	217,900.80		$	279,442.80		$	255,309.60		$	255,309.60		$	255,309.60		$	269,349.60		$	269,349.60		$	269,349.60		$	284,949.60		$	284,949.60		$	284,949.60		$	3,110,374.80
Other Expenses
Site Hosting	$	14,083.33		$	14,083.33		$	14,083.33		$	14,083.33		$	14,083.33		$	14,083.33		$	14,083.33		$	14,083.33		$	14,083.33		$	14,083.33		$	14,083.33		$	14,083.33		$	169,000.00
Site Hosting	$	(10,166.67	)	$	(10,166.67	)	$	(10,166.67	)	$	(10,166.67	)	$	(10,166.67	)	$	(10,166.67	)	$	(10,166.67	)	$	(10,166.67	)	$	(10,166.67	)	$	(10,166.67	)	$	(10,166.67	)	$	(10,166.67	)	$	(122,000.00	)
New Environment Hdw & SW Cost
(Labor and Other Expenses) – To Outlet BU	$	188,121.47		$	221,817.47		$	283,359.47		$	259,226.27		$	259,226.27		$	259,226.27		$	273,266.27		$	273,266.27		$	273,266.27		$	288,866.27		$	288,866.27		$	288,866.27		$	3,157,374.80

**	SEE APPENDIX A: Team Size – Roles

**	SEE APPENDIX B: Ramp-up Schedule

Cost Review


OBU Product Lead:		Dan Bernstein
OBU Business Lead:		Matt Guardiola

2.2

Term and Termination

•

Contract is in effect from February 1st, 2012 through January 31st, 2013 .

•

After January 31st, 2013, contract will renew monthly unless a new contract or extension is put in place.

•

Contract may be terminated at any time with 90 day written notice.

•

Upon termination, OBU will release and/or redeploy team resources

•

Project costs may be evaluated and adjusted from time-to-time as necessary with mutual agreement from OBU and Sears Outlet.

3	Funding and Chargeback

Please provide signatures and chargeback information below. No development will begin without acceptance and approval of Project Costs.


Unit # (Peoplesoft Ledger-5 digit numerical):		58479
Account # (5 digit numerical):		54612

Sears Holdings Corporation – Confidential and Proprietary Information

EXHIBIT 1 TO APPENDIX 1.01-A

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ONLINE SERVICES

Payment Terms . Upon signing, OBU will charge Holding Company on monthly basis via SOAR allocation to the Unit/Account number provided above.

Expenses . Pricing does not include image royalty or software licensing, if applicable. All third party costs are estimates. Third party expenses will be billed and paid by Requesting Business Unit at cost.

Signature constitutes agreement to pay the above Total Cost, to be charged to the Unit and Account numbers provided. Project Delivery Date will be confirmed upon completion and approval of functional wireframes. Any functional, design or technical requests in addition to the work described in the attached PRD may result in increased costs, project delay, or both, and shall be requested via submittal of a new Business Intake Request & Funding Form.


Sign-off:	Name	Title	Signature
BU Requestor	Beau Warren	Director, E-commerce Sears Outlet
BU Approval	J.J. Ethridge	VP/GM Sears Outlet

Corporate Finance Approval Limits:

Manager up to $100,000

Director up to $250,000

DVP up to $500,000

VP up to $750,000

SVP or direct report to CFO up to $999,999

Sears Holdings Corporation – Confidential and Proprietary Information

EXHIBIT 1 TO APPENDIX 1.01-A

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APPENDIX A:

Team Structure

Sears Outlet.com – 2012 Engineering & Ux Team


Role	Onshore						Offshore				Total
	SHC		SHI		Infosys		SHI		Infosys
Dir (Engg)		0.2										0.2
Del Mgr (DM)		0.5						0.5				1
Proj Mgr (PM)		1		1				1				3
Bus Analyst (BA)		1						1				2
Dev Lead		2		1				1				4
Dev (FED)								1				1
Dev (BED)		2						7				9
QA (Lead)		1										1
QA								2				2

Architect		1										1
Performance Engr		0.25										0.25
Middleware Engr								0.25				0.25
DBA								0.25				0.25
Infra Engr												0

Acct Mgr		0.25										0.25

UxA – Proj Mgr		0.25										0.25
Ux A (IA)		1										1
Ux – Design/Creative		0.5										0.5
Ux – FED		1										1

OMS – Proj Mgr		—										0
OMS – Dev						1				1		2

		11.95		2		1		14		1

Total Team Size						29.95						29.95

Sears Holdings Corporation – Confidential and Proprietary Information

EXHIBIT 1 TO APPENDIX 1.01-A

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Appendix B:

Ramp up Schedule


Team	Onshore/ Offshore	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Jan
Labor

OBU
Director (Engg)	Onshore	0.20	0.20	0.20	0.20	0.20	0.20	0.20	0.20	0.20	0.20	0.20	0.20
Delivery Mgr	Onshore	0.5	0.5	0.5	0.5	0.5	0.5	0.5	0.5	0.5	0.5	0.5	0.5
Project Mgr	Onshore	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
BA	Onshore	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
Dev lead	Onshore	1.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0
Dev (BED)	Onshore		1.0	1.0	1.0	1.0	1.0	2.0	2.0	2.0	2.0	2.0	2.0
QA (Lead)	Onshore										1.0	1.0	1.0

Architect	Onshore			1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
Performance Engr	Onshore	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25
Infra Engr	Onshore

Acct Mgr	Onshore	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25

UxA – Proj Mgr	Onshore	0.50	0.50	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25
Ux A (IA)	Onshore			1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00
Ux – Design/Creative	Onshore			0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50
Ux – FED	Onshore			1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0

OMS – Proj Mgr	Onshore	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0

Head Count (OBU Only)		4.7	6.7	10.0	10.0	10.0	10.0	11.0	11.0	11.0	12.0	12.0	12.0

SHI
Delivery Mgr	Offshore	0.5	0.5	0.5	0.5	0.5	0.5	0.5	0.5	0.5	0.5	0.5	0.5
Project Mgr	Onshore			1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
Project Mgr	Offshore	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
BA	Offshore	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
Dev lead	Onshore	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
Dev lead	Offshore	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
Dev (FED)	Offshore	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
Dev (BED)	Offshore	5.0	6.0	6.0	7.0	7.0	7.0	7.0	7.0	7.0	7.0	7.0	7.0
QA	Offshore	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0
Middleware Engr	Offshore	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25
DBA	Offshore	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25	0.25

Head Count (SHI Only)		13.0	14.0	15.0	16.0	16.0	16.0	16.0	16.0	16.0	16.0	16.0	16.0

Infosys
Outlet Dev	Onshore	2.0	2.0	2.0
Outlet Dev	Offshore	2.0	2.0	2.0

OMS – Dev	Onshore				1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
OMS – Dev	Offshore	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0

Head Count (Infosys Only)		5.0	5.0	5.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0

Head Count (TOTAL)		22.70	25.70	29.95	27.95	27.95	27.95	28.95	28.95	28.95	29.95	29.95	29.95

Sears Holdings Corporation – Confidential and Proprietary Information

EXHIBIT 1 TO APPENDIX 1.01-A

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ONLINE SERVICES

Sears.com & Kmart.com Display Ad Rate Card - 2012


	Vertical Page						Category Page
Vertical	CPM		Medium Rectangle	CPM		Leaderboard	CPM		Medium Rectangle	CPM		Leaderboard
Appliances	$	13	300x250	$	7	728x90	$	16	300x250	$	8	728x90
Automotive & Tires	$	12	300x250	$	7	728x90	$	15	300x250	$	8	726x90
Baby	$	12	300x25	$	7	728x90	$	15	300x250	$	8	728x90
Beauty	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Bed & Bath	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Books & Magazines	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Clothing	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Electronics & Computers	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728X90
Fitness & Sports	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Food & Grocery	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728X90
For the Home	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Gift Registry	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Gifts	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728X90
Health & Wellness	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Jewelry	$	14	300x250	$	7	728x90	$	17	300x250	$	8	728x90
Lawn & Garden	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728X90
Movies Music & Gaming	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Outdoor Living	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
PartsDlrect Parts	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Pet Supplies	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Shoes	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Sports Fan Shop	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Tools	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
T OYS & Games	$	12	300x250	$	7	728x90	$	15	300x250	$	8	728x90
Run of Site	$	7	300x250	$	5	728x90	$	7	300x250	$	5	728x90

Homepage	$	10	300x250	$	6	728x90		—	—	$	9	Non Std

EXHIBIT 1 TO APPENDIX 1.01-A

Execution Copy

2012 LOGISTICS RATES


FIXED HANDLING BILLING	Monthly Billing Rate

*Hardware*	$	*269,594*
*Hometown*		*903,140*
*Outlet*		*10,915*

*Total*	$	*1,183,649*


VARIABLE HANDLING BILLING	Charge based upon carton disbursement volume and rate by flow path and size/division

*RRC Variable Handling Rates*	Flowpath	Metric		Small		Medium		Large		X-Large		Per Pick
	ACD		Case	$	0.17	$	0.17	$	0.17	$	0.17	$	—
	EMP		Case		0.57		0.58		0.68		0.99		—
	Stock Case		Case		0.30		0.33		0.64		1.62		—
	Stock Case NonCon		Case		1.08		1.11		1.35		2.11		—
	Stock Repack Each		Case		0.63		0.66		0.86		1.53		0.13
	Stock Repack Inner		Case		0.63		0.66		0.86		1.53		0.13
	Stock Double Break		Case		1.29		1.32		1.53		2.19		0.13
	Stock Repack Case		Case		0.41		0.43		0.64		1.31		0.13
	Auto Case		Case		1.43		1.43		1.43		1.43		—
	Game Domain Case		Case		0.96		0.96		0.96		0.96		—
	Game Domain Repack		Case	$	0.72	$	0.72	$	0.72	$	0.72	$	0.11

*DDC Variable Handling Rates*
								Accessories		Accessories
	Billpath	Metric		B2S		MDO		B2S		MDO
	Fridge & Freezer		Each	$	2.45	$	2.23	$	0.18	$	0.16
	Dishwasher		Each		1.90		1.67		0.18		0.16
	Laundry		Each		1.74		1.51		0.18		0.16
	Tractors		Each		2.62		2.39		0.18		0.16
	Microwaves		Each		1.86		1.64		0.18		0.16
	Other Divisions		Each		1.78		1.55		0.18		0.16
	Range		Each		2.02		1.79		0.18		0.16
	TVs		Each		1.63		1.40		0.18		0.16

*RDC Variable Handling Rates*	Flowpath	Metric		Small		Medium		Large		X-Large		Per Pick
	ACD		Case	$	0.10	$	0.10	$	0.10	$	0.10	$	—
	Flow Pallet NonCon		Case		5.45		5.45		5.45		5.45		—
	Stock Pallet NonCon		Case		7.40		7.40		7.40		7.40		—
	Flow Case		Case		0.28		0.30		0.37		0.73		—
	Flow NonCon		Case		0.20		0.22		0.33		0.89		—
	Stock Case		Case		0.29		0.32		0.47		1.24		—
	Stock Repack Each		Case		0.64		0.65		0.72		1.09		0.13
	Stock Repack Inner		Case		0.64		0.65		0.72		1.09		0.13
	Stock Double Break		Case		2.73		2.75		2.82		3.18		0.13
	Stock Case NonCon		Case		0.53		0.57		0.73		1.62		—

*RSC Variable Handling Rates*	Flowpath	Metric		Small		Medium		Large		X-Large		Per Pick
	ACD		Case	$	0.12	$	0.12	$	0.12	$	0.12	$	—
	Stock Case		Case	$	0.33	$	0.35	$	0.40	$	0.54	$	—
	Stock Repack Each		Case	$	0.85	$	0.90	$	1.00	$	1.31	$	0.21
	Stock Repack Inner		Case	$	0.85	$	0.90	$	1.00	$	1.31	$	0.21
	Stock Double Break		Case	$	1.03	$	1.85	$	1.95	$	5.48	$	0.21
	Stock Case NonCon		Case	$	0.77	$	0.83	$	0.94	$	1.30	$	—

STORAGE BILLING


*RRC Storage Rate*	$	*0.27*	*per cubic foot per month*
*DDC Storage Rate*	$	*1.42*	*per square foot per month*
*RDC Storage Rate*	$	*0.28*	*per cubic foot per month*
*RSC Storage Rate*	$	*0.62*	*per cubic foot per month*

Exhibit 2 to Appendix 1.01-A

Execution Copy

2012 LOGISTICS RATES

CRC BILLING


*CRC Handling Rate*
*Hardware*	$	*0.405*		*per scan charge*
*Hometown*	$	*0.405*		*per scan charge*
*Outlet*	$	*0.405*		*per scan charge*

*CRC Transportation Rate*
*Hardware*	$	*0.240*		*per cubic foot calculated at the division level*
*Hometown*	$	*0.240*		*per cubic foot calculated at the division level*
*Outlet*	$	*0.240*		*per cubic foot calculated at the division level*

*CRC Supplies & Other Rate*
*Hardware*	$	*0.077*		*per scan charge*
*Hometown*	$	*0.077*		*per scan charge*
*Outlet*	$	*0.077*		*per scan charge*

*CRC Revenue*
*Hardware*				*salvage revenue recovery rate with 3rd Party by division*
*Hometown*				*salvage revenue recovery rate with 3rd Party by division*
*Outlet*				*salvage revenue recovery rate with 3rd Party by division*

*CRC Freight & Handling Credit*		10	%	*handling credit rate*

*OTHER*

*Space Management*	$	*38.50/hour*

*Inventory Management*	$	*10,070 / month*

*Billing Adjustment*		*Quarterly true up of actual logistics expense performed.*

Logistics Overhead Billing Rate

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Hometown

86,511

121,517

103,689

78,032

76,951

73,050

70,063

68,687

68,821

69,415

76,294

82,082

Hardware

21,914

38,325

42,771

25,075

22,920

20,681

20,443

20,690

18,498

19,444

21,057

26,292

Outlet

1,048

1,814

917

929

1,045

688

754

823

1,001

766

685

838

Exhibit 2 to Appendix 1.01-A

Ex. 2 – Page 2

Execution Copy

IT SERVICES

LOGO

Service Level Agreement between Sears Holdings Corporation and SHO

OVERVIEW


		HMC (currently through its I&TG Business Unit (at times referred to as “ *I&TG* ”)) will perform services, upon request of SHO.

The following defines the scope of I&TG Services, and deliverables that SHMC will provide to SHO, and will:

Help enable SHO to understand the technology levers it has available to maximize performance for better decision making.

Provide the framework to conduct business together.

Create a simple methodology for understanding demand and consumption of technology services delivery.

Clarify key roles and responsibilities that contribute to the Parties’ joint governance and resulting success.

Employ a structure to minimize post-agreement tracking and administrative support.

Enable service data collection to feed financial reporting for SHO in a mechanized manner.

Describe I&TG Services and outline SHMC’s engagement model to proactively bring SHO new products and services to help improve performance.

As a supplier of Technology Services, SHMC is responsible for understanding how technology can promote more competitive business models, for delivering planned and budgeted business solutions and serving as service management consultants to SHO by entering into agreements and managing relationships with outside service providers as needed. SHO is responsible for defining its business processes, needs and requirements in support of stated business objectives; quantifying the value impact of its Service Requests, and providing business insight and review/approvals required during scoping, planning, design and delivery of its business solutions.

The Parties must work in close collaboration so that I&TG can deliver business solutions to meet SHO needs. SHMC will review the currency of infrastructure and applications supporting technology on an ongoing basis and recommend, in SHMC’s discretion, that SHO consider adoption of new, more efficient automation methods.

To help confirm alignment on service delivery goals, SHMC will implement a SHO Technology Leader role to better lead efforts in collaboration with the SHO team to effectively:

•

Identify business process pain points

•

Conduct needs assessments and requirements definition

•

Scope and plan Request for Services (RFS)

•

Monitor Service Delivery

Sears Holdings Corporation proprietary and confidential for internal use only.

EXHIBIT 3 TO APPENDIX 1.01-A

Execution Copy

IT SERVICES

LOGO

Service Level Agreement between Sears Holdings Corporation and SHO

•

Gain key input from all SHO and SHMC stakeholders to help confirm alignment on priorities and delivery of business solutions

The SHO Technology Leader role (described below) is paramount to coordinating the Parties’ joint delivery of value. The Request-for-Services (RFS) process, managed through the I&TG Project Management Organization (“PMO”), takes the I&TG Services and manifests it in specific timelines, skill-sets, pricing, and milestones linked to each Service Request and gives the Parties joint transparency on costs, effort, risk, and solution delivery.

CLIENT SERVICE MINDSET

SHMC’S I&TG STRATEGY


		he strategy for I&TG focuses on 4 areas that will help drive value creation for SHO by improving SHMC’s ability to assist SHO with technology innovation and service delivery.

Business Model

Product and service offerings defined

Usage and billing processes documented

Project lifecycle revamped and refined

Organization and Talent

Technology leaders engaged with SHO Personnel

Development and operation teams re-aligned

Financials

Market rates for services

Usage-driven chargeback for both development and support Services

Greater transparency and choice for SHO

Strategic Initiatives

Improve the customer and associate digital experience

Increase the flexibility, agility, and capabilities of SHMC’s retail systems

Modernize SHMC’s technology infrastructure

LOGO

SHMC classifies the I&TG Services into 2 major categories: Technology Services and Operational Services.

Service revenues for custom technology services and projects (technical advisory, business process engineering, solution design, build and deliver)

LOGO

Usage revenues from operational services currently used by our customers (integrated retail, merchant & sourcing intelligence, pricing & marketing, supply chain, remote customer support and infrastructure)

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

– 1 –

Execution Copy

IT SERVICES

LOGO

Service Level Agreement between Sears Holdings Corporation and SHO

SHO TECHNOLOGY ENGAGEMENT

In order to align more closely, SHMC created a key role within the SHO Technology Engagement function; that of the SHO Technology Lead. The mission of the SHO Technology Lead is the official, though not single, point of interface between SHO and SHMC to facilitate delivery of business solutions and value creation on a timely basis.

To do this, the SHO Technology Lead will:

Assist SHO in properly documenting business processes & requirements.

Help business teams create needs assessments and business cases in support of business solutions.

Facilitate all phases of the systems delivery lifecycle to help ensure that the SHMC I&TG and SHO teams are aligned, aware and working effectively to meet business requirements. (Note that the assigned SHO Technology Leader is not responsible for directly managing technology projects, but will maintain active oversight on every Service Request and project related to SHO and intervene where necessary to keep projects on track).

Be responsible for securing SHO sign-off (or documented rejection) for each step in which it is required during the Service Delivery process.

Provide an escalation point for the SHO business teams with respect to technology issues and for the technology teams with respect to business engagement in Base Operations and Service Delivery activities.

Monitor the resolution of technology related issues (as tracked by SHMC I&TG PMO), following up with issue owners where necessary to ensure timely resolution.

Communicate updates relating to technology direction and status to the SHO teams.

Be the steward of technology capability for SHO, maintaining an awareness of external developments relevant to their business domain (e.g. new technologies being used by competitors, etc.) and helping confirm SHO has access to appropriate and value-adding solutions in the short and long term.

The SHO Technology Leader will be held to account for:

Aged issue status for technology related issues raised by SHO and submitted through the PMO process or through error-ticket systems.

Adherence by the business team to systems delivery process (e.g. completion of business process models, appropriate scope and timely sign-off of requirements, completion of UAT, business investment in user training and change management, etc.).

Facilitating effective communication and eliminating disconnects between teams involved in delivering solutions to their business, including technology teams, transformation & development, training & change management, and the SHO team itself.

Client satisfaction in solutions and engagement model (where measured).

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

SERVICE DELIVERY & MAINTENANCE

The key responsibilities for the Service Delivery & Maintenance functions within I&TG are:

Managing the underlying technical and application infrastructure.

Being responsible for the quality and availability of technology services; provided that SHO performs its responsibilities and that SHO senior management remains responsible for SHO-specific management decisions.

Continuity management as it relates to the support and operations of the business-critical processes and systems.

Risk and Security management.

Identity and Access management.

TECHNOLOGY SERVICES

ENGAGEMENT MODEL & REQUEST-FOR-SERVICES (RFS)


		HMC’s I&TG’s Engagement Models helps maximize the value created from technology investments through processes that ensure alignment and results. The engagement models align priorities, funding and resources, and elevate decision making, decision rights and accountability to the appropriate levels at SHO through both the SHO Technology Leader role and the RFS process.

All Service Requests - projects, change requests and new requirements will be managed through a defined process. This process is used to help confirm the following:

•

Requests are rejected if not supported by necessary endorsement, business process model, clear business case and requirements documentation, or if considered not implementable

•

All Service Requests are recorded and assigned a WorkLenz (WL) number to confirm I&TG specialists participate in the estimating process, with tracking of the approved allocation and subsequent progress of the request. This includes rejected requests and requests that are subsequently dropped or rolled into another request or project.

•

For all activated business service requests, SHMC time spent will equal time billed to SHO regardless of whether the request is delivered in full, cancelled or postponed. Commitment of skilled resources comes with a cost that must be recovered during the request fulfillment process.

•

A contingency allowance will be built into the pricing for projects considered to be high risk endeavors, as evaluated according to a set of risk assessment criteria, such as technology employed, business calendar/season, SHO exposure, project budget or duration, regulatory impact or effect on critical business systems (infrastructure, applications, tools).

•

Maintaining a single funnel for acquisition of all requests is essential to the success of this approach

•

Governance/PMO will administer this process.

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

SHO’S APPROVAL PROCESS

The chart below represents SHMC’s I&TG collective governance model; through a series of authorization “gates” throughout the project initiation lifecycle, this model helps confirm that opportunities that are most highly aligned with business strategy are pursued, and that timing of initiation is commensurate with the urgency of SHO needs.

LOGO

This chart also illustrates the numerous points at which SHO must work with SHMC to ensure alignment between the Parties. The steps above which are circled in red indicate the minimum interface points and are detailed below.

Approving Business VP Approval : At this point, SHO Vice President is required to approve the project for estimation. Up until this point in the project’s lifecycle, there has been little or no SHMC involvement in the project. Once this approval is received, SHMC will begin the estimation effort and can begin charging SHO for the time involved in pulling together the high-level cost estimate.

Executive Sponsor Approval : The high-level cost estimates have been created and included in the project’s information. SHO Executive Sponsor (a direct report to the CEO) is now required to approve these estimates in order for the project to continue through the remaining lifecycle steps.

Obtain SHO Funding Approval : Once the Executive sponsor has approved the project request, the SHO CFO/Finance Manager is required to approve. This ensures that SHO has the necessary funds to cover the cost of the planned or unplanned project and is committed to having the work performed.

Update I&TG Estimates : This is the final cost estimate which gets submitted by SHMC. It is possible, through the process of collecting and documenting the detailed requirements and finalizing the design solution, that SHMC may need to update the costs associated with delivering the project. If the final cost estimate exceeds the original estimate by more than 50%, an additional approval by SHO Executive Sponsor will be required.

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

Request Functional Readiness Approval : The SHO project sponsor must approve / sign-off on the project’s readiness to be moved into production. This is the final approval step needed on SHO side.

PROJECT CHANGE CONTROL PROCESS

Throughout the lifecycle of a service request within SHMC, various factors may affect the overall cost to deliver. These factors may include (but are not limited to) a change in project scope, a better understanding of specialized skill sets needed, a shift in priorities from SHO or a change in the cost of materials (hardware or software) required to complete the project. Any time a change occurs, the SHMC I&TG project manager will initiate a Change Control Request. This is a formal process within I&TG and helps confirm the necessary governance is followed and approvals are obtained before any additional costs are incurred.

A note of change to the approval process for 2012 represents an easing of review and approval requirements if the request is under a pre-set percentage of the initially approved funding. The percentage will be set by the governing SHO project team and allows for work to move ahead once the preliminary project estimate (E1) has been approved if the additional cost to the project is under the stated amount. After proceeding through the Evaluate activities, if the executive approval gate (E2) indicates the change exceeds the allowed percentage, the full scope of requirements, revised project plan and business case must be reviewed again and approved prior to moving forward.

The diagram below depicts the steps which are followed as part of the Change Control process.

LOGO

This chart also illustrates the additional approval steps necessary from SHO:

Executive Sponsor Approval : The revised cost estimates have been created and included in the project’s information. SHO Project Sponsor must approve these amended estimates in order for the project to continue through the remaining Change Control steps.

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

Obtain SHO Funding Approval : Once the Executive sponsor has approved the Change Control request, SHO CFO/Finance Manager is required to approve. This ensures that SHO has the necessary funds to cover the additional costs related to the Change Control request.

OPERATIONAL SERVICES

LOGO &TG Service Lines have been designed to meet SHO Base operating/support needs and Request-for-Service demand. A fundamental underpinning of I&TG’s Service Lines is the use of its Business Process Management (BPM) Center of Excellence (COE). I&TG uses BPM as its overarching framework to help SHO achieve competitive advantage and business growth through process performance, capability and adaptability. Each Service Request SHMC undertakes will have a business process model and clear requirements to help confirm the value is understood. SHMC will assist SHO in understanding the value of business process management and provide enablement services through its BPM COE so that SHO can create and own its process definitions to expedite needs assessment and business solution delivery.

OPERATIONAL SERVICE REQUESTS COMPONENTS

The operational Services I&TG will provide are:

Technology & Business Innovation

Innovation Lab & Prototyping

Commercial Grade Solutioning

Business Process Consulting & Technology Advisory Services

Value Engineering / Business Process Optimization

Business / Technology Needs Assessment

Scoping, Planning, Estimating and Road-Mapping

To-Be Process Modeling & Enablement

Change Leadership

Business Solution Development / Ad Hoc Service Requests

Project, Program and Budget Management

Milestone, Issue and Risk Management

Deliverables / Quality Assurance

Project Coordination

Communications & Training

Core Development & Solution Delivery

There exist a variety of business models to accommodate the different request types received from SHO and offered for delivery by I&TG. One design and delivery model may not be appropriate for all; thus SHMC employs a flexible assignment process to help determine the anticipated optimum way to satisfy a new request, particularly in the project space. SHMC I&TG knowledge and experience spans the potential use of:

•

Traditional service lifecycle with analysis, planning, design, build, test and deploy.

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

•

An agile style of iterative development building to a phased set of requirements, working toward an end product that helps meet a business objective and enable a new operational capability.

•

Pilot approach where a full set of requirements becomes an initial version of the end product, goes into a trial operational period and then benefits from continuous improvement process based on trial learnings.

•

“Walk before we run” model – a series of modules designed, built and deployed individually under a single architecture such that add-on modules enhance the original capability using consistent and complementary functional elements and technologies.

Each project approach has a different cost model that may influence the joint SHO / SHMC decision on how to proceed. This review and decision process should occur during the Ideate stage and can be reviewed or reconsidered early in the Evaluate stage with minimal impact on the final project cost.

BASE OPERATIONS COMPONENTS

The Services I&TG provides as part of the Base Operations (Keep-the-Lights-On) are organized into key Operational Services and I&TG Product Domains:


Best Offering		Technology Product Domain
Business Strategy & Operations		Enterprise Learning & Development
		Enterprise Process Management
		Enterprise Support
Corporate Technology Services		Audit / Legal / Real Estate Support
		Corporate Services Support
		Finance & Procurement Systems Support
		Financial Services Support
		Human Resources Management
		Payroll Management
		Procurement Systems Support
		Real Estate Systems Support
Decision Analytics & BI		Tax Systems Support
		BI Administration
		BI Application Support
		BI Data Monitoring
		BI Delivery Administration
		BI License Management & Support
		Shop Your Way Rewards Support
		Supply Chain Management
Home Services		Targeted Interactions Support
		Customer Management
		Knowledge Management
		Order Management
		Planning/Consulting
		Sales Lifecycle Management
		Software Maintenance
		Supply Chain Management
Marketing, Pricing & Loyalty		Support and Services
		Clearance Pricing Services
		Dynamic Pricing Services
		Loyalty Services
		Marketing / Advertising Services
		Pricing Services
		Publishing Services


Base Offering		Technology Product Domain
Network & Security Services		Compliance
Network & Security Services		Media Services
		Non-retail Asset Maintenance
		Retail Asset Maintenance
		Security
		Telecom Provisioning & Management
		Telecommunications Data
		Telecommunications Voice
Operational Services		Data Center Operational Services
		Distributed Environment Services
		Mainframe Services
		Storage Services
		Teradata Sevices
Retail Services		Associate & Customer Desktop Support
		Core Retailing Transaction Support
		Customer Facing Transaction Support
		Hardware Support Services
		Administration
Service Management		Business Continuity
		I&TG Service Quality Management
		I&TG Service Support
		I&TG Service Support – Corporate Desktop Support
		Learning & Development
		Performance & Service Mgmt
		Business to Business Systems Support
Supply Chain Services		Design Systems Support
		Distribution Center Systems Support
		Import Systems Support
		Inventory Management
		Item Management Services
		Ordering & Receiving Support
		Retail Demand Intelligence
		Return Goods Processing Support
		Store Space Management Systems Support
		Transportation Systems Support
		Vendor Management Services

SHO DEPENDENT OPERATING/SUPPORT SYSTEMS

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

Maintenance and access to the following systems required by SHO to operate its business, and other additional or replacement systems as later identified by the Parties:


*SHO Dependent Operating/Support Systems*

AdPlan/PMI	Dynamic Pricing	IMPACT	NTE	RTV	Store Ordering
Alex	ECM	In-Store Hardware Maintenance	OMS	SADI	Store Planning (Epic 2/4)
Applicant Drug Testing	EDI Star Wars	iPlan	OneSource	Sales Tax Exempt Certification Systems (SECS)	Store Visit Scheduler
Associate Contribution Reports	EHDS	IPS	OTM	Sales Tax Tables	Super RIM
Associate Discount	eHire	Kenshoo	outlet.com	SAS	Support Services
Cash Flow	EIS	LCM	Outlook	SCIM/NSN	SYWR
CLRP	eProperty	LDAP	PartsDirect	Sears Sales Tax Support System (S4) and Reporting	Tax Compliance Calendar
Combo Receiving	ESB	Lease Payments (LPS)	PBW	Sears Source Subsidy (SSIS)	TKC
Concur	Essbase	LicenseHQ	PC RIM	Service Desk	TPC
CORE	Financial Transaction Data (FTD) Warehouse	LIS	PDS	ServiceLive	Tracker
Core HR Function	FIPS	Loss Prevention	Pebble	Settlement & Reconciliations	Trading Partners
CorpTax	Fixed Asset Management	LPub	Planogram	SHARP Authorizations	Training Tracker
CRT Income Tax	Fixed Asset Software (FAS)	MARE	POM	SHARP Refund Management	Treasury Database
CRT Sales Tax	FLEXXperts	Markdown Mgmt (MDM)	POS (NPOS & CashR)	SHC POM	TS21
CSAT	GameOn	MIM	PRCM	SHC Procurement Portal	Unity (Movaris)
Customer Data Warehouse (CDW/EDW)	General Ledger Management	MS Office	RCS – Rapid Credit Application Processing	Shopping Recap	USIS
DCPO	Google Affilicate Connect Commerce	My Personal Information (MPI)	Retail Enterprise Suite (RES)	Signature and Receipt Application (SARA)	ViewDIrect

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO


Deal Management	Help Ticket	NAI	Revised Accounts Payable	SIMI/BOSS	Waste Reconciliation and Stock Ledger
Dealer Commission	HomeTown Store Connect	National Accounts Payable (NAP)	RIM	SKU 991 Table/Database	WFA
Desktop Support	HRP	National Disbursements Journal (NDJ)	Risk Management Information System	SNC – Fusion on a Workstation	WFM
Digital Asset Management	I9 and WOTC	NFX	RMDS	SNC/iSNC	WLP
DOS	IDRP	NPS	RSOS	SPIN
DOS SOE	IMA	NROS	RTI	SPRS/MDRS

I&TG SERVICE CATALOG

A detailed 2012 I&TG Service Catalog is attached to this Exhibit as Addendum 3. Addendum 3 may be unilaterally amended by SHMC. SHMC will notify the SHO contact person of changes to this Addendum 3.

ISSUES MANAGEMENT / RESOLUTION

LOGO HMC employs severity scales for Issue Management to help confirm that proper ownership, collaboration, and resolution of Issues occurs as swiftly as possible. SHO agrees to make commercially reasonable efforts to timely provide SHMC with complete and accurate information and material requested by SHMC and required for use in replicating and diagnosing an Issue. SHO also agrees to make reasonably available appropriate employees when options for resolution are being vetted and course-of-action decisions are required.

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

I&TG COSTS AND RATES FOR SERVICES

BASE COMPONENT & SERVICE REQUEST CHARGES


		ervice costs for Base Components (enterprise support, integrated retailing, merchant & sourcing intelligence, technology infrastructure, etc.) have been bottom-up identified and are charged based an appropriate allocation method or usage/consumption level.

Service costs of Base Components for SHO will not exceed $9.6M for 2012, assuming SHO usage and requirements are consistent with that experienced in 2011. Each subsequent year of the agreement will provide the next fiscal year’s plan to SHO ninety (90) days in advance of the close of the fiscal year. Annual increases to the Base Component and Systems Access/Maintenance service costs will be capped at five-percent (5%) with the exception of increases to 3rd Party services which will be passed through to SHO. Any additional increases will be subject to negotiation and agreement by both parties in advance of any applicable increase.

Labor Rates have been determined for FY’12, however actual spend is based on the time and materials cost associated with Service Requests determined on a project-by-project basis, as well as by the skill sets required to deliver the Services.

The rate/hour for Service Requests is as follows:

I&TG Standard Rates for SHC and SHI Associates FY2012


SHC Associates	Skill Set	Rate
	Associate	$65 / hour

SHI Associate	Skill Set	Rate
	Off-shore Engineer	$35 / hour
	On site Engineer	$65 / hour

3rd Party Contractor	Skill Set	Rate
	Will vary	$/hour will be reviewed with and approved by SHO

SUPPORT SERVICES AND ENGAGEMENT TEAM

An SHMC I&TG Engagement Team will be formed to support SHO to provide support and maintenance services and multiple enhancements. External variable labor for project development will be charged as needed and agreed upon with SHO. The SHMC team will be comprised of a Director, Project Manager, Business Analysts and Solution Architects with an annual cost of $811,200 for 2012.

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

EXPECTATIONS

COLLABORATION

HMC and SHO will work together, utilizing collaborative planning focused on meeting business objectives, efficient and cost effective shared service centers, common service management processes and an organization designed and skilled to help optimize a commercially viable service model.

SHMC will assist SHO in identifying the business processes critical to SHO customers and the computer systems or services which support those processes. Once that list of critical systems and processes has been identified, a mutually agreed-upon level of service will be provided with the commensurate costs detailed.

BUSINESS SPONSOR / CUSTOMER RESPONSIBILITIES

In order for SHMC to effectively provide the Services, SHO will:

Ensure sound business processes exist prior to engaging SHMC for solution architecture

This can be accomplished by leveraging SHMC Business Process Management Center of Excellence as described above. Ensuring a sound business process before introducing new technology helps to ensure the solution being delivered will properly address SHO’s problem or need.

Provide proper allocation and timely availability of SHO Personnel as part of the engagement team

SHMC is only part of the solution process. SHO must allocate sufficient resources to the engagement. If SHO does not allocate and make available appropriate resources, the solution being delivered will most likely not fulfill the need appropriately.

Ensure responsiveness and participation of SHO senior executives & sponsors

There are key, significant times within the lifecycle of the engagement where Senior SHO Executive and Sponsors must participate and collaborate with the SHMC I&TG engagement teams. From the initial approval to submit requests to SHMC, to funding approvals, to periodic status updates, through to the engagement close-out – all of these gates and project events require engagement by Senior SHO members. It is the responsibility of the both Parties, through the joint project management team, to pre plan the meeting calendar and build sufficient executive time into the project plan for all such executive requirements. It will be SHO’s responsibility to confirm that all necessary internal SHO approvals are obtained.

Define accurate & reasonable expectations of project benefits (quantifiable wherever possible)

While SHMC is responsible for identifying the costs associated with performing the requested services for SHO, it is entirely the responsibility of SHO to identify potential benefits for the engagement. These benefits have typically been represented as monetary (EBITDA & BOP) but are not limited to that category. Additional, quantifiable metrics could include:

•

Faster time to productivity

•

Improved ease of use leading to faster transaction processing time

•

Increased users or usage

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

•

Increased system uptime/availability

•

Increased response time

•

Increased units of client or customer data captured

•

Increased data accuracy (fewer defects)

Only by identifying these quantifiable metrics can accurate benefit realization be measured.

Complete Customer Satisfaction Surveys (CSATs) upon the conclusion of the engagement

The key mechanism by which SHMC can measure the success of the engagement with SHO is through the Customer Satisfaction Survey which is sent at the conclusion of each engagement. The survey itself takes only a few minutes to complete, but allows SHMC to understand what went well or what areas may need improvement as part of SHMC’s engagement model.

For projects that affect SHO only, SHO will be responsible for key strategic and material management decisions. For projects that affect both SHO and other SHMC clients, SHO and SHMC will have joint strategic and material management decisions regarding the respective project; provided that SHO will remain responsible for decision making as it affects SHO.

INFORMATION & TECHNOLOGY GROUP RESPONSIBILITIES

As part of the collaboration between SHMC and SHO, there will be periodic governance meetings between which will be used to discuss the following:

Accomplishments to date – These will include:

Planned projects delivered to-date

Unplanned projects delivered to-date

Base & Support services provided

Improvements or cost reductions made towards Base & Support services

Metrics

Service metrics are in place (internal, customer)

Project, Base and Support metrics jointly agreed to be tracked in SLA/OLA

What metrics have been met

Any operational issues with meeting committed metrics

Expenses

Planned expenses versus actual expenses as measured on a period-to-date and year-to-date basis

New items or expenses from SHMC

Expected changes to expenses for the remainder of the year (either decreases or increases)

Charges incurred by SHO for postponed or cancelled projects

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

LIST OF ADDENDUMS

Below is a list of I&TG-related Addenda to the Agreement:


Addendum 1.		SHO 2012 Base & Support Charges

Addendum 2.		SHO 2012 Support Services

Addendum 3.		2012 I&TG Service Catalog

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

ADDENDUM 1 – SHO BASE AND SUPPORT CHARGES

Base Components (Technology Products) – Usage/Consumption Charge (per year):


Base Operations for 2012	Technology Product Domain	Total
Business Strategy & Operations	Enterprise Learning & Development	$	12,004
	Enterprise Process Management	$	32,744
	Enterprise Project / Program Support	$	48,821

Business Strategy & Operations Total		$	93,569

Information Analytics & Innovation	BI Administration	$	11,306
	BI Application Support	$	266,063
	BI Data Monitoring	$	46,829
	BI Delivery Administration	$	57,532
	BI License Management & Support	$	62,870
	Supply Chain Management	$	374

Information Analytics & Innovation Total		$	444,974

Network & Security Services	Compliance	$	89,867
	Media Services	$	22,337
	Non-retail Asset Maintenance	$	82,513
	Retail Asset Maintenance	$	53,404
	Security	$	460,099
	Telecom Provisioning & Management	$	305,188
	Telecommunications Data	$	4,095,582
	Telecommunications Voice	$	647,057

Network & Security Services Total		$	5,756,047

Operational Services	Associate & Customer Desktop Support	$	65,393
	Data Center Operational Services	$	660,421
	Distributed Environment Services	$	961,213
	Storage Services	$	208,106

Operational Services Total		$	1,895,133

Retail Services	Core Retailing Transaction Support	$	310,871
	Customer Facing Transaction Support	$	68,673
	Hardware Support Services	$	377

Retail Services Total		$	379,921

Service Management	Administration	$	959
	Business Continuity	$	27,439
	I&TG Service Quality Management	$	14,416
	I&TG Service Support	$	2,254
	I&TG Service Support - Corporate Desktop Support	$	168,341
	Learning & Development	$	1,720
	Performance & Service Mgmt	$	11,784

Service Management Total		$	226,913

Base Offering Grand Total		$	8,796,557

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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Service Level Agreement between Sears Holdings Corporation and SHO

ADDENDUM 2 – SHO SUPPORT SERVICES

ADDENDUM 3 – 2012 I&TG SERVICE CATALOG

2012 I&TG Service Catalog is provide as a separate document.

Sears Holdings Corporation proprietary and confidential for internal use only.

Exhibit 3 to Appendix 1.01-A

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2012 I&TG Service Catalog

LOGO

Version 1.1 – Mar 2012

Exhibit 3 to Appendix 1.01-A

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2012 I&TG Service Catalog


Charge Back Models			3
Base Offerings Descriptions			4
Business Services
Business Strategy & Operations
Enterprise Learning & Development			5
Enterprise Process Management			6
Enterprise Project / Program Support			7
Corporate Technology Services
Audit / Legal / Real Estate Support			8
Corporate Services Support			9
Finance & Procurement Systems Support			10
Financial Services Support			11
Human Resources Management			12
Payroll Management			13
Procurement Systems Support			14
Real Estate Systems Support			15
Tax Systems Support			16
Home Services
Customer Management			17
Knowledge Management			18
Order Management			19
Planning/Consulting			20
Sales Lifecycle Management			21
Software Maintenance			22
Supply Chain Management			23

Support and Services			24
Information Analytics & Innovation
BI Administration			25
BI Application Support			26
BI Data Monitoring			27
BI Delivery Administration			28
BI License Management & Support			29
Shop Your Way Rewards Support			30
Supply Chain Management			31
Targeted Interactions Support			32
Marketing, Pricing & Loyalty
Clearance Pricing Services			33
Dynamic Pricing Services			34
Loyalty Services			35
Marketing / Advertising Services			36
Pricing Services			37
Publishing Services			38


Network & Security Services
Compliance			39
Media Services			40
Non-retail Asset Maintenance			41
Retail Asset Maintenance			42
Security			43
Telecom Provisioning & Management			44
Telecommunications Data			45
Telecommunications Voice			46
Operational Services
Associate & Customer Desktop Support			47
Data Center Operational Services			48
Distributed Environment Services			49
Mainframe Services			50
Storage Services			51
Teradata Services			52
Retail Services
Core Retailing Transaction Support			53
Customer Facing Transaction Support			54
Hardware Support Services			55
Service Management
Administration			56
Business Continuity			57
I&TG Service Quality Management			58
I&TG Service Support			59
I&TG Service Support – Corporate Desktop Support			60
Learning & Development			61
Performance & Service Mgmt			62
Supply Chain Services
Business to Business Systems Support			63
Design Systems Support			64
Distribution Center Systems Support			65
Import Systems Support			66
Inventory Management			67
Item Management Services			68
Ordering & Receiving Support			69
Retail Demand Intelligence			70
Return Goods Processing Support			71
Store Space Management Systems Support			72
Transportation Systems Support			73
Vendor Management Services			74

Exhibit 3 to Appendix 1.01-A

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2012 I&TG Service Catalog

Charge Back Models:


Model Type	Explanation	Formula
Equal Distribution	Total cost is spread equally across all of the Operating Units	Cost / 20 (5%)

Transaction	Spread the cost based on what % of the overall transactions are processed on behalf of the Operating BU	(BU Transaction Count) / (Total Transaction Count)

Revenue	The cost is spread out based on the % of the overall revenue that is generated by the Operating BU	(BU Generated Revenue) / (Total Revenue)

Headcount	Total cost is spread based on the headcount % within the Operating BU compared to the overall headcount	(BU Headcount) / (Total Headcount)

Headcount (ex-POS)	Total cost is spread based on the headcount % within the Operating BU compared to the overall headcount	(BU Headcount) / (Total Headcount)

Actual	Total cost is spread across the Operating BUs based on actual cost incurred	BU Cost

Seat	Total cost is spreadout by the number of license seats distributed	(BU Assigned Seats/Total Seats Allocated)

Application Consumption	Support and infrastructure charges assigned across the business units depending the usage of applications being supported by those infrastructure components	(BU-specific applications / Total SHC applications)

Project Consumption	The total cost to provide this services is spread across the Business Units who consume the most in terms of the resources required to do project work in the fiscal year	(# of projects initiated by BU / total # of projects in fiscal year)

Exhibit 3 to Appendix 1.01-A

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2012 I&TG Service Catalog

Base Offering / Portfolio Descriptions

Business Strategy & Operations

The Business Strategy & Operations offerings encompass several functions aimed at providing governance and structure to the I&TG Business Unit. These functions include: supplier management; project and portfolio management; process quality assurance; and pricing and allocations management.

Corporate Technology Services

The Corporate Technology Services offerings are comprised of services which enable the Support Business Units to provide services to their customers. These services include (but are not limited to): financial; tax; legal; procurement; human resources; payroll; real estate; and tax.

Home Services

The Home Services offerings are aligned specifically to support the Home Services and ServiceLive Business Units. These services include: customer management; knowledge management; order management; sales lifecycle management; supply chain management; and the support and maintenance of these services.

Information Analytics & Innovation

The Information Analytics & Innovation services are a collection of business intelligence services which provide support for: analytics tool licensing; data monitoring; supply chain analytics; and support for specific program such as Shop Your Way Rewards and Targeted Interaction.

Marketing, Pricing & Loyalty

The Marketing, Pricing & Loyalty offerings support the business units with services specifically tailored to provide: pricing modeling; marketing and advertising services; and support for the loyalty programs such as Shop Your Way Rewards.

Network & Security Services

The Network & Security Services offerings are provided across all of SHC and include: industry compliance; retail and non-retail asset maintenance; enterprise systems security; and an array of telecommunications services for voice and data.

Operational Services

The Operational Services offerings include all the services and support necessary to run the data center operations group which include: desktop support; distributed environment support, mainframe services; storage services; and Teradata services.

Retail Services

The Retail Services offerings are specifically aligned to support the Retail Services Business Unit and their Operating Business Unit customers. These services include: retailing transaction support; customer facing transaction support; and hardware support services.

Service Management

The Service Management offerings are a collection of services which provide the SHC enterprise with: enterprise business continuity management; service quality management; service support for corporate as well as field customers; and performance management services.

Supply Chain

The Supply Chain offerings are a collection of services aligned to support the Supply Chain Business Unit and their customers with the following: business to business support; distribution center support; import, inventory and item management; order management; and transportation systems support.

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Business Strategy & Operations


Service:		Enterprise Learning & Development

Service Description:		The Enterprise Learning & Development services provide the following:

		• Computer based training catalogs for IT-related topics, Office Productivity, and Business & Soft skills

		• Facilitation of on-site, instructor lead training classes

Chargeback method:		Seat

Service Components:		• ElementK / SkillSoft

		• Caliber Training

		• Global Knowledge

		• SHU Training

		• SHC Course

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Business Strategy & Operations


Service:		Enterprise Process Management

Service Description:		The Enterprise Process Management service is a collection of applications and services which provide: • Enterprise and BU-specific process documentation • Metrics-based process management modeling • A process governance framework

Chargeback method:		Project Consumption

Service Components:		• Process Quality Assurance • Business Process Management Consulting

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Business Strategy & Operations


Service:		Enterprise Project / Program Support

Service Description:		The Project Management Office (PMO) is responsible for managing all project requests, monitoring the health of projects, helping with the portfolio optimization and prioritization process and providing guidance to each of the portfolio sponsors.

Chargeback method:		Project Consumption

Service Components:		• WorkLenz (PPM CentraI) • Enterprise Program Management • Enterprise Project Management

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Corporate Technology Services


Service:		Audit / Legal / Real Estate Support

Service Description:		Support provided to the Audit, Legal and Real Estate groups which would include the following services:

		• Application break/fix support

		• Application monitoring

		• Minor enhancements

		• Interface support and application upgrades

Chargeback method:		Actual

Service Components:		• CT Tymetrix

		• Internal Audit apps (TeamMate)

		• Legal Apps (DM, T360, Intella, Deltaview, etc.)

		• Legal Global Compliance Maintenance

		• Legal Requests for Sales/Product Information

		• OpenText DM

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Corporate Technology Services


Service:		Corporate Services Support

Service Description:		Support provided across Sears Holdings involving enterprise wide applications or services which would include the following:

		• Application break/fix support

		• Minor enhancements to applications

Chargeback method:		Actual

Service Components:		• Corporate Services applications (Utilities, Front Desk Badge, Scheduler Plus, etc.)

		• Food applications (Bottle Deposit)

		• Google Earth and Google Earth Pro

		• Identicard Badges

		• Licensed Business Requests for Sales/Product Information

		• MARE

		• Server moves, Office/OS/IE upgrade testing, Mainframe Migration research, etc.

		• Relius Government Forms

		• Risk Management Information Systems

		• Sales Data

		• Sears Store Planning (EPIC2/4)

		• SOX and Internal Audit Reviews

		• STAR

		• Store Operations Requests for Sales/Product Information

		• Third Party Desktop Applications

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Corporate Technology Services


Service:		Finance & Procurement Systems Support

Service Description:		The Finance & Procurement systems support services is a collection of applications and services which provide:

		• Accounts Payable services

		• Credit card processing

		• Accounting services

		• General Ledger services

		• Treasury services

Chargeback method:		Actual

Service Components:		• Accounts Payable (NDJ, IPS, NAP, CSI, RAPS)

		• Activity Based Costing (ABC)

		• Bridge Warehouse

		• CASH & SALES

		• Concur

		• Daily Credit Card Settlement

		• Finance & Acctg (Tracker, LPS, JDE)

		• Kmart RE Acctg App (J.D. Edwards)

		• Licensed Business (STL0)

		• LOCN and Store Master

		• NAI (Sears General Ledger)

		• PeopleSoft Financials - Asset Management, Project Costing, and Procurement

		• PeopleSoft General Ledger and FTD

		• Royalty System

		• Stock Ledger (including Waste Recon, SPA’s, Daily Cycle lnv.)

		• Treasury (Tweb, JPMAccess, CashPro, Treasury Db, etc.)

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Corporate Technology Services


Service:		Financial Systems Support

Service Description:		A suite of applications and services tailored to meet the needs of the Financial Services support business. These systems facilitate:

		• Authorizations and Credit

		• Processing of Layaways

		• ID Validation services

		• Reporting services

		• Settlements

Chargeback method:		Actual

Service Components:		• Centralized Vault

		• Associate reimbursement

		• Authorizations

		• Credit Extranet

		• Layaway

		• Rapid Credit / ID Validation Services

		• SARA

		• SAS / Essbase reporting

		• SCPE

		• Settlement

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Corporate Technology Services


Service:		Human Resources Management

Service Description:		A suite of applications and services tailored to meet the needs of the Sears Holdings associates. These systems facilitate:

		• Sears & Kmart discount card system, cards provided by the vendor, FirstData

		• Calculation of associate commissions

		• Supporting the hourly recruiting application

		• Associate performance review and goal planning

		• Management reporting for the analysis of associate data

Chargeback method:		Actual

Service Components:		• Associate Discount (AD)

		• Commission System

		• eHire

		• eLearning

		• HRP

		• Human Resources Case Management Tool

		• IVR

		• My Personal Information (MPI)

		• TPC

		• Workforce Analytics (WFA)

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Corporate Technology Services


Service:		Payroll Management

Service Description:		A suite of applications and services which facilitate payroll functions such as:

		• PeopleSoft HR and Payroll applications

		• Timekeeping services

Chargeback method:		Actual

Service Components:		• Paybase

		• PeopleSoft HCM

		• PeopleSoft HCM - Oracle DB

		• TKC

		• WFC Kronos

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Corporate Technology Services


Service:		Procurement Systems Support

Service Description:		A suite of applications and services tailored to meet the needs of Procurement. These systems facilitate:

		• Asset Management

		• Procure-to-Pay and 3 ^rd Party Supplier integrations

Chargeback method:		Actual

Service Components:		• Asset Management, Project Costing, and Procurement

		• P2P (Ariba) Integration

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Corporate Technology Services


Service:		Real Estate Systems Support

Service Description:		A suite of applications and services tailored to meet the needs of the Sears Real Estate business. These services include:

		• Application break / fix

		• Minor enhancements

		• Application monitoring

		• Strategic market planning

		• Sales territory planning

		• Targeted geomarketing

Chargeback method:		Actual

Service Components:		• FIPS

		• Tactician

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Corporate Technology Services


Service:		Tax Systems Support

Service Description:		A suite of applications and services supporting tax related activities. These services include:

		• Interface support for web based training system for field associates

		• Property tax data mining

		• Commercial real estate appraisal

		• Tax calculations for sales, purchases and rentals

		• Application upgrades

		• Application break /fix support

Chargeback method:		Actual

Service Components:		• Gross Receipts Tax (License HQ)

		• Income Tax (CorpTax, Intelliforms)

		• Property Tax (eProperty, Narrative1, Directory of MM, etc.)

		• Sales Tax (Tax Matrix for Sales Tax, Taxware, Kmart Sales Tax, S4, etc.)

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Home Services


Service:		Customer Management

Service Description:		Customer management is a collection of services aimed at providing a complete customer relationship capability. These services include:

		• Software platform for building and deploying ECRM applications

		• Multi-channel analytics capturing customer interactions across all channels

		• Customer service and sales

Chargeback method:		Actual

Service Components:		• Aspect

		• Autonomy

		• Avaya

		• Ciboodle

		• Facilities Management / Field Support

		• HSCCD

		• HSCCN&SC

		• HSQUALITY

		• HSVRU

		• Nuance

		• Serviont

		• TSG

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Home Services


Service:		Knowledge Management

Service Description:		Knowledge management is a suite of applications and services aligned to provide the following:

		• Enterprise Content Management including document management and web content management

		• Real-time data integration and high-availability solutions

		• Large scale data warehousing and analytics

Chargeback method:		Actual

Service Components:		• Alfresco

		• Golden Gate

		• GREENPLUM1HS

		• HSBUSINTEL

		• IBM CDC

		• Intelex

		• Kaidara

		• SAS

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Home Services


Service:		Order Management

Service Description:		The order management service is a collection of applications and services which provide:

		• Compression software and tools for geographic data, document management, and web distribution

		• Workforce optimization and 3 ^rd party network management

		• Digital maps

		• Dynamic routing

Chargeback method:		Actual

Service Components:		• ESRI

		• HS - Help Desk

		• HS - Wireless Communication

		• HSHAL

		• HSHDROUTING

		• HSNEWCO

		• HSROUTING

		• HSSOMCS

		• HSSOMNP

		• LizardTech

		• SAS Forecasting

		• ServicePower

		• Teleatlas

		• Teleatlas - Map updates

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Home Services


Service:		Planning / Consulting

Service Description:		The planning and consulting services provide pre-project assistance in the analysis of business requirements and needs, in an effort to better align the business demand with the technology solutions available.

Chargeback method:		Actual

Service Components:		• I&TG Planning / Consulting

		• Other BU Planning / Consulting

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Home Services


Service:		Sales Lifecycle Management

Service Description:		Sales lifecycle management is a series of applications and services aimed and providing:

		• Sales campaign management

		• Commission management

Chargeback method:		Actual

Service Components:		• HSCAMPAIGN

		• HSCOMMSALES

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Home Services


Service:		Software Maintenance

Service Description:		Software maintenance is a service which manages the software licensing and maintenance for the SAP suite of tools.

Chargeback method:		Actual

Service Components:		• SAP

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Home Services


Service:		Supply Chain Management

Service Description:		Supply chain management is a collection of applications and services which provide the following functionality:

		• Enabling business agility and IT efficiency by providing innovative data management technology and services that transform data into a strategic asset

		• Research and development

		• Transforming service business operations and accessing new sources of revenue, profits, competitive differentiation and customer loyalty

Chargeback method:		Actual

Service Components:		• Data Flux

		• Deja Imagining

		• HSPARTSDIRECT

		• HSPARTSNPN

		• Iron Mountain - Software Escrow

		• Lawson

		• LeadTech

		• Servigistics

		• Softeaon

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Home Services


Service:		Support and Services

Service Description:		Support and services is a collection of applications, tools and services which provide:

		• Web site monitoring

		• License management

		• System load testing

		• Architectural services

Chargeback method:		Actual

Service Components:		• Gomez - Web site monitoring

		• Hewlett Packard

		• LoadRunner

		• Systems Architecture - Pipeline

		• Systems Architecture - R&D

		• Profiling Tool

		• Troy Data Center

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Information Analytics & Innovation


Service:		BI Administration

Service Description:		The Business Intelligence administration service is an aggregation of all the administrative tasks associated with the analytics applications and services provided across SHC.

Chargeback method:		Transaction

Service Components:		• BI Admin Production Support

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Information Analytics & Innovation


Service:		BI Application Support

Service Description:		The Business Intelligence application support services provide break / fix, monitoring and support for various analytics applications and functions such as:

		• Associate contribution

		• An integrated environment that consolidates multiple data subjects for both Kmart and Sears into a single platform driving a consistent view

		• In Store reporting for store operations defined metrics and actionable information.

Chargeback method:		Transaction

Service Components:		• BI ACR / FLS

		• BI Alex MSTR Support

		• BI Alex Support

		• BI Application Support

		• BI Business Objects Support

		• BI CRRS Support

		• BI Data Modeling

		• BI OWB Support

		• BI SPRS Support

		• BI View Direct

		• KMWB Support

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Information Analytics & Innovation


Service:		BI Data Monitoring

Service Description:		The Business Intelligence data monitoring service provides real-time monitoring of the various data feeds from transactional systems into data marts and data warehouses.

Chargeback method:		Transaction

Service Components:		• BI Data Monitoring Production Support

		• BI Data Monitoring Support

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Information Analytics & Innovation


Service:		BI Delivery Administration

Service Description:		The Business Intelligence delivery administration is a service which provides support for the project intake and execution related to analytics applications and services.

Chargeback method:		Transaction

Service Components:		• BI Delivery Administration - BU Analytics Training

		• BI Delivery Administration - Delivery Administration

		• BI Delivery Administration - Intake

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Information Analytics & Innovation


Service:		BI License Management & Support

Service Description:		The Business Intelligence license management and support service provides a single point of contact between various vendors of analytics tools and services and SHC. These tools and services include:

		• Individual customer recognition and identification information

		• Web-hosted solutions

		• Web-based controls used on SHC portals

		• Data modeling software

Chargeback method:		Transaction / Seat

Service Components:		• BI - Acxiom - Abilitec & Infobase

		• BI - Applied Predictive Technologies - Subscription

		• BI - APT - Hosted Analytics solution

		• BI - EIS - Maintenance & Finance Labor Support

		• BI - EssBase Finance Labor Support

		• BI - Financial Coordinator

		• BI - Hyperion EssBase - Maintenance

		• BI - Netezza - Maintenance

		• BI - SAS Institute - Maintenance

		• BI -Telenik - Maintenance

		• BI - Unica Annual Maintenance

		• BI - WeatherBank - Maintenance

		• BI Livelink Support

		• Bus Obj and USPS software licensing (NCOA)

		• KXEN Sofware Mainenance

		• Microstrategy CPU License Maintenance

		• Microstrategy Term License

		• Replicon - Web Resource Tool

		• Sybase - PowerDesigner License

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Information Analytics & Innovation


Service:		Shop Your Way Rewards Support

Service Description:		The Information and Analytics Shop Your Way Rewards support services provides all the vendor, licensing, monitoring and hosting support for the Shop Your Way Rewards program.

Chargeback method:		Transaction

Service Components:		• Epsilon fees to develop SYWR system

		• Epsilon mgmt fees within SYWR system

		• SYWR - S/W Maintenance (Oracle)

		• SYWR Managed services fee (Oracle)

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Information Analytics & Innovation


Service:		Supply Chain Management

Service Description:		The Information Analytics Supply Chain Management services are a collection of applications and services which assist the Supply Chain function with the following:

		• A centralized database of product information

		• Space and floor planning

		• Assortment planning

Chargeback method:		Actual

Service Components:		• BI - Advance Visual Tech - Retail Focus

		• BI - APT Merchandise Optimization Tool - Hosting Fee

		• BI - Gerber Technology Inc - Web PDM Maintenance

		• BI - iPLanMerch., Fin., & Assort. Planning - SAS.Market Max

		• BI - JDA - Space and Floor Planning - Maintenance

		• BI - SAS Institute - Merch., Fin., & Assort. Planning - ASAP Weblogic

		• BI - SAS Institute ( iPLanMerch., Fin., & Assort. Planning)

		• Data Visualization

		• Web PDM

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Information Analytics & Innovation


Service:		Targeted Interactions Support

Service Description:		The targeted interactions support services are aligned to provide in-depth information about customer behavior and provide real-time analytics and reporting to better align future offers.

Chargeback method:		Transaction / seat

Service Components:		• Unica and Application Reporting Hosting/Support

		• Unica Realtime annual maintenance

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Marketing, Pricing & Loyalty


Service:		Clearance Pricing Services

Service Description:		The clearance pricing services are a collection of applications and services which provide:

		• Markdown management services

		• Clearance pricing services

Chargeback method:		Actual

Service Components:		• CLRP

		• Kmart Markdown Management

		• No Home Clearance System

		• SAS Markdown Optimization

		• Sears Markdown Management

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Marketing, Pricing & Loyalty


Service:		Dynamic Pricing Services

Service Description:		The dynamic pricing services are a collection of applications and services which provide the following:

		• Detailed analytics around competitor pricing

		• Pricing recommendations

		• Product matching services

Chargeback method:		Actual

Service Components:		• Dynamic Pricing - Best Seller

		• Dynamic Pricing - Crawling

		• Dynamic Pricing - Data Sourcing

		• Dynamic Pricing - Mygofer

		• Dynamic Pricing - Price Recommendation

		• Dynamic Pricing - Product Matching

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Marketing, Pricing & Loyalty


Service:		Loyalty Services

Service Description:		Loyalty services within the Marketing, Pricing and Loyalty offering are specifically aligned to the Shop Your Way Rewards program. These services provide management over the supplier being leveraged to host the program.

Chargeback method:		Actual

Service Components:		• SYWR - Epsilon

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Marketing, Pricing & Loyalty


Service:		Marketing / Advertising Services

Service Description:		The marketing and advertising services are a collection of applications and services which provide:

		• A consolidated database of customer information

		• Digital asset management

Chargeback method:		Actual

Service Components:		• CDW

		• DAM

		• Marketing/Advertising - IMPACT

		• Marketing/Advertising - Kmart Legacy

		• Marketing/Advertising - New Project Evaluation

		• Marketing/Advertising - Sears Legacy

		• TI

		• Workhorse

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Marketing, Pricing & Loyalty


Service:		Pricing Services

Service Description:		The pricing services is a collection of applications and services which provide the following:

		• Price optimization

		• Web portal to view pricing information

		• Price management for both Sears and Kmart formats

Chargeback method:		Actual

Service Components:		• Deal Management

		• K-Link

		• McLane Cost Change Process

		• Price Optimization

		• Pricing - Ad Forecasting

		• Pricing - DSD

		• Pricing - GAME

		• Pricing - Kmart Price Management

		• Pricing - New Price

		• Pricing - SAM

		• Pricing - Sears Price Management

		• Pricing - Uplift

		• Pricing Portal

		• Vendor Flags (a.k.a. VSAM)

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Marketing, Pricing & Loyalty


Service:		Publishing Services

Service Description:		The publishing services is a service which provides an electronic alternative to a printed advertising circular. The electronic version would do a better job of targeting specific audiences with relevant advertising information.

Chargeback method:		Actual

Service Components:		• e-Publishing

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Network & Security Services


Service:		Compliance

Service Description:		The Compliance service is a collection of applications and processes which enable enterprise-wide adherence to industry requirements and best-practices which include:

		• Email protection services

		• Penetration testing and intrusion detection

		• Software licensing compliance

Chargeback method:		Headcount / Headcount (Ex-POS)

Service Components:		• NPE - SLA Tracking/Reporting

		• NPE - Vendor Governance

		• SEC - Compliance - SW Maint - Bradford NAC

		• SEC - Compliance - SW Maint - Email Encryption

		• SEC - Compliance - SW Maint - RSA DLP

		• SEC - Compliance - SW Maint - Tripwire

		• SEC - Compliance eDiscovery Tool SW Maint

		• SEC - Compliance HW Maintenance

		• SEC - On-Line - SW Maint - Fortify

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Network & Security Services


Service:		Media Services

Service Description:		Media Services is a suite of applications and services which provide SHC-wide capabilities such as:

		• Peer-to-peer video conferencing

		• Voice conferencing and equipment support

		• Video conference room support and services

Chargeback method:		Headcount - (Ex-POS)

Service Components:		• Maintenance on (2) Polycom video conference systems in Troy and Royal Oak

		• Maintenance on Vidyo equipment, new in 2011 - PART OF RFP

		• NPE - AudioWeb Conferencing Support

		• NPE - Video Engineering

		• NPE - Video Standards & Architecture

		• Symon Readerboards in SHTC Annual Maintenance

		• Video conferencing maintenance - New systems in 2011

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Network & Security Services


Service:		Non-retail Asset Maintenance

Service Description:		Non-retail Asset Maintenance is a collection of tools and services aimed at providing asset maintenance to the non-retail functions. These services include:

		• Private Branch Exchange (PBX) management for voice

		• Cellular repeaters for the major facilities

		• Wide Area Network (WAN) service optimization

		• Voice over IP (VoIP) services

		• Wireless services

Chargeback method:		Headcount (Ex-POS)

Service Components:		• AT&T(Troy) - PBX, Mail etc.

		• Hoffman Cellular repeater infrastructure T&M maintenance

		• Meru controller maintenance new in 2010

		• Meru s/w maintenance new in 2010

		• Nexum - Checkpoint hardware maintenance used for Troy & Hoffman firewalls

		• Palo Alto annual maintenance

		• Riverbed annual maintenance

		• SBC Hoffman PBX maintenance

		• Sniffer Infinistream (Netscout) hardware maintenance for Troy network core

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Network & Security Services


Service:		Retail Asset Maintenance

Service Description:		Retail Asset Maintenance is a collection of tools and services aimed at providing asset maintenance to the retail functions. These services include:

		• Private Branch Exchange (PBX) management for voice

		• Wide Area Network (WAN) service optimization

		• Voice over IP (VoIP) services

		• Wireless services

		• Interactive voice response (IVR) systems support

Chargeback method:		Headcount / Headcount (Ex-POS)

Service Components:		• AT&T 3174 SNA PU/LU Support

		• Bluecoat hw maintenance for Kmart store systems proxies

		• Bluecoat sw maintenance for Kmart store systems proxies

		• Cisco - Verizon Smartnet maintenance financed through Cisco Capital 7/1/11 - 6/30/14

		• Intervoice HW maint - IVR used for store locator, procedure help line, Kexpress, product return hotline, flu clinic, AP

		• Maintenance on Telident 911 System - new in 2010

		• Nortel BCM (PBX) Maintenance - Crosscom /Siemens

		• Nortel maintenance - Troy legacy routers

		• Sentinel T&M maintenance for Cisco VoIP to desktop phones

		• Siemens Maintenance Contract for all Sear locations with Siemens PBX, including Call Centers, PRS, SLS, Logistics and FLS

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Network & Security Services


Service:		Security

Service Description:		Security services is a suite of tools, applications and services which provide the following:

		• Secure web access and digital certificates

		• Single Sign On (SSO) authentication

		• Network scanning for vulnerabilities and threat management

		• Payment Card Industry (PCI) compliance

		• Crisis management

Chargeback method:		Headcount / Headcount (Ex-POS)

Service Components:		• SEC - Secure Web Gateway

		• SEC - Access Support

		• SEC - Compliance vGO SSO

		• SEC - Digital Certificates

		• SEC - Endpoint Encryption & Security

		• SEC - Identity Management

		• SEC - Internal Vulnerability Scanning

		• SEC - IPS Chassis

		• SEC - Maint for mainframe ID creation tool

		• SEC - Maintenance of Security Appliances

		• SEC - Managed Security Service

		• SEC - Mobile Management Server

		• SEC - PCI Code Reviews & Vulnerability Scanning

		• SEC - Production Support (Access Administration)

		• SEC - Secops Project Management & Tools

		• SEC - Security Compliance Support

		• SEC - Security Operations Support

		• SEC - SHC Crisis Management Program

		• SEC - Vulnerability/Threat Management

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Network & Security Services


Service:		Telecom Provisioning & Management

Service Description:		Telecom Provisioning & Management services provide support for the following:

		• Provisioning of telecom equipment

		• On-line, expense management systems and services

		• Comprehensive Telecom Expense Management with our providers

		• Contract management

Chargeback method:		Headcount / Headcount (Ex-POS)

Service Components:		• NPE - Management & Administration

		• NPE - Project Management & Administration

		• NPE - Business Financials

		• NPE - Provisioning & Support (Voice/Data/Cellular/BB)

		• NPE - Telecom Expense Management

		• TEM tool

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Network & Security Services


Service:		Telecommunications Data

Service Description:		Telecommunications Data services are a collection of applications, tools and services which provide the following data services:

		• Broadband internet/WAN services

		• Dense wavelength division multiplexing (DWDM) services providing high-speed connectivity across campuses

		• Wireless support services

		• Network performance monitoring and analysis services

Chargeback method:		Actual / Headcount / Headcount (Ex-POS)

Service Components:		• ARIN - Internet Registration (Kmart)

		• AT&T Broadband Aggregation, MIS / DSL Circuits and ANIRA

		• Data Network cabling time & materials charges

		• DWDM Private Data Network (PDN)

		• Enterprise fee

		• Hoffman Campus Wireless maintenance & support (AirWave)

		• Hughes - Dealer Stores Lease & DSL

		• Level 3 MPLS for Off Mall Sites

		• NPE - Core/Data Center Engineering, Standards & Architecture

		• NPE - Data Support Services Corporate, Off-Mall & Retail

		• NPE - Engineering Standards & Architecture

		• NPE - Firewall Engineering, Standards & Architecture

		• NPE - Hometown Store Support

		• NPE - Routing and Switching Engineering, Standards & Architecture

		• NPE - Server & Application Load Balancing Engineering

		• NPE - VPN/Remote Access Engineering, Standards & Architecture

		• Opnet Maintenance

		• Solarwinds Maintenance for Network analysis tools

		• Sprint MPLS Head End Circuits OC3’s (Hoffman and Troy)

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Network & Security Services


Service:		Telecommunications Voice

Service Description:		Telecommunications Voice services are a collection of applications, tools and services which provide the following voice services:

		• BlackBerry device support and connectivity

		• Wireless cell phone support

		• Call center support and maintenance services

		• Voicemail systems support

Chargeback method:		Actual / Headcount / Headcount (Ex-POS)

Service Components:		• Amerinet - Secure Sidewinder (Blackberry firewalls)

		• AT&T Wireless Cell Phone Credit

		• Intervoice SW maint - IVR used for store locator, procedure help line, Kexpress, product return hotline, flu clinic, AP

		• IVR Application (Edify replacement)

		• Lyrix - Peoplefind, automated operator on Troy PBX

		• NPE - Call Center/Voice Engineering, Standards & Architecture

		• NPE - DATA/VOICE/WIRELESS MACD Corporate, Off-Mall & Retail

		• NPE - Voice Support Services Corporate, Off-Mall & Retail

		• NPE - Wireless Engineering

		• NPE - Wireless Services Support Corporate, Off-Mall & Retail

		• NPE - Wireless Standards & Architecture

		• Research in Motion (RIM) - annual server licenses and fees

		• Unimax 2nd Nature Software Maint - Hoffman uses to program/support the PBX and Voicemail systems Nortel Call Pilot; Help Desk; Call Manager

		• Unimax 2nd Nature Software Maint - Troy PBX programming interface & Help Desk

		• Voice - AT&T CSU maintenance, to Call Centers

		• WIRELESS - Cell Phones, Pagers, Blackberries, Wireless Air Card Backup (Outlet and SAC stores)

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Operational Services


Service:		Associate & Customer Desktop Support

Service Description:		Associate & Customer Desktop Support services are a set of services which provide:

		• Desktop support for the enterprise systems users

		• Support for mobile platforms

		• Desktop operating systems support

		• Remote software installation and support services

Chargeback method:		Headcount (Ex-POS)

Service Components:		• Enterprise Desktop - Non Retail

		• Enterprise Mobility Framework

		• Enterprise Windows Operating Systems

		• Enterprise Workstation Builds

		• Enterprise Wrkstn Pkg Install Rtl/NonRtl

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Operational Services


Service:		Data Center Operational Services

Service Description:		Data Center Operational Services are a collection of services provided out of our data center which provide:

		• Cloud computing support and services

		• Hadoop (large data) support, services and analytics

		• Data center facilities support and maintenance services

Chargeback method:		Actual

Service Components:		• Cloud

		• Hadoop

		• Operations Center Support

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Operational Services


Service:		Distributed Environment Services

Service Description:		Distributed Environment Services are a collection of services which provide the following for the distributed computing environment:

		• Computer maintenance

		• Support and service of the various software packages and installations

		• Equipment support and repairs

Chargeback method:		Application Consumption

Service Components:		• Distributed - Computer Maintenance

		• Distributed - Data Procs Software Packages

		• Distributed - Equipment Repairs

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Operational Services


Service:		Mainframe Services

Service Description:		Mainframe Services is a collection of tools and services which provide support to our mainframe environment which includes:

		• Computer maintenance services

		• Software support

		• Equipment repairs and rentals

Chargeback method:		Transaction

Service Components:		• Mainframe - Computer Maintenance

		• Mainframe - Data Procs Software Packages

		• Mainframe - Equipment Repairs

		• Mainframe - Machine Rentals

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Operational Services


Service:		Storage Services

Service Description:		Storage Services is a collection of tools and services which provide support to our data storage needs which includes:

		• Computer maintenance services

		• Software support

		• Equipment repairs and rentals

Chargeback method:		Application Consumption

Service Components:		• Storage - Computer Maintenance

		• Storage - Data Procs Software Packages

		• Storage - Machine Rental

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Operational Services


Service:		Teradata Services

Service Description:		Teradata Services is a collection of tools and services which provide support specific to our use of the Teradata platform. These services include:

		• Teradata computer maintenance services

		• Software support

Chargeback method:		Transaction

Service Components:		• Teradata - Computer Maintenance

		• Teradata - Data Procs Software Packages

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Retail Services


Service:		Core Retailing Transaction Support

Service Description:		Core Retailing transactions support is a collection of applications and services which provide support to the Point of Sale including:

		• Back office suite (SNC, MPU, KIN, RMU) support

		• Integrated retailing mobile support (SHC Connect)

		• Store opening and closing support

		• Loss prevention support and services

		• Labor management support and services

		• Sign Management support and services

Chargeback method:		Actual

Service Components:		• ABD

		• Back Office Suite (SNC MPU) & (KIN RMU)

		• EOD Processing NFX

		• Grocery Host

		• Hometown - Hometown Connection

		• Hometown - Sears Auth Deal Incnt SADI

		• Hometown - Workstation SNC

		• I&TG Int Retail SHC Connect

		• I&TG Int Retail Str Open/Close - All Formats

		• I&TG Int Retail Support Tool SOSl(Builds)

		• Int Retail - My Gofer

		• KIN Mainframe

		• Kiosk Support - All Formats

		• Labor Mgt(VLM WFM LMF)

		• Loss Prevention - Wazagua

		• Loss Prevention ASPECT - Sears(annually)

		• Loss Prevention ASPECT -Kmart (twice a year)

		• Sign Management RES

		• Support Tool RWI(Services)

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Retail Services


Service:		Customer Facing Transaction Support

Service Description:		Customer Facing transactions support is a collection of applications and services which provide support to the Point of Sale for end-user transaction processing, including:

		• Kmart Point of Sale (XPOS)

		• Sears Point of Sale (NPOS)

		• The Great Indoors point of sales support

		• Automotive Point of Sale (TPOS)

		• Outlet Stores point of sales support

Chargeback method:		Actual

Service Components:		• Kmart XPOS

		• Outlet - Searsoutlet.com

		• Outlet LIS

		• Outlet Portal

		• Outlet SOAP

		• Pharmacy

		• Sears NPOS

		• TGI 20/20

		• TGI BDM

		• TGI MSL

		• TGI OMNI

		• TPOS

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Retail Services


Service:		Hardware Support Services

Service Description:		Hardware Support Services within the Retail Services area is specifically aimed at providing support for Point of Sale hardware. This includes:

		• Back office printer support and services

Chargeback method:		Actual

Service Components:		• Back Office Printers

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Service Management


Service:		Administration

Service Description:		The Administration services within the Service Management area are the necessary people to ensure the Service Support & Maintenance activities are properly administered.

Chargeback method:		Headcount

Service Components:		• Support Administration

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Service Management


Service:		Business Continuity

Service Description:		Business Continuity services provide the support and services necessary to ensure the business of Sears Holdings would continue to operate effectively in time of crisis or systems outages.

Chargeback method:		Headcount (Ex-POS)

Service Components:		• Business Continuity

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Service Management


Service:		I&TG Service Quality Management

Service Description:		I&TG Service Quality Management services are a collection of processes and services which provide:

		• Change management services

		• Service level monitoring and reporting services

		• Configuration management services

		• Release management services

Chargeback method:		Headcount

Service Components:		• I&TG Service Change Mgmt

		• I&TG Service Level Reporting

		• I&TG Service Mgmt Asset Management

		• I&TG Service Mgmt Configuration Management

		• I&TG Service Mgmt HW Maintenance Support

		• I&TG Service Release Mgmt

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Service Management


Service:		I&TG Service Support

Service Description:		The I&TG Service Support services are a collection of services which are aimed specifically at providing support to the named I&TG Portfolios (aligned by the Business Units they represent).

Chargeback method:		Actual

Service Components:		• I&TG Service Support - BI

		• I&TG Service Support - Home Services/Service Live

		• I&TG Service Support - Marketing & Pricing

		• I&TG Service Support - Store Systems

		• I&TG Service Support - Supply Chain

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Service Management


Service:		I&TG Service Support - Corporate Desktop Support

Service Description:		I&TG Service Support - Corporate Desktop Support are services specifically designed to support the Corporate Desktop environment (Hoffman Estates) and all the Business Units represented there.

Chargeback method:		Headcount (Ex-POS)

Service Components:		• I&TG Service Support - Corporate Desktop Support

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Service Management


Service:		Learning & Development

Service Description:		The Learning & Development support services within Service Management are all the applications, tools and services necessary to provide the CTC training rooms with the computer/lab equipment.

Chargeback method:		Headcount (Ex-POS)

Service Components:		• Training Room

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Service Management


Service:		Performance & Service Mgmt

Service Description:		Performance & Service Management services are a collection of services and processes which provide I&TG service continuity in the following areas:

		• Business Service Management services

		• Incident Management services

		• Knowledge Management services

		• Problem Management services

Chargeback method:		Headcount

Service Components:		• I&TG Service Mgmt Business Service Management

		• I&TG Service Mgmt Incident Management

		• I&TG Service Mgmt Knowledge Management

		• I&TG Service Mgmt Problem Management

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Business to Business Systems Support

Service Description:		Business to Business Systems Support are the services and applications which provide support from one BU to another and include:

		• Order support systems for Kenmore, Craftsman & Diehard

		• Cross training of BU associates

Chargeback method:		Actual

Service Components:		• Brand Order Support System (BOSS)

		• Cross Training

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Design Systems Support

Service Description:		Design Systems Support is a collection of applications and services which provide support and software to the Design business unit.

Chargeback method:		Actual

Service Components:		• Product Design Software

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Distribution Center Systems Support

Service Description:		Distribution Center Systems support is a collection of applications and services which provide support to the various types of distribution centers within Supply Chain. These include:

		• Direct Delivery Centers support

		• Customer Direct Fulfillment Centers support

		• Jewelry Replenishment Centers support

		• Warehouse Management Systems support

Chargeback method:		Actual

Service Components:		• Black Box

		• Direct Delivery Center (DDC) WMS

		• DOS DD

		• DOS DD MF

		• Jewely Replenishment Center

		• JFC & CDFC WMS

		• KEXE

		• Market Delivery Operation (MDO)

		• mygoferWMS

		• OH

		• PDC/IRC WMS

		• PkMS

		• Retail/Jewelry Replenishment Center (RRC/JRC) WMS

		• RRC, TDC, JRC - DOS TW-MF

		• Source Availability System (SAS) - Mainframe

		• Third Party DC (Distribution Center)

		• WMS

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Import Systems Support

Service Description:		Import Systems support services is the collection of applications and services necessary to provide support for the Import function within Supply Chain.

Chargeback method:		Actual

Service Components:		• Import 2000

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Inventory Management

Service Description:		Inventory Management services is a suite of applications and services which provide support for the following:

		• Inventory allocation services

		• Inventory replenishment services

		• Integrated demand and replenishment planning services

Chargeback method:		Actual

Service Components:		• Allocation

		• IDRP

		• Kmart Replenishment

		• Scan Based Trading

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Item Management Services

Service Description:		Item Management Services are a suite of applications and services which are used to Design, Source, and fully setup products in the systems required for ordering, receiving, shipping, selling and paying for products sold in Kmart, Sears, TGI and online formats. These include:

		• Item On-Boarding services

		• Item Maintenance Application (IMA)

		• Costing Model Application (CMA)

		• Data Catalogue Integration (1Sync and Inovis third party catalogues)

Chargeback method:		Actual

Service Components:		• CORE & IMA2CORE&BVP

		• Costing Model Application (CMA)

		• Data Catalogue / Data Integration

		• Item Batch, Vision, Other

		• Item Maintenance Application (IMA)

		• SHC Hierarchy

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Ordering & Receiving Support

Service Description:		Ordering & Receiving Support services include applications and services related to Distribution Center ordering and receiving functions.

Chargeback method:		Actual

Service Components:		• DC Order Mgmt System (OMS)

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Retail Demand Intelligence

Service Description:		Retail Demand Intelligence services are a collection of applications and services which include support for break/fix, monitoring, and enhancements). These systems summarize sales data at various levels to be used by Allocation and Replenishment.

Chargeback method:		Actual

Service Components:		• BEST

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Return Goods Processing Support

Service Description:		Return Goods Processing Support services is responsible for processing Return of Goods via Store along with tracking the Goods received and shipped from Third Party Return Distribution Centers.

Chargeback method:		Actual

Service Components:		• Return Goods

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Store Space Management Systems Support

Service Description:		Store Space Management Systems Support services is a collection of services and applications which provide the functionality necessary to appropriately plan and allocation store space to displays and product placement.

Chargeback method:		Actual

Service Components:		• Space/Floor Planning

Exhibit 3 to Appendix 1.01-A

Execution Copy

IT SERVICES

2012 I&TG Service Catalog

Base Offering: Supply Chain Services


Service:		Transportation Systems Support

Service Description:		Transportation Systems Support services is a collection of services and applications which help with the optimization and management of transportation functions and systems.

Chargeback method:		Actual

Service Components:		• Legacy Transportation

Exhibit 3 to Appendix 1.01-A

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		3439		45078	$	87.33
Hometown		3409		45078	$	87.33
Hometown		5501		45078	$	87.33
Hometown		7392		45094	$	80.45
Hometown		5467		45094	$	80.45
Hometown		3161		45094	$	80.45
Hometown		7163		45094	$	80.45
Hometown		7203		45094	$	80.45
Hometown		9632		32980	$	86.92
Hometown		3099		32980	$	86.92
Hometown		3492		32980	$	86.92
Hometown		5824		32980	$	86.92
Hometown		3838		45573	$	86.83
Hometown		3856		45573	$	86.83
Hometown		7816		45573	$	86.83
Hometown		7377		45573	$	86.83
Hometown		6420		45117	$	85.81
Hometown		3281		45117	$	85.81
Hometown		3091		45117	$	85.81
Hometown		1832		45117	$	85.81
Hometown		3930		45117	$	85.81
Hometown		5584		45117	$	85.81
Hometown		5710		45117	$	85.81
Hometown		5811		45117	$	85.81
Hometown		3204		45117	$	85.81
Hometown		7821		45117	$	85.81
Hometown		5777		45119	$	105.90
Hometown		2726		45119	$	105.90
Hometown		5407		45119	$	105.90
Hometown		5918		45119	$	105.90
Hometown		5272		45119	$	105.90
Hometown		5469		45119	$	105.90
Hometown		3430		45119	$	105.90
Hometown		5520		45120	$	93.58
Hometown		5559		45120	$	93.58
Hometown		3849		45120	$	93.58
Hometown		5524		45568	$	107.99
Hometown		5232		45568	$	107.99
Hometown		3294		45568	$	107.99
Hometown		6087		45568	$	107.99
Hometown		3610		45569	$	91.35
Hometown		2780		45569	$	91.35
Hometown		5929		45569	$	91.35
Hometown		3081		45569	$	91.35
Hometown		7211		45569	$	91.35
Hometown		5220		45569	$	91.35
Hometown		3482		45569	$	91.35

EXHIBIT 4 TO APPENDIX 1.01-A

1 of 14

Ex. 4 – Page 1

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		6558		45570	$	91.12
Hometown		6213		45570	$	91.12
Hometown		8146		45570	$	91.12
Hometown		3887		45130	$	99.24
Hometown		7301		45130	$	99.24
Hometown		7515		45130	$	99.24
Hometown		5945		45130	$	99.24
Hometown		6720		45130	$	99.24
Hometown		3944		45130	$	99.24
Hometown		5588		45133	$	96.29
Hometown		3576		45133	$	96.29
Hometown		6288		45133	$	96.29
Hometown		6741		45133	$	96.29
Hometown		5534		45133	$	96.29
Hometown		5891		45136	$	117.48
Hometown		5510		45136	$	117.48
Hometown		5495		45136	$	117.48
Hometown		3647		45136	$	117.48
Hometown		6240		45136	$	117.48
Hometown		3936		45136	$	117.48
Hometown		3525		45148	$	113.55
Hometown		5735		45148	$	113.55
Hometown		3445		45148	$	113.55
Hometown		5505		45566	$	77.99
Hometown		5620		45566	$	77.99
Hometown		3870		45566	$	77.99
Hometown		2753		45566	$	77.99
Hometown		3739		45566	$	77.99
Hometown		5826		45566	$	77.99
Hometown		3974		45566	$	77.99
Hometown		5835		45166	$	90.62
Hometown		3123		45166	$	90.62
Hometown		5815		45166	$	90.62
Hometown		3463		45166	$	90.62
Hometown		6979		45166	$	90.62
Hometown		5759		45166	$	90.62
Hometown		3690		45166	$	90.62
Hometown		7476		45583	$	117.44
Hometown		1846		45583	$	117.44
Hometown		7267		45583	$	117.44
Hometown		3898		45583	$	117.44
Hometown		5760		45583	$	117.44
Hometown		3545		45583	$	117.44
Hometown		7468		45591	$	107.96
Hometown		3875		45591	$	107.96
Hometown		8108		45591	$	107.96
Hometown		5193		45062	$	75.20

EXHIBIT 4 TO APPENDIX 1.01-A

2 of 14

Ex. 4 – Page 2

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		1444		45062	$	75.20
Hometown		7703		45062	$	75.20
Hometown		5462		45064	$	76.23
Hometown		3694		45064	$	76.23
Hometown		5960		45064	$	76.23
Hometown		6637		45064	$	76.23
Hometown		3514		45064	$	76.23
Hometown		7262		45065	$	64.57
Hometown		3384		45065	$	64.57
Hometown		5194		45065	$	64.57
Hometown		6966		45065	$	64.57
Hometown		3609		45065	$	64.57
Hometown		7694		45070	$	82.49
Hometown		2713		45070	$	82.49
Hometown		5876		45070	$	82.49
Hometown		3246		45070	$	82.49
Hometown		3426		45070	$	82.49
Hometown		1926		45070	$	82.49
Hometown		3965		45070	$	82.49
Hometown		2634		45070	$	82.49
Hometown		7506		45070	$	82.49
Hometown		5180		45076	$	67.50
Hometown		1849		45076	$	67.50
Hometown		3469		45076	$	67.50
Hometown		3449		45076	$	67.50
Hometown		3448		45077	$	91.28
Hometown		7658		45079	$	75.09
Hometown		5822		45079	$	75.09
Hometown		2579		45079	$	75.09
Hometown		3611		45081	$	97.55
Hometown		3883		45081	$	97.55
Hometown		5216		45081	$	97.55
Hometown		3791		45081	$	97.55
Hometown		2172		45081	$	97.55
Hometown		6726		45081	$	97.55
Hometown		4951		45081	$	97.55
Hometown		3983		45081	$	97.55
Hometown		7638		45083	$	72.93
Hometown		3101		45083	$	72.93
Hometown		8030		45083	$	72.93
Hometown		6475		45083	$	72.93
Hometown		6611		45088	$	76.69
Hometown		1870		45088	$	76.69
Hometown		7370		45088	$	76.69
Hometown		3102		45088	$	76.69
Hometown		3341		45088	$	76.69
Hometown		6573		45088	$	76.69

EXHIBIT 4 TO APPENDIX 1.01-A

3 of 14

Ex. 4 – Page 3

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		9890		45088	$	76.69
Hometown		7290		45088	$	76.69
Hometown		3250		45095	$	76.32
Hometown		1933		45095	$	76.32
Hometown		9607		45095	$	76.32
Hometown		7357		45095	$	76.32
Hometown		7406		45095	$	76.32
Hometown		5400		45095	$	76.32
Hometown		3181		45095	$	76.32
Hometown		7952		45095	$	76.32
Hometown		5231		45095	$	76.32
Hometown		9291		45572	$	78.88
Hometown		9292		45572	$	78.88
Hometown		6856		45572	$	78.88
Hometown		5494		45572	$	78.88
Hometown		5977		45105	$	83.08
Hometown		1848		45105	$	83.08
Hometown		3649		45106	$	75.58
Hometown		1801		45109	$	77.56
Hometown		6908		45109	$	77.56
Hometown		2572		45109	$	77.56
Hometown		7284		45109	$	77.56
Hometown		9270		45109	$	77.56
Hometown		1741		45109	$	77.56
Hometown		1806		45109	$	77.56
Hometown		1803		45109	$	77.56
Hometown		5825		45109	$	77.56
Hometown		6583		45109	$	77.56
Hometown		2930		45109	$	77.56
Hometown		3591		45565	$	75.96
Hometown		2701		45565	$	75.96
Hometown		5542		45565	$	75.96
Hometown		5482		45565	$	75.96
Hometown		6614		45116	$	95.41
Hometown		3112		45116	$	95.41
Hometown		3612		45116	$	95.41
Hometown		7630		45116	$	95.41
Hometown		1852		45116	$	95.41
Hometown		7433		45116	$	95.41
Hometown		3472		45116	$	95.41
Hometown		5724		45116	$	95.41
Hometown		6586		45116	$	95.41
Hometown		3830		45116	$	95.41
Hometown		5738		45116	$	95.41
Hometown		7742		45116	$	95.41
Hometown		1842		45116	$	95.41
Hometown		3242		45116	$	95.41

EXHIBIT 4 TO APPENDIX 1.01-A

4 of 14

Ex. 4 – Page 4

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		3921		45116	$	95.41
Hometown		3652		45116	$	95.41
Hometown		5464		45127	$	116.60
Hometown		7954		45127	$	116.60
Hometown		5751		45127	$	116.60
Hometown		6325		45127	$	116.60
Hometown		7291		45127	$	116.60
Hometown		9209		45598	$	103.67
Hometown		2024		45598	$	103.67
Hometown		3526		45598	$	103.67
Hometown		1939		45598	$	103.67
Hometown		3259		45598	$	103.67
Hometown		3565		45598	$	103.67
Hometown		3674		45598	$	103.67
Hometown		7271		45598	$	103.67
Hometown		5748		45129	$	86.50
Hometown		5790		45129	$	86.50
Hometown		3969		45129	$	86.50
Hometown		3055		45129	$	86.50
Hometown		8164		45129	$	86.50
Hometown		7815		45134	$	81.81
Hometown		7737		45134	$	81.81
Hometown		8092		45134	$	81.81
Hometown		5915		45134	$	81.81
Hometown		5916		45134	$	81.81
Hometown		9628		45134	$	81.81
Hometown		5919		45134	$	81.81
Hometown		5875		45135	$	87.38
Hometown		7483		45135	$	87.38
Hometown		7807		45135	$	87.38
Hometown		3036		45135	$	87.38
Hometown		3636		45135	$	87.38
Hometown		5695		45560	$	111.62
Hometown		5165		45560	$	111.62
Hometown		6622		45560	$	111.62
Hometown		6643		45154	$	95.42
Hometown		3473		45154	$	95.42
Hometown		3913		45154	$	95.42
Hometown		3603		45154	$	95.42
Hometown		3134		45154	$	95.42
Hometown		3148		45154	$	95.42
Hometown		5504		45156	$	69.07
Hometown		7893		45156	$	69.07
Hometown		5412		45156	$	69.07
Hometown		5152		45156	$	69.07
Hometown		3871		45156	$	69.07
Hometown		7102		45164	$	76.56

EXHIBIT 4 TO APPENDIX 1.01-A

5 of 14

Ex. 4 – Page 5

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		3434		45164	$	76.56
Hometown		7693		45164	$	76.56
Hometown		3712		45164	$	76.56
Hometown		6846		45165	$	74.72
Hometown		5507		45165	$	74.72
Hometown		5756		45165	$	74.72
Hometown		9272		45165	$	74.72
Hometown		1845		45169	$	91.95
Hometown		6135		45170	$	87.48
Hometown		7378		45170	$	87.48
Hometown		6581		45170	$	87.48
Hometown		7720		45170	$	87.48
Hometown		3150		45170	$	87.48
Hometown		9843		45599	$	84.77
Hometown		5711		45599	$	84.77
Hometown		3374		45599	$	84.77
Hometown		7813		45176	$	81.27
Hometown		6557		45137	$	99.46
Hometown		3587		45137	$	99.46
Hometown		3217		45137	$	99.46
Hometown		6740		45137	$	99.46
Hometown		7726		45137	$	99.46
Hometown		3906		45137	$	99.46
Hometown		3007		45137	$	99.46
Hometown		7202		45137	$	99.46
Hometown		3574		45060	$	82.99
Hometown		7545		45060	$	82.99
Hometown		3003		45060	$	82.99
Hometown		3673		45060	$	82.99
Hometown		3273		45060	$	82.99
Hometown		5461		45060	$	82.99
Hometown		3285		45060	$	82.99
Hometown		3064		45060	$	82.99
Hometown		3503		45061	$	98.75
Hometown		5455		45061	$	98.75
Hometown		2702		45061	$	98.75
Hometown		4864		45061	$	98.75
Hometown		6686		45061	$	98.75
Hometown		5522		45061	$	98.75
Hometown		7573		45061	$	98.75
Hometown		5847		45067	$	63.48
Hometown		5734		45067	$	63.48
Hometown		5192		45067	$	63.48
Hometown		5955		45067	$	63.48
Hometown		9698		45067	$	63.48
Hometown		5533		45067	$	63.48
Hometown		3640		45578	$	107.81

EXHIBIT 4 TO APPENDIX 1.01-A

6 of 14

Ex. 4 – Page 6

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		3121		45578	$	107.81
Hometown		5828		45578	$	107.81
Hometown		9970		45068	$	95.54
Hometown		5853		45068	$	95.54
Hometown		5993		45068	$	95.54
Hometown		5858		45068	$	95.54
Hometown		7550		45073	$	70.45
Hometown		5820		45073	$	70.45
Hometown		2426		45073	$	70.45
Hometown		3166		45577	$	87.36
Hometown		1825		45577	$	87.36
Hometown		3226		45577	$	87.36
Hometown		6224		45577	$	87.36
Hometown		5867		45577	$	87.36
Hometown		2004		45577	$	87.36
Hometown		5852		45577	$	87.36
Hometown		5690		45577	$	87.36
Hometown		5836		45577	$	87.36
Hometown		5696		45577	$	87.36
Hometown		3236		45577	$	87.36
Hometown		5704		45074	$	91.25
Hometown		5498		45581	$	78.22
Hometown		3450		45581	$	78.22
Hometown		1861		45581	$	78.22
Hometown		1860		45581	$	78.22
Hometown		5754		45581	$	78.22
Hometown		2159		45574	$	84.27
Hometown		5515		45574	$	84.27
Hometown		5888		45574	$	84.27
Hometown		5937		45574	$	84.27
Hometown		3549		45574	$	84.27
Hometown		8034		45574	$	84.27
Hometown		6574		45084	$	68.21
Hometown		7671		45084	$	68.21
Hometown		3432		45084	$	68.21
Hometown		5895		45084	$	68.21
Hometown		3980		45084	$	68.21
Hometown		4789		45084	$	68.21
Hometown		5933		45559	$	70.86
Hometown		3303		45559	$	70.86
Hometown		5951		45559	$	70.86
Hometown		3261		45559	$	70.86
Hometown		5903		45559	$	70.86
Hometown		5212		45559	$	70.86
Hometown		3280		45559	$	70.86
Hometown		5536		45559	$	70.86
Hometown		9655		45089	$	60.03

EXHIBIT 4 TO APPENDIX 1.01-A

7 of 14

Ex. 4 – Page 7

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		9666		45089	$	60.03
Hometown		9668		45089	$	60.03
Hometown		5855		45089	$	60.03
Hometown		1483		45089	$	60.03
Hometown		4661		45089	$	60.03
Hometown		7860		45091	$	69.31
Hometown		7674		45091	$	69.31
Hometown		5276		45099	$	67.31
Hometown		5312		45099	$	67.31
Hometown		1867		45099	$	67.31
Hometown		7617		45099	$	67.31
Hometown		3590		45099	$	67.31
Hometown		7497		45099	$	67.31
Hometown		3826		45100	$	83.38
Hometown		1839		45100	$	83.38
Hometown		3349		45100	$	83.38
Hometown		6526		45100	$	83.38
Hometown		5803		45100	$	83.38
Hometown		1815		45101	$	65.45
Hometown		5202		45101	$	65.45
Hometown		9099		45101	$	65.45
Hometown		2559		45101	$	65.45
Hometown		7408		45101	$	65.45
Hometown		3519		45101	$	65.45
Hometown		9228		45103	$	56.77
Hometown		4718		45103	$	56.77
Hometown		9219		45103	$	56.77
Hometown		5956		45103	$	56.77
Hometown		9080		45104	$	70.40
Hometown		3037		45104	$	70.40
Hometown		1841		45104	$	70.40
Hometown		1829		45104	$	70.40
Hometown		7537		45104	$	70.40
Hometown		4778		45104	$	70.40
Hometown		3048		45107	$	56.51
Hometown		9206		45108	$	119.95
Hometown		5938		45111	$	90.39
Hometown		5191		45111	$	90.39
Hometown		9941		45111	$	90.39
Hometown		7514		45111	$	90.39
Hometown		5303		45111	$	90.39
Hometown		7782		45111	$	90.39
Hometown		5706		45111	$	90.39
Hometown		5521		45112	$	87.70
Hometown		5812		45112	$	87.70
Hometown		2761		45112	$	87.70
Hometown		5950		45112	$	87.70

EXHIBIT 4 TO APPENDIX 1.01-A

8 of 14

Ex. 4 – Page 8

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		3192		45113	$	98.67
Hometown		7657		45113	$	98.67
Hometown		5489		45113	$	98.67
Hometown		5742		45113	$	98.67
Hometown		4663		45113	$	98.67
Hometown		7502		45114	$	95.82
Hometown		8036		45114	$	95.82
Hometown		3738		45115	$	68.92
Hometown		5570		45115	$	68.92
Hometown		5859		45115	$	68.92
Hometown		3702		45115	$	68.92
Hometown		5869		45115	$	68.92
Hometown		3453		45115	$	68.92
Hometown		2941		45115	$	68.92
Hometown		5949		45115	$	68.92
Hometown		1821		45115	$	68.92
Hometown		5850		45115	$	68.92
Hometown		6150		45115	$	68.92
Hometown		3802		45115	$	68.92
Hometown		3532		45115	$	68.92
Hometown		6414		45115	$	68.92
Hometown		2192		45115	$	68.92
Hometown		3572		45115	$	68.92
Hometown		5952		45115	$	68.92
Hometown		1940		45115	$	68.92
Hometown		3440		45115	$	68.92
Hometown		5839		45115	$	68.92
Hometown		5582		45115	$	68.92
Hometown		3391		45115	$	68.92
Hometown		1862		45115	$	68.92
Hometown		9982		45115	$	68.92
Hometown		6437		45115	$	68.92
Hometown		1931		45115	$	68.92
Hometown		7559		45122	$	71.46
Hometown		3321		45122	$	71.46
Hometown		5893		45122	$	71.46
Hometown		5975		45122	$	71.46
Hometown		9242		45122	$	71.46
Hometown		6747		45122	$	71.46
Hometown		5827		45122	$	71.46
Hometown		9077		45122	$	71.46
Hometown		9227		45122	$	71.46
Hometown		2706		45122	$	71.46
Hometown		3977		45122	$	71.46
Hometown		2708		45122	$	71.46
Hometown		5840		45122	$	71.46
Hometown		7569		45122	$	71.46

EXHIBIT 4 TO APPENDIX 1.01-A

9 of 14

Ex. 4 – Page 9

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		9472		45122	$	71.46
Hometown		1816		45122	$	71.46
Hometown		9504		45122	$	71.46
Hometown		6665		45122	$	71.46
Hometown		3307		45122	$	71.46
Hometown		9073		45122	$	71.46
Hometown		8076		45122	$	71.46
Hometown		3135		45125	$	100.21
Hometown		5491		45125	$	100.21
Hometown		3704		45125	$	100.21
Hometown		6267		45125	$	100.21
Hometown		3125		45125	$	100.21
Hometown		3145		45125	$	100.21
Hometown		5973		45125	$	100.21
Hometown		7363		45125	$	100.21
Hometown		3918		45125	$	100.21
Hometown		7220		45126	$	88.70
Hometown		3346		45126	$	88.70
Hometown		7350		45126	$	88.70
Hometown		6684		45126	$	88.70
Hometown		7709		45126	$	88.70
Hometown		5726		45126	$	88.70
Hometown		5691		45132	$	90.25
Hometown		3787		45132	$	90.25
Hometown		7491		45132	$	90.25
Hometown		5917		45132	$	90.25
Hometown		5887		45132	$	90.25
Hometown		3736		45132	$	90.25
Hometown		3950		45132	$	90.25
Hometown		7210		45132	$	90.25
Hometown		3012		45132	$	90.25
Hometown		3915		45132	$	90.25
Hometown		1869		45132	$	90.25
Hometown		7614		45132	$	90.25
Hometown		3157		45132	$	90.25
Hometown		3186		45132	$	90.25
Hometown		6208		45132	$	90.25
Hometown		6504		45132	$	90.25
Hometown		6753		45132	$	90.25
Hometown		9286		45138	$	57.22
Hometown		7728		45138	$	57.22
Hometown		5658		45138	$	57.22
Hometown		6911		45138	$	57.22
Hometown		5663		45138	$	57.22
Hometown		5947		45138	$	57.22
Hometown		5656		45138	$	57.22
Hometown		5657		45138	$	57.22

EXHIBIT 4 TO APPENDIX 1.01-A

10 of 14

Ex. 4 – Page 10

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		5359		45139	$	73.64
Hometown		5626		45139	$	73.64
Hometown		5681		45139	$	73.64
Hometown		3039		45139	$	73.64
Hometown		3908		45139	$	73.64
Hometown		6402		45139	$	73.64
Hometown		6410		45139	$	73.64
Hometown		3999		45139	$	73.64
Hometown		5707		45139	$	73.64
Hometown		5343		45140	$	50.00
Hometown		9295		45140	$	50.00
Hometown		5557		45142	$	70.31
Hometown		7609		45142	$	70.31
Hometown		5530		45142	$	70.31
Hometown		5535		45142	$	70.31
Hometown		5674		45142	$	70.31
Hometown		3437		45142	$	70.31
Hometown		3038		45142	$	70.31
Hometown		5576		45142	$	70.31
Hometown		5565		45142	$	70.31
Hometown		5615		45142	$	70.31
Hometown		3079		45142	$	70.31
Hometown		5727		45142	$	70.31
Hometown		5453		45143	$	93.37
Hometown		3859		45143	$	93.37
Hometown		2169		45143	$	93.37
Hometown		3046		45143	$	93.37
Hometown		5250		45145	$	59.89
Hometown		5686		45145	$	59.89
Hometown		7789		45145	$	59.89
Hometown		5636		45145	$	59.89
Hometown		5743		45145	$	59.89
Hometown		5609		45145	$	59.89
Hometown		5642		45145	$	59.89
Hometown		5606		45145	$	59.89
Hometown		5682		45145	$	59.89
Hometown		5889		45146	$	59.10
Hometown		5633		45146	$	59.10
Hometown		3178		45146	$	59.10
Hometown		5612		45146	$	59.10
Hometown		5635		45146	$	59.10
Hometown		5643		45146	$	59.10
Hometown		5637		45146	$	59.10
Hometown		5645		45146	$	59.10
Hometown		5654		45146	$	59.10
Hometown		5650		45146	$	59.10
Hometown		5628		45146	$	59.10

EXHIBIT 4 TO APPENDIX 1.01-A

11 of 14

Ex. 4 – Page 11

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		5648		45146	$	59.10
Hometown		7557		45149	$	73.04
Hometown		2235		45149	$	73.04
Hometown		7565		45149	$	73.04
Hometown		2785		45149	$	73.04
Hometown		4746		45149	$	73.04
Hometown		5221		45149	$	73.04
Hometown		3520		45151	$	67.68
Hometown		5052		45151	$	67.68
Hometown		6561		45151	$	67.68
Hometown		7482		45151	$	67.68
Hometown		3020		45151	$	67.68
Hometown		3113		45153	$	72.75
Hometown		5832		45153	$	72.75
Hometown		5755		45153	$	72.75
Hometown		5490		45153	$	72.75
Hometown		7853		45153	$	72.75
Hometown		5807		45153	$	72.75
Hometown		6795		45153	$	72.75
Hometown		2751		45153	$	72.75
Hometown		9361		45153	$	72.75
Hometown		2739		45158	$	74.46
Hometown		1858		45158	$	74.46
Hometown		9201		45158	$	74.46
Hometown		7567		45158	$	74.46
Hometown		8105		45158	$	74.46
Hometown		7686		45158	$	74.46
Hometown		6017		45158	$	74.46
Hometown		6206		45158	$	74.46
Hometown		1811		45158	$	74.46
Hometown		1936		45158	$	74.46
Hometown		1856		45158	$	74.46
Hometown		3497		45158	$	74.46
Hometown		3388		45158	$	74.46
Hometown		1928		45158	$	74.46
Hometown		1937		45158	$	74.46
Hometown		5927		45158	$	74.46
Hometown		3697		45158	$	74.46
Hometown		1819		45158	$	74.46
Hometown		3528		45158	$	74.46
Hometown		6400		45158	$	74.46
Hometown		7489		45160	$	77.38
Hometown		3961		45160	$	77.38
Hometown		4798		45160	$	77.38
Hometown		3816		45160	$	77.38
Hometown		5818		45160	$	77.38
Hometown		3458		45160	$	77.38

EXHIBIT 4 TO APPENDIX 1.01-A

12 of 14

Ex. 4 – Page 12

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		3756		45160	$	77.38
Hometown		4693		45160	$	77.38
Hometown		9774		45160	$	77.38
Hometown		7222		45160	$	77.38
Hometown		7667		45161	$	82.80
Hometown		5795		45161	$	82.80
Hometown		2709		45162	$	69.50
Hometown		3468		45162	$	69.50
Hometown		5809		45162	$	69.50
Hometown		7787		45162	$	69.50
Hometown		7391		45162	$	69.50
Hometown		7379		45162	$	69.50
Hometown		1808		45162	$	69.50
Hometown		1859		45162	$	69.50
Hometown		7403		45162	$	69.50
Hometown		5794		45162	$	69.50
Hometown		1857		45162	$	69.50
Hometown		5414		45162	$	69.50
Hometown		5868		45162	$	69.50
Hometown		8033		45162	$	69.50
Hometown		1965		45162	$	69.50
Hometown		1938		45162	$	69.50
Hometown		3607		45162	$	69.50
Hometown		1932		45162	$	69.50
Hometown		7178		45162	$	69.50
Hometown		1809		45162	$	69.50
Hometown		2187		45579	$	88.16
Hometown		5854		45579	$	88.16
Hometown		7697		45579	$	88.16
Hometown		6722		45579	$	88.16
Hometown		5946		45579	$	88.16
Hometown		5175		45579	$	88.16
Hometown		3686		45579	$	88.16
Hometown		3948		45579	$	88.16
Hometown		7907		45579	$	88.16
Hometown		7114		45579	$	88.16
Hometown		5885		45579	$	88.16
Hometown		5897		45579	$	88.16
Hometown		3215		45580	$	85.65
Hometown		3305		45580	$	85.65
Hometown		5587		45580	$	85.65
Hometown		6502		45580	$	85.65
Hometown		5673		45580	$	85.65
Hometown		5821		45580	$	85.65
Hometown		4780		45580	$	85.65
Hometown		4855		45580	$	85.65
Hometown		7180		45576	$	63.24

EXHIBIT 4 TO APPENDIX 1.01-A

13 of 14

Ex. 4 – Page 13

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Hometown

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Hometown		5547		45576	$	63.24
Hometown		3073		45576	$	63.24
Hometown		7190		45576	$	63.24
Hometown		7172		45576	$	63.24
Hometown		3743		45163	$	60.30
Hometown		2552		45163	$	60.30
Hometown		3006		45163	$	60.30
Hometown		4763		45163	$	60.30
Hometown		2194		45163	$	60.30
Hometown		3323		45163	$	60.30
Hometown		2202		45163	$	60.30
Hometown		7692		45163	$	60.30
Hometown		2733		45593	$	94.79
Hometown		1817		45593	$	94.79
Hometown		3494		45593	$	94.79
Hometown		5882		45593	$	94.79
Hometown		1836		45593	$	94.79
Hometown		1923		45593	$	94.79
Hometown		5872		45593	$	94.79
Hometown		9916		45168	$	73.97
Hometown		3745		45168	$	73.97
Hometown		6474		45171	$	72.10
Hometown		2566		45171	$	72.10
Hometown		2925		45171	$	72.10
Hometown		1855		45171	$	72.10
Hometown		5321		45171	$	72.10
Hometown		7825		45172	$	86.48
Hometown		5162		45172	$	86.48
Hometown		1912		45172	$	86.48
Hometown		7070		45172	$	86.48
Hometown		8155		45172	$	86.48
Hometown		7285		45172	$	86.48
Hometown		7734		45177	$	69.19
Hometown		1903		45177	$	69.19
Hometown		5496		45177	$	69.19
Hometown		5512		45177	$	69.19

EXHIBIT 4 TO APPENDIX 1.01-A

14 of 14

Ex. 4 – Page 14

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Outlet

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Outlet		5264		45573	$	86.83
Outlet		7661		45120	$	93.58
Outlet		7633		45062	$	75.20
Outlet		7424		45065	$	64.57
Outlet		4324		45065	$	64.57
Outlet		7564		45070	$	82.49
Outlet		9974		45070	$	82.49
Outlet		9888		45076	$	67.50
Outlet		5397		45076	$	67.50
Outlet		4620		45081	$	97.55
Outlet		7592		45081	$	97.55
Outlet		5060		45081	$	97.55
Outlet		7601		45083	$	72.93
Outlet		7611		45083	$	72.93
Outlet		9603		45083	$	72.93
Outlet		7562		45572	$	78.88
Outlet		4583		45572	$	78.88
Outlet		7237		45105	$	83.08
Outlet		9849		45106	$	75.58
Outlet		4619		45109	$	77.56
Outlet		4696		45109	$	77.56
Outlet		8279		45116	$	95.41
Outlet		7533		45129	$	86.50
Outlet		7588		45134	$	81.81
Outlet		8487		45134	$	81.81
Outlet		7820		45135	$	87.38
Outlet		4994		45164	$	76.56
Outlet		7593		45165	$	74.72
Outlet		9983		45165	$	74.72
Outlet		7507		45599	$	84.77
Outlet		4823		45067	$	63.48
Outlet		8286		45067	$	63.48
Outlet		9892		45068	$	95.54
Outlet		4599		45073	$	70.45
Outlet		9876		45577	$	87.36
Outlet		4606		45581	$	78.22
Outlet		1916		45581	$	78.22
Outlet		9670		45581	$	78.22
Outlet		4790		45581	$	78.22
Outlet		9756		45581	$	78.22
Outlet		7538		45574	$	84.27
Outlet		4119		45574	$	84.27
Outlet		9788		45574	$	84.27
Outlet		9850		45084	$	68.21
Outlet		5230		45084	$	68.21

EXHIBIT 4 TO APPENDIX 1.01-A

1 of 3

Ex. 4 – Page 15

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Outlet

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Outlet		7911		45084	$	68.21
Outlet		9986		45084	$	68.21
Outlet		7561		45084	$	68.21
Outlet		9696		45089	$	60.03
Outlet		5361		45089	$	60.03
Outlet		4585		45090	$	63.41
Outlet		7577		45091	$	69.31
Outlet		7159		45091	$	69.31
Outlet		9251		45091	$	69.31
Outlet		7590		45091	$	69.31
Outlet		8496		45091	$	69.31
Outlet		5207		45091	$	69.31
Outlet		5640		45091	$	69.31
Outlet		9785		45091	$	69.31
Outlet		7704		45091	$	69.31
Outlet		7540		45091	$	69.31
Outlet		9981		45091	$	69.31
Outlet		9870		45091	$	69.31
Outlet		8246		45099	$	67.31
Outlet		9764		45099	$	67.31
Outlet		7541		45099	$	67.31
Outlet		7529		45101	$	65.45
Outlet		4099		45103	$	56.77
Outlet		5298		45103	$	56.77
Outlet		4958		45103	$	56.77
Outlet		5282		45103	$	56.77
Outlet		7349		45104	$	70.40
Outlet		7089		45104	$	70.40
Outlet		4598		45104	$	70.40
Outlet		7359		45107	$	56.51
Outlet		4328		45107	$	56.51
Outlet		4001		45111	$	90.39
Outlet		9112		45111	$	90.39
Outlet		4611		45115	$	68.92
Outlet		7652		45115	$	68.92
Outlet		7612		45122	$	71.46
Outlet		7556		45122	$	71.46
Outlet		8470		45122	$	71.46
Outlet		7438		45140	$	50.00
Outlet		4049		45140	$	50.00
Outlet		7659		45140	$	50.00
Outlet		4618		45142	$	70.31
Outlet		9229		45142	$	70.31
Outlet		9486		45143	$	93.37
Outlet		8346		45145	$	59.89

EXHIBIT 4 TO APPENDIX 1.01-A

2 of 3

Ex. 4 – Page 16

HOME SERVICES

2012 DELIVERY RATES

2012 Delivery Attachment

Outlet

2012 IBA


Type of Store	Store#		MDO		2012 Rate
Outlet		9497		45146	$	59.10
Outlet		4697		45146	$	59.10
Outlet		7238		45146	$	59.10
Outlet		9688		45146	$	59.10
Outlet		7586		45149	$	73.04
Outlet		8495		45149	$	73.04
Outlet		7546		45149	$	73.04
Outlet		7450		45151	$	67.68
Outlet		7440		45151	$	67.68
Outlet		4333		45153	$	72.75
Outlet		9671		45153	$	72.75
Outlet		4689		45153	$	72.75
Outlet		9796		45158	$	74.46
Outlet		7631		45158	$	74.46
Outlet		4617		45158	$	74.46
Outlet		7920		45158	$	74.46
Outlet		4486		45158	$	74.46
Outlet		4650		45158	$	74.46
Outlet		9897		45160	$	77.38
Outlet		9411		45162	$	69.50
Outlet		8234		45162	$	69.50
Outlet		7818		45162	$	69.50
Outlet		9284		45579	$	88.16
Outlet		8412		45580	$	85.65
Outlet		7457		45580	$	85.65
Outlet		5342		45576	$	63.24
Outlet		4044		45576	$	63.24
Outlet		9114		45576	$	63.24
Outlet		4621		45576	$	63.24
Outlet		4601		45576	$	63.24
Outlet		9944		45163	$	60.30
Outlet		8482		45163	$	60.30
Outlet		9282		45163	$	60.30
Outlet		8461		45167	$	153.00
Outlet		5365		45168	$	73.97
Outlet		4345		45168	$	73.97
Outlet		4185		45171	$	72.10
Outlet		4335		45171	$	72.10
Outlet		6052		45171	$	72.10

EXHIBIT 4 TO APPENDIX 1.01-A

3 of 3

Ex. 4 – Page 17

Execution Copy

Appendix 1.01-B

Effective Date

The Effective Date referred to in Section 1.01 is September , 2012.

Appendix 1.01-B- Page – 1

Execution Copy

Appendix 1.10 Service Operating Committee

Party Contact Persons

For SHMC:

Chris Eyunni

For SHO:

J.J. Ethridge

Services Operating Committee

For SHMC:

Chris Eyunni, Carol Ricchio, Rob Riecker

For SHO:

J.J. Etheridge, Mike Gray, Jon Phillips,

Initial Chairperson: Chris Eyunni

Appendix 1.10 Page - 1

Exhibit 10.8

Execution Copy

Shop Your Way Rewards Retail Establishment Agreement

Between

Sears Holdings Management Corporation

And

Sears Hometown and Outlet Stores, Inc.

August 8, 2012

Execution Copy

Table of Contents


I.	Definitions.		1

II.	Term.		1

III.	The Program.		1

IV.	Program Authorizations; Program is Exclusive.		2

V.	Transaction Information.		2

VI.	Points.		3
	A.	Issuance of Points.	3
	B.	Bonus Point Offers.	3
	C.	Points Issuance Fee.	3
	D.	Redemption of Points.	3
	E.	Reimbursement Upon Redemption.	3
	F.	Expiration of Points.	4
	G.	Reconciliation and Payment.	4
	H.	Differentiation.	4
	I.	Permits and Taxes.	4

VII.	Services; Marketing.		4
	A.	Marketing by SHMC for SHO.	4
	B.	SHMC’s Other Marketing.	5
	C.	SHO Email Obligation.	5

VIII.	License to Use Marks		6
	A.	SHMC Marks.	6
	B.	SHO Marks.	6
	C.	Injunctive Relief.	6

IX.	Enrollment of New Members.		6

X.	Ownership of Data.		7

XI.	Confidentiality.		7
	A.	Confidential Business Information.	7
	B.	Exceptions.	7
	C.	Confidential Personal Information.	8
	D.	Data Security.	8
	E.	Unauthorized Use or Disclosure of Confidential Information.	8
	F.	Return of Confidential Information.	8
	G.	Publicity.	9

Execution Copy



XII.	Termination.		9
	A.	General.	9
	B.	Termination for Convenience.	9
	C.	Termination in Response to a Termination of another Agreement.	9
	D.	Obligations at Termination or Expiration.	10

XIII.	Books and Records; Audits.		10

XIV.	SYW Operating Committee; Dispute Resolution.		10
	A.	SYW Operating Committee .	10
	B.	Dispute Resolution.	11

XV.	Representations and Warranties; Covenants of SHO.		12
	A.	Representations and Warranties of SHO.	12
	B.	Representations of SHMC.	14
	C.	Covenants of SHO.	15
	D.	Covenants of SHMC.	16

XVI.	Indemnification.		16
	A.	SHO Indemnification of SHMC.	16
	B.	SHMC’s Indemnification of SHO.	17
	C.	Procedures.	18
	D.	Notice and Additional Rights and Limitations.	19

XVII.	Disclaimer.		19

XVIII.	Exclusion of Consequential Damages; Limitation of Liability.		19

XIX.	Force Majeure.		19

XX.	Notice.		20

XXI.	Relationship of Parties.		20

XXII.	Expenses.		20

XXIII.	No Third Party Beneficiaries.		20

XXIV.	Severability.		20

XXV.	No Waiver.		21

XXVI.	Cumulative Rights.		21

XXVII.	Construction.		21

XXVIII.	Further Assurances.		21

Execution Copy



XXIX.	Survival.		21

XXX.	Entire Agreement; Modifications.		21

XXXI.	Glossary.		22

XXXII.	Assignment.		23

XXXIII.	Counterparts.		23

XXXIV.	Good Faith and Fair Dealing .		23

XXXV.	Condition Precedent to the Effectiveness of this Agreement.		23

XXXVI.	Governing Law; Jurisdiction; Waiver of Jury Trial.		24
	A.	Governing Law.	24
	B.	Jurisdiction.	24
	C.	Waiver of Jury Trial.	24

Appendices


Appendix R.B	Program Terms and Conditions	26

Appendix II	Effective Date	34

Appendix VI.C	Points Issuance Fee	35

Appendix VI.E	Reimbursement for Points Redemption	40

Appendix VII.A.1	Marketing Services Rate Card and Email Support Schedule	41

Appendix XIII.A	SYW Operating Committee	45

iii

Execution Copy

Shop Your Way Rewards Retail Establishment Agreement

August 8, 2012

This Shop Your Way Rewards Retail Establishment Agreement (this “ Agreement ”) is between Sears Holdings Management Corporation (“ SHMC ”) and Sears Hometown and Outlet Stores, Inc. (“ SHO ”). Each party to this Agreement is sometimes referred to herein as a “ Party ” and collectively as the “ Parties .”

Recitals

A. SHMC maintains a rewards Program known as the Shop Your Way Rewards ^SM Program (the “ Program ”). The Program provides members with rewards points associated with purchases of merchandise and services at participating retail establishments, which points may be redeemed for merchandise or services at selected establishments; and

B. SHO wishes to enroll in the Program so that SHO’s customers who are Program members may earn and redeem Points with respect to merchandise at SHO’s stores and websites all in accordance with the “Terms and Conditions of the ShopYourWay Rewards Program” in effect from time to time. The Terms and Conditions in effect as of the Effective Date are attached to this Agreement as Appendix R.B (as from time to time amended and interpreted by SHMC the “ Program Terms and Conditions ”).

Terms and Conditions

In consideration of the mutual covenants and promises in this Agreement and other good and valuable consideration, the receipt and sufficiency of which each Party acknowledges, the Parties agree as follows:

I. Definitions . Section XXXI of this Agreement, which begins on page 22, includes a glossary of defined terms.

II. Term . The term of this Agreement (the “ Term ”) will begin immediately following the “Rights Closing Effective Time” specified in the Separation Agreement (the “ Separation Agreement ”) to be executed and delivered by SHO and Sears Holdings Corporation (“ SHLD ”) (the date on which the Rights Closing Effective Time occurs, the “ Effective Date ”) and will end, unless terminated earlier, on the tenth anniversary of the Effective Date. The day that becomes the Effective Date will be inserted on Appendix II after the Effective Date has occurred.

III. The Program . SHMC will control and be responsible in all respects for the operation and administration of the Program including (A) the Program Terms and Conditions and the other terms and conditions of the Program, (B) the terms and conditions of advertising and promoting the Program, (C) maintenance and retention of Program records, (D) the terms and

Execution Copy

conditions of earning and redemption of Points by Members, (E) providing the Program to Members as advertised, and (F) any and all obligations and liabilities to Members regarding the offering and fulfillment of the Program. Subject to applicable law and the next two sentences, SHMC may amend or modify the Program at any time at its discretion. If an amendment or modification applies on a non-discriminatory basis to all Authorized Vendors and all Authorized Providers (a “ Complying Change ”) and has a material adverse effect on SHO, SHO will provide prompt written notice to SHMC, and SHMC will use commercially reasonably efforts to provide an accommodation for SHO’s approval and consent, which consent SHO will not unreasonably withhold. If SHMC is unable or unwilling to provide the accommodation, then the Complying Change will not be binding on SHO. SHMC’s interpretations of the Program Terms and Conditions will be final and binding absent manifest error. SHMC will operate the Program in compliance with applicable law including with respect to the offering, marketing, advertising, and fulfillment of the Program, and applicable accounting principles.

IV. Program Authorizations; Program is Exclusive . SHMC authorizes SHO, on a non-exclusive basis and subject to and in accordance with the Program Terms and Conditions and this Agreement, (A) to represent to Members that Members may earn Points with respect to their Program-Eligible Purchases made from SHO, (B) to accept the redemption of Points as payment for Program-Eligible Purchases made from SHO in accordance with the Program Terms and Conditions, and (C) to perform all other actions authorized or required by this Agreement. Except for the Program, SHO will not participate in any rewards or points-issuance/redemption program that (A) awards, or authorizes the awarding of, points or other tangible economic benefits in connection with purchases of merchandise or services from SHO or any of its Affiliates, or (B) authorizes SHO or any of its Affiliates to accept the redemption of points or other tangible economic benefits as payment with respect to purchases of merchandise or services from SHO or any of its Affiliates.

V. Transaction Information .

A. Delivery . SHO will deliver to SHMC, using delivery methods specified by SHMC from time to time, all information with respect to Program-Eligible Purchases made from SHO by Members including but not limited to the following: Member Number; merchandise or service purchased; purchase price paid; purchase location (such as particular store or online); date and time of day of purchase; associated returns, exchanges, adjustments, and related information; and tender type (not including credit card numbers) (collectively, the “ Transaction Information ”).

B. POS . SHO will establish, and at all times during the Term maintain, the appropriate point-of sale and related information systems to meet its enrollment obligations (the “ POS System ”) and use its commercially reasonable efforts to maximize enrollments. In accordance with prevailing retail-industry standards, the POS System will accurately process, record, store, and permit retrieval of all Transaction Information.

C. Format . The Transaction Information will be delivered to SHMC in the format and with the frequency, and using the secure delivery methods, in effect as of the Effective Date. SHMC may revise the format, frequency, and methods related to the delivery of the Transaction Information from time to time upon 30-days’ advance written notice to SHO.

Execution Copy

VI. Points .

A. Issuance of Points . In accordance with and subject to the Program Terms and Conditions, SHMC will issue Base Points and Bonus Points to Members’ Accounts with respect to Program-Eligible Purchases from SHO and will take all related actions as SHMC determines are appropriate with respect to such purchases (including reflecting returns, exchanges, and similar transactions) as those actions may affect the Members’ Accounts.

B. Bonus Point Offers . SHMC may make Bonus Point Offers to Members (in accordance with and subject to the Program Terms and Conditions and this Agreement) to encourage Members to make Program-Eligible Purchases from SHO. SHMC will provide notice to SHO of each upcoming Bonus Point offers, and SHO may elect not to participate in the offer by providing SHMC with a timely notice of its intent to not participate. If SHO participates in a Bonus Offer, SHO will pay a fee for all Bonus Points earned by SHO’s customers on Program-Eligible Purchases from SHO in accordance with the fee schedule on Appendix VI.C. The Parties may mutually agree in advance to conduct Bonus Points Offers specific to SHO, including Bonus Points offers that are multiples of Base Points awarded to Members for a Program-Eligible Purchase during the applicable offer period, Bonus Points award for Program-Eligible purchases that exceed a certain amount, “Lifecycle Points” awarded at specific events or milestones during Membership, or Points awarded for particular categories of brands or types of purchases.

C. Points Issuance Fee . Appendix VI.C describes the Points Issuance Fees that SHO will pay to SHMC with respect to the issuance of Base Points and Bonus Points in accordance with this Agreement, all of which fees are non-refundable regardless of the extent to which Points are redeemed. Appendix VI.C describes the conditions under which Points Issuance Fees will be subject to quarterly true-up payments from SHO to SHMC.

D. Redemption of Points . SHO will, on a non-exclusive basis, accept Points from all Members as partial or full payment for all Program-Eligible Purchases in accordance with the Program Terms and Conditions and this Agreement and regardless of the means of payment tendered by Members for any portion of Program-Eligible Purchases that are not paid for with Points and regardless of the merchandise and services purchased. SHMC may authorize, upon terms and conditions determined by SHMC in its sole discretion, additional third parties to redeem Points, including Authorized Vendors and Authorized Providers.

E. Reimbursement Upon Redemption . SHMC will reimburse SHO for Points that SHO, in accordance with the Program Terms and Conditions and this Agreement, accepts from its customers that are Members as payment for Program-Eligible Purchases at the rate or rates specified on Appendix VI.E. SHMC will continue to reimburse SHO for all Points redeemed by Members at its premises after this Agreement has terminated, until such time as all Points issued to Members for Program-Eligible Purchases made at SHO have expired.

Execution Copy

F. Expiration of Points . SHMC will have no obligation to compensate a Member or SHO for expired Points earned by Members at SHO.

G. Reconciliation and Payment . The amount or amounts that SHO owes to SHMC in accordance with this Agreement, and the amount or amounts that SHMC owes to SHO in accordance with this Agreement, will be determined by SHMC on a monthly basis, which amounts will be netted against each other. The Party that owes an amount to the other Party after the netting will remit the amount it owes to the other Party within five days of the reconciliation.

H. Differentiation . SHMC from time to time in its sole discretion may establish multiple rates for earning Base Points and Bonus Points that differentiate among Members on the basis of, or that depend on, reflect, or are affected by, factors or considerations determined by SHMC in its sole discretion, including the applicable Authorized Vendors or Authorized Providers from whom Program-Eligible Purchases are made, and Member achievement of specified levels of Program-Eligible Purchases, Qualifying Purchases, Qualifying Prescriptions, or similar criteria. SHMC from time to time in its sole discretion may establish multiple rates for redemption of Base Points and Bonus Points that differentiate among Authorized Vendors, Authorized Providers, and other participants in the Program on the basis of, or that depend on, reflect, or are affected by, factors or considerations determined by SHMC in its sole discretion, including the applicable Authorized Vendors or Authorized Providers from whom Program-Eligible Purchases are made, and achievement of specified levels of Program-Eligible Purchases, Qualifying Purchases, Qualifying Prescriptions, or similar criteria.

I. Permits and Taxes . SHO will at its own expense (i) obtain all permits and licenses required under applicable law to operate its business, and (ii) pay and discharge all applicable sales taxes and assessments which may be charged or levied, now or in the future, against SHO on any Program-Eligible Purchase made under this Agreement. Except as otherwise provided in the Tax Sharing Agreement to be executed by SHO and SHLD, each Party will be responsible for collecting and remitting their own taxes resulting from any income earned under this Agreement.

VII. Services; Marketing .

A. Marketing by SHMC for SHO .

1. All SHO marketing related to the Program will be performed by SHMC at SHO’s request as mutually agreed upon by the Parties and in accordance with, and subject to the fees described on, Appendix VII.A.1 (the “ Rate Card ”), which marketing is referred to as the “ Program-Related Marketing .” Program-Related Marketing includes multi-media advertising, including print media, SYWR-branded social media, store signage, direct customer communications (such as targeted or un-targeted email or text messaging campaigns), sweepstakes and other contest offers, and point-of-sale messaging related to the Program. Additional marketing services with respect to the Program that do not constitute Program-Related Marketing are described in the Services Agreement between SHMC and SHO dated August 8, 2012 (the “ Services Agreement ”). SHMC may revise the types of Program-Related Marketing and the rates and fees defined in the Rate Card at any time upon 30-days’ prior notice to SHO. The Parties will mutually determine the frequency, targeting rules, and related

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parameters of all Program-Related Marketing. All Program-Related Marketing is subject to SHMC’s then-current technical capabilities, SHMC’s privacy policy, and the terms of the Rate Card. If the Parties agree on additional marketing services that are not Program-Related Marketing, the additional marketing services may be reflected in a statement-of-work amendment to this Agreement. The Parties acknowledge that SHMC will provide non-Program-related marketing (such as promotional and trigger emails) in accordance with the Services Agreement.

2. SHMC will deliver to SHO solely for its use in accordance with this Agreement (1) Program-related analytical reports with respect to SHO in the form with the type of content that SHMC provides to its business units and the business units of their Affiliates, and (2) other analyses of Transaction Data and other Member activity at SHO retail locations prepared from time to time by SHMC (together, “ Monthly Member Analytics ”). SHMC will include as part of the Monthly Member Analytics the identification of Members who have opted-in to receive SHO communications (“ SHO Opt-ins ”) and Members who SHMC has determined, based on analytical analysis of Member data, are likely to have an interest in receiving SHO communications (“ Implicit Interest ”). All Monthly Member Analytics are SHMC’s Confidential Business Information and are subject to the terms and conditions of Article XI.

3. SHMC offers the Personal Shopper by Shop Your Way ^SM program (the “ Personal Shopper Program ”) whereby Members can enroll to become Personal Shoppers (as defined in the Personal Shopper Program Terms and Conditions located at http://ps.shopyourway.com/terms/PersonalShopper (as amended and interpreted by SHMC from time to time in its sole discretion, the “ PS T&C ”)) and recommend to Clients who are Members that they purchase merchandise from SHO. With respect to each Commission payable by SHMC to a Personal Shopper as a result of a Qualifying Purchase from SHO, SHO will pay to SHMC an amount equal to the sum of (1) the Commission payable plus (2) 25 basis points on the Net Sales for which the Commission is payable. SHMC may terminate the Personal Shopper Program at any time. The terms “ Clients ,” “ Commission ,” “ Net Sales ,” and “ Qualifying Purchase ” are defined in the PS T&C.

B. SHMC’s Other Marketing . SHMC may advertise the Program generally to the extent and via advertising channels that SHMC determines are appropriate. SHMC must submit all marketing materials containing SHO Marks or referencing SHO’s participation in the Program for SHO’s prior approval, which SHO will neither unreasonably delay or withhold. Nothing in this Agreement restricts SHMC’s right to communicate Transaction Information and administrative information (such as notices of changes to the Program terms) to Members.

C. SHO Email Obligation . With respect to its own email communications SHO will comply with the CAN-SPAM Act as the Sender or Designated Sender (as defined in the act and associated rules promulgated by FTC under the Act), to the exclusion of all others, which email communication will be distinguished from email communications from SHMC and its Affiliates, as follows: (1) SHO will send its email communications a domain name that clearly indicates SHO or one of its Affiliates is the sender (such as searshometownandoutlet.com or

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searshomtownstores.com); (2) SHO will use SEARS HOMETOWN AND OUTLET STORES on the FROM line; (3) SHO will not use the Sears logo without including “Hometown Stores,” “Home Appliance Showroom,” or “Outlet” in SHO’s logos and branding; and (4) SHO will use in the footer of each email communication the following text for an unsubscribe link: “Click here to unsubscribe from receiving promotional email from Sears Hometown and Outlet Stores, Inc. (“SHO”). Please note that SHO is not associated with Sears, Roebuck and Co., Sears Holdings, or any of their subsidiaries.”

VIII. License to Use Marks

A. SHMC Marks . SHMC hereby grants to SHO a non-exclusive, non-transferable, royalty-free license to use, solely in connection with its participation and marketing of the Program in accordance with this Agreement, the trade names, trademarks, and service marks of SHMC (each a “ SHMC Mark ”), subject to SHMC’s prior review and approval of each use. SHO acknowledges that the use of any SHMC Mark will not confer upon SHO any proprietary rights to the SHMC Mark, and SHO will not question, contest, or challenge SHMC’s ownership of a SHMC Mark. SHO will not register or attempt to register any SHMC Mark, or any trade names, or trademarks similar to them. Nothing in this Agreement will be construed to bar SHMC from protecting its right to the exclusive ownership of a SHMC Mark against infringement or appropriation by any party or parties, including SHO. SHMC will have the right to control the quality and nature of the services rendered in conjunction with all SHMC Marks, and SHO will conform to the standards set by SHMC in conjunction therewith.

B. SHO Marks . SHO hereby grants to SHMC a non-exclusive, non-transferable, royalty-free license to use, solely in connection with its participation and marketing of the Program according to this Agreement, the trade names, trademarks, and service marks of SHO (each a “ SHO Mark ”), subject to SHO’s prior review and approval of each use. SHMC acknowledges that the use of any SHO Mark will not confer upon SHMC any proprietary rights to the SHO Marks, and SHMC will not question, contest, or challenge SHO’s ownership of the SHO Marks. SHMC will not register or attempt to register any SHO Mark, or any trade names, or trademarks similar to them. Nothing in this Agreement will be construed to bar SHO from protecting its right to the exclusive ownership of the SHO Marks against infringement or appropriation by any party or parties, including SHMC. SHO will have the right to control the quality and nature of the services rendered in conjunction with any SHO Mark, and SHMC will conform to the standards set by SHO in conjunction therewith.

C. Injunctive Relief . Each Party acknowledges that (a) the other Party’s trade names, trademarks, and service marks possess a special, unique and extraordinary character which makes it difficult to assess the monetary damage that the other Party or its affiliates would sustain in the event of unauthorized use, (b) irreparable injury would be caused to the other Party by such unauthorized use for which there would be no adequate remedy at law, and (c) injunctive relief would be appropriate with respect to any unauthorized use.

IX. Enrollment of New Members . SHMC authorizes and directs SHO to enroll new Members at the point of sale, online, via SMS, and call centers. SHO will use commercially reasonable efforts to maximize enrollments of its customers in the Program. SHO will make

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available to customers at the point of sale (or otherwise as agreed upon by the Parties) all marketing materials provided by SHMC, including marketing materials detailing enrollment procedures.

X. Ownership of Data . SHMC is the sole and exclusive owner of the Member list, all Member enrollment information, Member passwords, Member Numbers, and Points accounts, and SHO has, and will have, no ownership interest of any kind whatsoever in the foregoing. SHO and SHMC are joint owners of the Transaction Information except that SHMC is the sole owner of Member information derived from the Transaction Information. SHMC may use the Transaction Information to operate the Program and for all other purposes in accordance with its privacy policy and applicable law (including transfer to, and use by, third parties) without restriction. SHO may use the Transaction Information to communicate with its customers (including Members who are customers) and for the purpose of conducting its business, each in accordance with its privacy policy and applicable law, and for no other purpose of any kind whatsoever. If this Agreement or the Services Agreement is terminated and SHMC no longer provides technical or system support to SHO, SHMC will provide SHO with an electronic copy of all its Transaction Information. The electronic copy will not include any Program-specific Member data, data created or derived by SHMC from the SHO Transaction Information, or data enhancements, updates, or enrichments made by SHMC’s third party service providers, (collectively referred to here as “ Summary Data ”) unless SHMC, in its sole discretion, elects to provide Summary Data, subject to any licensing or contractual limitations imposed by SHMC’s third-party service providers.

XI. Confidentiality . The term “ Confidential Information ” as used herein will include both Confidential Business Information and Confidential Personal Information (each as defined below).

A. Confidential Business Information . All non-public information each Party shares with the other Party in connection with this Agreement, including all: business plans, strategies, forecasts, analyses, or financial information; employee information, information technology information, other proprietary information, and the terms of this Agreement (collectively, “ Confidential Business Information ”), will be held in strict confidence by the Party that receives the Confidential Business Information regardless of the manner or medium in which it is furnished or otherwise obtained.

B. Exceptions . Notwithstanding the provisions of Section XI.A., Confidential Business Information will not include any information that (i) is obtained from a public source, other than due to breach by such Party of this Section XI, (ii) is obtained by one Party on a non-confidential basis from a source other than the disclosing Party (provided that such source, to such party’s knowledge, was not obligated to the disclosing Party to keep such information confidential), (iii) was in one Party’s possession prior to disclosure by the other Party to it, (iv) is disclosed with the prior written consent of the disclosing Party whose information is proprietary or non-public, or (v) is independently developed by or on behalf of a Party. Subject to the next sentence, nothing contained in this Agreement will limit the right of a Party to disclose any information as required by applicable law or by any governmental authority. If in the reasonable opinion of its legal counsel a Party is required by law to disclose any Confidential Business

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Information of the other Party in connection with any legal proceeding relating to this Agreement or any other legal proceeding to an arbitrator, the court or other governmental authority, the receiving Party may disclose such information if it notifies the other Party within a reasonable time prior to disclosure and allows the other Party a reasonable opportunity to seek appropriate protective measures. Each Party will notify the other Party promptly upon the discovery of the loss, unauthorized disclosure, or unauthorized use of Confidential Business Information.

C. Confidential Personal Information . “ Confidential Personal Information ” means all information about Members, including Transaction Information and customer names, addresses, all contact information, customer lists, and demographic or financial information. Confidential Personal Information may be used only as permitted in this Agreement. Each Party is liable for all unauthorized disclosures and use of Confidential Personal Information by its Affiliates and personnel. Each Party will notify the other Party promptly upon the discovery of the loss, unauthorized disclosure, or unauthorized use of the Confidential Personal Information. All Confidential Personal Information constitutes Confidential Business Information, however, the terms of this section govern the use of any Confidential Personal Information.

D. Data Security . Each Party will establish, maintain and implement an information security program, including appropriate administrative, technical and physical safeguards, that is designed to (i) ensure the security and confidentiality of Confidential Information, (ii) protect against any reasonably anticipated threats or hazards to the security or integrity of such Confidential Information, (iii) protect against unauthorized access to or use of such Confidential Information that could result in substantial harm or inconvenience to any Member, and (iv) ensure the proper disposal of such Confidential Information. Each Party will use the same degree of care in protecting the Confidential Information of the other Party against unauthorized disclosure as it accords to its own confidential customer information, but in no event less than a reasonable standard of care.

E. Unauthorized Use or Disclosure of Confidential Information . Each Party acknowledges that any unauthorized use or disclosure of Confidential Information of the disclosing Party or a Member might cause immediate and irreparable harm to the disclosing Party for which money damages might not constitute an adequate remedy. Accordingly, each Party acknowledges that the other may seek injunctive relief to enforce the terms of this Section XI in addition to any other remedies the disclosing Party may have. Each Party will promptly (i) advise the other Party by telephone and in writing via facsimile of all security breaches that may have compromised any Confidential Information of such Party or a Member or that may have constituted an unauthorized misappropriation, disclosure, or use by any Person of the Confidential Information of the other Party or a Member, in each case which may come to its attention, and (ii) take all steps at its own expense reasonably requested by the other Party to limit, stop or otherwise remedy such misappropriation, disclosure, or use.

F. Return of Confidential Information . Upon the termination of this Agreement, each Party will return to the other Party all such Party’s Confidential Business Information, and will certify such return or destruction upon request of the other Party.

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G. Publicity . Each Party will refrain from making any reference to this Agreement or to the other Party in the solicitation of business, unless the other Party gives its prior written consent to such action and approves any press release or other publicity materials prior to their dissemination.

XII. Termination . Neither Party may exercise its rights in this Section XII if the Party has failed to comply with any of its material obligations in this Agreement and the failure is continuing.

A. General .

1. Subject to the next sentence, SHO or SHMC may terminate this Agreement in the event of a material breach of this Agreement by the other Party if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within 30 days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Party’s delivery of notice to the breaching Party (whichever Party is entitled to terminate, the “ Terminating Party ”).

2. SHMC may terminate this Agreement for cause if SHO fails to agree to a Complying Change made in accordance with Section III on or before the tenth day following SHO’s receipt of notice of the Complying Change.

3. SHMC may terminate this Agreement if a Stockholding Change occurs.

B. Termination for Convenience . Each Party may terminate this Agreement for any reason or no reason on or after the last day of the 66 ^th full month following the Effective Date by providing the other Party with one hundred eighty (180) days’ advance written notice of the Terminating Party’s intent to terminate, which notice the Terminating Party may not deliver until after the fifth anniversary of the Effective Date. Termination in accordance with this section will be without penalty and further obligation of any kind except as provided in subsection C of this section.

C. Termination in Response to a Termination of another Agreement . Each Party may terminate this Agreement effective immediately upon 30-days’ advance written notice to the other Party if (1) the Terminating Party or any of its Affiliates terminates the Separation Agreement as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Separation Agreement, (2) the Terminating Party or any of its Affiliates terminates a License Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the License Agreement, or (3) the Terminating Party or any of its Affiliates terminates the Merchandising Agreement dated as of August 8, 2012 between SHO and Sears, Roebuck and Co. (“ SRC ”), among others (the “ Merchandising Agreement ”) in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Merchandising Agreement. “ License Agreement ” means each of the

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following, each dated August 8, 2012: the Store License Agreement between Sears Authorized Hometown Stores, L.L.C. and SRC; the Store License Agreement between Sears Home Appliance Showrooms, LLC and SRC; the Store License Agreement between Sears Outlet Stores, L.L.C. and SRC; and the Trademark License Agreement between SHO and SRC.

D. Obligations at Termination or Expiration . Upon the termination of this Agreement in accordance with Sections XII.A, B or C, or upon the expiration of this Agreement:

1. Each Party will perform, and reasonably assist the other Party in the performance of, all existing contractual obligations to Members;

2. Each Party will promptly pay all undisputed amounts owed to the other;

3. Each Party will cease use of the other party’s trade names, trademarks, and service marks, and will immediately cease use of, and destroy (or if requested return), all of the other party’s Confidential Business Information;

4. All rights granted to SHO in this Agreement will immediately terminate except to the extent necessary to enable SHO to fulfill its obligations to Members with respect to Program-Eligible Purchases, including continuing to accept all Points presented for redemption that were earned by Members for Program-Eligible Purchases made at SHO premises prior to the date of termination. SHO will provide notice to its customers that they may no longer earn Points in connection with purchases of merchandise and services from SHO after the date of termination.

XIII. Books and Records; Audits . Each Party will keep and maintain books and records that accurately reflect its operations according to industry standards, generally accepted accounting practices, and all applicable terms of this Agreement (the “ Books and Records ”). Each Party (the “ Auditing Party ”) will be permitted once each calendar year to audit the other Party’s premises, Books and Records, and methods of operation in order to determine the audited Party’s compliance with the terms of this Agreement. Audits may occur at any time during normal business hours designated by the Auditing Party. At the Auditing Party’s sole option, audits may be conducted (i) by the Auditing Party, its third-party designee, or a combination of the two, and (ii) at any location or locations reasonably specified by the Auditing Party. The audited Party will deliver copies of all Books and Records to a single audit location designated by the Auditing Party. The Auditing Party will bear the reasonable costs and expenses of each audit. Each Party will retain its Books and Records for at least five years from the date of settlement of the last audit to which the Party was subject.

XIV. SYW Operating Committee; Dispute Resolution .

A. SYW Operating Committee . The Parties will form a committee (the “ SYW Operating Committee ”) that will address all day-to-day operational and other issues that may arise with respect to this Agreement and all Disputes (as defined in section XIV.B.3). The SYW Operating Committee will discuss all of these issues and will attempt to resolve informally all Disputes in accordance with section XIV.B.3. The SYW Operating Committee will consist of three employees of each Party that the Party designates. The initial representatives are listed on Appendix XIV.A. Each Party may replace one or more of its representatives at any time upon

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notice to the other Party. Each Party will promptly fill all of its SYW Operating Committee vacancies as they arise by notice to the other Party. Unless the members of the SYW Operating Committee unanimously agree otherwise, the SYW Operating Committee will meet at least once every calendar month during the Term on the dates determined by the members of the SYW Operating Committee. If the members of the SYW Operating Committee cannot agree on a date or a time for a particular monthly meeting the meeting will occur at 1:00 p.m. Central Time on the second Thursday of the month at the offices of Sears Holdings Corporation, 3333 Beverly Road, Hoffman Estates, IL 60179 B6-D. At all times one of the members of the SYW Operating Committee will serve as the SYW Operating Committee’s Chairperson. The Chairperson will rotate among the SYW Operating Committee members on a monthly basis. The initial Chairperson is listed on Appendix XIV.A and the other SYW Operating Committee members each will serve thereafter as Chairperson, on a monthly basis, rotating between Seller’s designees and Buyer’s designees. The Chairperson (i) will request that SYW Operating Committee members provide meeting agenda items and (ii) will distribute to members, at least two business days in advance of each SYW Operating Committee meeting, an agenda for the meeting.

B. Dispute Resolution .

1. If a Dispute arises, neither Party may cease to perform any of its obligations in this Agreement in accordance with their terms or take any formal legal action (such as seeking to terminate this Agreement, seeking mediation in accordance with Section XIV.B.3 ., or instituting or seeking any judicial or other legal action, relief, or remedy with respect to or arising out of this Agreement) unless the Party has first (a) delivered a notice of dispute (the “ Dispute Notice ”) to all of the members of the SYW Operating Committee and (b) complied with the terms and conditions of this Section XIV. At the first monthly meeting of the SYW Operating Committee following the delivery of the Dispute Notice (the “ Dispute Resolution Meeting ”) the SYW Operating Committee will attempt to resolve all of the Disputes that are the subject of the Dispute Notice. Each Party will cause its designees on the SYW Operating Committee to negotiate in Good Faith to resolve all Disputes in a timely manner. If by the 10 ^th calendar day following the Dispute Resolution Meeting the SYW Operating Committee has not resolved all of the Disputes (the “ Resolution Failure Date ”) the Parties will proceed to mediate the unresolved Disputes (“ Unresolved Disputes ”) in accordance with Section XIV.B.3 .

2. Subject to the next sentence, “ Dispute ” means each claim, controversy, dispute, and disagreement between (A) on the one hand, SHO or any of its Affiliates, or any of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, and (B) on the other hand, SHMC or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a Party’s performance, or failure to perform, one or more of its obligations in this Agreement. Disputes do not include claims, controversies, disputes, or disagreements with respect to compliance with Section XI or payment obligations with respect to amounts due in accordance with the terms and conditions of this Agreement that are not reasonably in dispute.

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3. SHMC and SHO in Good Faith will attempt to resolve all Unresolved Disputes by non-binding mediation. SHMC and SHO will negotiate in Good Faith to determine the mediator, the mediator’s compensation and related costs, and the applicable rules for the mediation. If by the 15 ^th day following the Resolution Failure Date SHMC and SHO have been unable to settle an Unresolved Dispute the obligations of SHMC and SHO in this Section XIV will end with respect to the Unresolved Dispute.

XV. Representations and Warranties; Covenants of SHO .

A. Representations and Warranties of SHO . To induce SHMC to permit SHO to enroll in the Program, SHO, on behalf of itself and its Affiliates, makes the following representations and warranties to SHMC, and each and all of which will be deemed to be restated and remade on each day from the Effective Date and at all times thereafter during the Term except that the representations and warranties in XV.A(7) are made solely as of the Effective Date.

1. SHO (a) is a corporation duly organized, validly existing, and in good standing under the laws of the State of its incorporation, (b) is duly licensed or qualified to do business as a corporation and is in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted or proposed to be conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary to perform its obligations required in this Agreement except to the extent that its non-compliance would not have a material adverse effect on SHO’s ability to perform its obligations in this Agreement, and (c) has all necessary licenses, permits, consents, and approvals from or by, and has made all necessary notices to, all governmental authorities having jurisdiction, to the extent required for SHO to perform its obligations under this Agreement, except to the extent that the failure to obtain such licenses, permits, consents or approvals or to provide such notices would not have a material adverse effect on SHO’s ability to perform its obligations required in this Agreement.

2. SHO has all necessary corporate power and authority to (a) execute and enter into this Agreement, and (b) perform the obligations required of SHO under this Agreement and the other documents, instruments and agreements executed by SHO pursuant hereto. The execution and delivery by SHO of this Agreement and all documents, instruments and agreements executed and delivered by SHO pursuant hereto, and the consummation by SHO of the transactions specified herein have been duly and validly authorized and approved by all necessary corporate action of SHO. This Agreement (a) has been duly executed and delivered by SHO, (b) constitutes the valid and legally binding obligation of SHO, and (c) is enforceable in accordance with its terms.

3. The execution, delivery, and performance of this Agreement by SHO, its compliance with the terms hereof, and its consummation of the transactions specified herein will not (a) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any material contract, instrument or agreement to which SHO is a party or by which it is bound, or by which SHO assets are bound, except for conflicts, breaches and defaults which would not have a material and adverse effect upon SHO’s ability to

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perform its obligations under this Agreement, (b) conflict with or violate the articles of incorporation or by-laws, or any other equivalent organizational document of SHO, (c) violate any applicable law, or conflict with or require any consent or approval under any judgment, order, writ, decree, permit or license, to which SHO is a party or by which it is bound or affected, except to the extent that such violation or the failure to obtain such consent or approval would not have a material and adverse effect upon SHO’s ability to perform its obligations under this Agreement, (d) require the consent or approval of any other party to any contract, instrument or commitment to which SHO is a party or by which it is bound, which consent or approval has not been obtained, except to the extent that the failure to obtain such consent or approval would not have a material adverse effect upon SHO’s ability to perform its obligations under this Agreement, or (e) require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any regulatory authority, except to the extent that the failure to obtain such consent or approval would not have a material adverse effect upon SHO, the Program or SHO’s ability to perform its obligations under this Agreement.

4. SHO is solvent.

5. Neither SHO nor any of its Affiliates is in default with respect to any contract, agreement, lease, or other instrument to which it is a party or by which it is bound, except for defaults which would not have a material and adverse effect upon SHO’s ability to perform its obligations under this Agreement, nor has SHO received any notice of default under any contract, agreement, lease or other instrument regarding a default which, if realized, would materially and adversely affect the performance by SHO of its obligations under this Agreement.

6. All of SHO’s Books and Records and the Books and Records of its Affiliates are in all material respects complete and correct and are maintained in accordance with applicable law, except to the extent that the failure to so maintain such books and records would not have a material and adverse effect upon SHO’s ability to perform its obligations under this Agreement.

7. No action, claim or any litigation, proceeding, arbitration, investigation or controversy is pending or, to the best of SHO’s knowledge, threatened against SHO or any of its Affiliates, at law, in equity, or otherwise, which, if adversely determined, could have a material and adverse effect on SHO’s ability to perform its obligations under this Agreement.

8. None of intellectual property of SHO, including SHO Marks (together the “ SHO IP ”), infringes on the intellectual property rights of any third parties. SHO or its Affiliates are the owners of the SHO IP and SHO has the right, power, and authority to license to SHMC and authorized designees the use of the SHO IP, and such use by such licensees in a manner approved (or deemed approved) by SHO will not (a) violate any applicable law or (b) infringe upon the rights of any third party, in either case to the extent that the infringement would have a material and adverse effect upon the Program or SHO’s ability to perform its obligations under this Agreement.

9. All data related to Program-Eligible Purchases, the Transaction Information, and product returns, exchanges, and similar information transmitted or sent by SHO to SHMC for purposes of issuing to or redeeming Points of SHO’s Members is accurate, and the result of bona fide purchases or returns, free from fraud and misrepresentations.

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B. Representations of SHMC . To induce SHO to enter into this Agreement and participate in the Program, SHMC, on behalf of itself and its Affiliates, makes the following representations and warranties to SHO and each and all of which will be deemed to be restated and remade on each day from the Effective Date, and at all times thereafter during the Term except that the representations and warranties in XV.B(7) are made solely as of the Effective Date.

1. SHMC (a) is a corporation duly organized, validly existing, and in good standing under the laws of the State of its incorporation, (b) is duly licensed or qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted or proposed to be conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary to perform its obligations in this Agreement except to the extent that its non-compliance would not have a material and adverse effect on SHMC or the Program or SHMC’s ability to perform its obligations in this Agreement, and (c) has all necessary licenses, permits, consents, or approvals from or by, and has made all necessary notices to, all governmental authorities having jurisdiction, to the extent required for SHMC to perform its obligations under this Agreement, except to the extent that the failure to obtain such licenses, permits, consents, or approvals or to provide such notices would not have a material and adverse effect on SHMC, the Program or SHMC’s ability to perform its obligations under this Agreement.

2. SHMC has all necessary power and authority to (a) execute and enter into this Agreement, and (b) perform all of the obligations required of SHMC under this Agreement and the other documents, instruments and agreements executed by SHMC pursuant hereto. The execution and delivery by SHMC of this Agreement and all documents, instruments and agreements executed and delivered by SHMC pursuant hereto, and the consummation by SHMC of the transactions specified herein, have been duly and validly authorized and approved by all necessary corporate action of SHMC. This Agreement (a) has been duly executed and delivered by SHMC, (b) constitutes the valid and legally binding obligation of SHMC, and (c) is enforceable in accordance with its terms.

3. The execution, delivery and performance of this Agreement by SHMC, its compliance with the terms hereof, and the consummation of the transactions specified herein will not (a) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any material contract, instrument or agreement to which SHMC is a party or by which it is bound, except for conflicts, breaches and defaults which would not have a material and adverse effect upon SHMC or the Program or SHMC’s ability to perform its obligations under this Agreement, (b) conflict with or violate the articles of incorporation or by-laws, or any other equivalent organizational document(s) of SHMC, (c) violate any applicable law, or conflict with or require any consent or approval under any judgment, order, writ, decree, permit or license, to which SHMC is a party or by which it is bound or affected, except to the extent that such violation or the failure to obtain such consent or

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approval would not have a material and adverse effect upon SHMC or the Program or SHMC’s ability to perform its obligations under this Agreement, (d) require the consent or approval of any other party to any contract, instrument or commitment to which SHMC is a party or by which it is bound, which consent or approval has not been obtained, except to the extent that the failure to obtain such consent or approval would not have a material and adverse effect upon SHMC’s ability to perform its obligations under this Agreement, or (e) require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any regulatory authority.

4. SHMC is solvent.

5. Neither SHMC nor any of its Affiliates is in default with respect to any contract, agreement, lease, or other instrument to which it is a party or by which it is bound, except for defaults which would not have a material and adverse effect upon SHMC or the Program or SHMC’s ability to perform its obligations under this Agreement, nor has SHMC received any notice of default under any such contract, agreement, lease or other instrument regarding a default which, if realized, would materially and adversely affect the performance by SHMC of its obligations under this Agreement.

6. All of SHMC’s Books and Records and the Books and Records of its Affiliates are in all material respects complete and correct and are maintained in accordance with applicable law, except to the extent that the failure to so maintain such books and records would not have a material and adverse effect upon the Program or SHMC’s ability to perform its obligations under this Agreement.

7. No action, claim, or any litigation, proceeding, arbitration, investigation or controversy is pending or, to the best of SHMC’s knowledge, threatened against SHMC or its Affiliates, at law, in equity or otherwise, which, if adversely determined, could have a material and adverse effect on SHMC or the Program or SHMC’s ability to perform its obligations under this Agreement, nor, to the best of SHMC’s knowledge, do facts exist which might give rise to any such proceedings.

8. None of intellectual property of SHMC, including the SHMC Marks (together the “ SHMC IP ”), infringes on the intellectual property rights of any third parties. SHMC or its Affiliates are the owners of the SHMC IP and SHMC has the right, power, and authority to license to SHO and authorized designees the use of the SHMC IP, and such use by such licensees in a manner approved (or deemed approved) by SHMC will not (a) violate any applicable law or (b) infringe upon the rights of any third party, in either case to the extent the infringement would have a material and adverse effect upon the Program or SHMC’s ability to perform its obligations under this Agreement.

C. Covenants of SHO . SHO makes the following covenants to SHMC, each and all of which will survive the execution and delivery of this Agreement.

1. SHO will preserve and keep in full force and effect its corporate existence.

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2. SHO promptly will notify SHMC if it receives written notice of any litigation that, if adversely determined, would have a material and adverse effect on the Program or SHO’s ability to perform its obligations in this Agreement.

3. Except as otherwise specified herein, SHO will enforce its rights against third parties to the extent that a failure to enforce such rights could reasonably be expected to materially and adversely affect the Program or SHO’s ability to perform its obligations in this Agreement. SHO will not enter into any agreement which, at the time such agreement is executed, could reasonably be expected to have a material and adverse effect on the Program.

4. SHO will at all times during the Term comply in all material respects with all law applicable to its activities.

5. SHO will perform all of its obligations in this Agreement competently and in Good Faith, in a professional and commercially reasonable manner, in accordance with generally accepted industry standards.

D. Covenants of SHMC . SHMC makes the following covenants to SHO, each and all of which will survive the execution and delivery of this Agreement.

1. SHMC promptly will notify SHO if it receives written notice of any litigation that, if adversely determined, would have a material and adverse effect on the Program or SHMC’s ability to perform its obligations hereunder.

2. Except as otherwise specified herein, SHMC will enforce its rights against third parties to the extent that a failure to enforce such rights could reasonably be expected to materially and adversely affect the Program or SHMC’s ability to perform its obligations hereunder. SHMC will not enter into any agreement which, at the time such agreement is executed, could reasonably be expected to have a material and adverse effect on the Program or SHMC’s ability to perform its obligations hereunder.

3. SHMC will at all times during the Term comply in all material respects with Applicable Law applicable to its activities.

4. SHMC will keep adequate records and books of account with respect to its obligations under the Program.

5. SHMC will perform all of its obligations hereunder competently and in Good Faith, in a professional and commercially reasonable manner, in accordance with generally accepted industry standards.

6. SHMC will, to the extent necessary, cause its Affiliates to comply with the terms of this Agreement.

XVI. Indemnification .

A. SHO Indemnification of SHMC . From and after the Effective Date SHO will indemnify and hold harmless SHMC, its Affiliates, their respective officers, directors, employees, agents and representatives and any Person claiming by or through any of them (collectively, the “ SHMC Indemnified Parties ”) from and against and in respect of any and all

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losses, liabilities, damages, costs and expenses of whatever nature, including reasonable attorneys’ fees and expenses and all other costs and expenses of defense (collectively, “ Losses ”) relating to third-party claims that are caused or incurred by, result from, arise out of, or relate to:

1. SHO’s negligence, recklessness or willful misconduct (including acts and omissions) relating to the Program;

2. Breaches and defaults by SHO or any of its Affiliates, or their respective officers, directors, employees or agents of any of the terms, conditions, covenants, representations, or warranties contained in this Agreement;

3. Actions and omissions by SHMC taken or not taken at SHO’s request or direction pursuant to this Agreement except where SHMC would have been otherwise required to take such action (or refrain from acting) absent the request or direction of SHO;

4. Fraudulent acts by SHO, its Affiliates, or their respective officers, directors employees or agents;

5. SHO’s failure to comply with applicable law unless such failure was the result of any action taken or not taken by SHO at the specific request or direction of SHMC;

6. Allegations by a third party that the use of the SHO IP or any materials or documents provided by SHO constitutes (a) libel, slander, or defamation, (b) unfair competition or misappropriation of another’s ideas or trade secret, (c) invasion of rights of privacy or rights of publicity, or (d) breach of contract or tortious interference;

7. Allegations by a third party that the use of the SHO IP or any materials or documents provided by SHO other than at SHMC’s direction constitutes infringement of intellectual property, including trademark infringement or dilution, or copyright infringement.

B. SHMC’s Indemnification of SHO . From and after the Effective Date, SHMC will indemnify and hold harmless SHO, its Affiliates, their respective officers, directors, employees, agents and representatives and any Person claiming by or through any of them (collectively, the “ SHO Indemnified Parties ”) from and against and in respect of any and all Losses relating to third-party claims, which are caused or incurred by, result from, arise out of or relate to:

1. SHMC’s negligence, recklessness or willful misconduct (including acts and omissions) relating to the Program;

2. Breaches and defaults by SHMC or any of its Affiliates, or their respective officers, directors, employees or agents of any of the terms, conditions, covenants, representations, or warranties contained in this Agreement;

3. SHMC’s failure to satisfy any of its obligations or liabilities to Members;

4. Actions and omissions by SHO taken or not taken at SHMC’s request or direction pursuant to this Agreement except where SHO would have been otherwise required to take such action (or refrain from acting) absent the request or direction of SHMC;

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5. Fraudulent acts by SHMC, its Affiliates or their respective officers, directors employees or agents;

6. Allegations by a third party that the use of the SHMC IP or any materials or documents provided by SHMC constitutes (a) libel, slander, or defamation, (b) unfair competition or misappropriation of another’s ideas or trade secret, (c) invasion of rights of privacy or rights of publicity, or (d) breach of contract or tortious interference;

7. Allegations by a third party that the use of the SHMC IP or any materials or documents provided by SHMC other than at SHO’s direction constitutes infringement of intellectual property, including trademark infringement or dilution, or copyright infringement.

C. Procedures . In case any claim is made, or any suit or action is commenced, against an SHMC Indemnified Party or a SHO Indemnified Party, the Party in respect of which indemnification may be sought under this Section XVI (including for the benefit of its officers, directors, employees, agents or representatives or any Person claiming by or through any of them) (the “ Indemnified Party ”) will promptly give the other party (the “ Indemnifying Party ”) notice thereof and the Indemnifying Party will be entitled to participate in the defense thereof and, with prior notice to the Indemnified Party given not later than twenty (20) days after the delivery of the applicable notice, to assume, at the Indemnifying Party’s expense, the defense thereof, with counsel reasonably satisfactory to such Indemnified Party. After notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party under this Section for any attorneys’ fees or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation.

1. The Indemnified Party will have the right to employ its own counsel if the Indemnifying Party elects to assume such defense, but the fees and expenses of such counsel will be at the Indemnified Party’s expense, unless (a) the employment of such counsel has been authorized in writing by the Indemnifying Party, (b) the Indemnifying Party has not employed counsel to take charge of the defense within twenty (20) days after delivery of the applicable notice or, having elected to assume such defense, thereafter ceases its defense of such action, or (c) the Indemnified Party has reasonably concluded that there may be defenses available to it which are different from or additional to those available to the Indemnifying Party (in which case the Indemnifying Party will not have the right to direct the defense of such action on behalf of the Indemnified Party), in any of which event attorneys’ fees and expenses will be borne by the Indemnifying Party.

2. The Indemnifying Party will promptly notify the Indemnified Party if the Indemnifying Party desires not to assume, or participate in the defense of, any such claim, suit or action, but such notice will not affect in any way the obligation of the Indemnifying Party in accordance with this Section XVI to indemnify and hold harmless the Indemnified Party against Losses consisting of reasonable attorneys’ fees and expenses and all other costs and expenses of defense.

3. The Indemnified Party or Indemnifying Party may at any time notify the other of its intention to settle or compromise any claim, suit or action against the Indemnified

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Party in respect of which payments may be sought by the Indemnified Party in this Agreement, and the Indemnifying Party may settle or compromise any such claim, suit or action solely for the payment of money damages, but will not agree to any other settlement or compromise without the prior consent of the Indemnified Party, which consent will not be unreasonably withheld or delayed.

D. Notice and Additional Rights and Limitations .

1. If an Indemnified Party fails to give prompt notice of any claim being made or any suit or action being commenced in respect of which indemnification under this Section XVI may be sought, such failure will not limit the liability of the Indemnifying Party. The preceding sentence will not limit the Indemnifying Party’s rights to recover for any loss, cost or expense which it can establish resulted from any failure to give prompt notice.

2. This Section XVI will govern the obligations of the Parties with respect to the subject matter hereof but will not be deemed to limit the rights which any Party might otherwise have at law or in equity.

XVII. Disclaimer . Except as otherwise provided for in this Agreement, each Party disclaims all other express or implied representations, warranties and covenants. Further, SHMC and SHO each acknowledges that reliance on any representation, warranty or covenant not contained in this Agreement will be deemed unreasonable.

XVIII. Exclusion of Consequential Damages; Limitation of Liability . Notwithstanding anything to the contrary in this Agreement, in no event will either Party be liable to the other Party for any indirect, consequential, incidental, special, or punitive damages, losses, or expenses whether in contract, tort (including negligence and strict liability) or any other legal or equitable principles, or for any loss of profits or revenue, arising in connection with this Agreement or the performance, omission of performance, or termination of this Agreement without regard to the nature of the claim (e.g., breach of contract, negligence or otherwise), even if a Party has been advised of the possibility of such damages.

XIX. Force Majeure . If either SHMC or SHO (the “ Excused Party ”) is prevented from performing its obligations in this Agreement in accordance with their terms as the result of a condition or cause that did not arise or occur as the result of the Excused Party’s act or failure to act and is beyond the Excused Party’s ability to avoid and is not directly or indirectly caused by, contributed to, or exacerbated by any of the Excused Party’s acts or failures to act or any of the acts or failures to act of anyone acting on the Excused Party’s behalf, including work stoppages, strikes, lockouts or labor disputes, embargoes, casualties, acts of God, natural disasters, acts of terrorism, war or civil disturbances, and restraints of laws or governments (each a “ Condition or Cause ”) but excluding all losses of market, and all other commercial contingencies and economic events (such as financial crises, recessions, depressions, and other economic downturns), the failure to perform by the Excused Party will be excused only to that extent and only so long as the Condition or Cause is existing. The Excused Party will promptly, but in all events within seven days, notify the other of the commencement and termination of the Condition or Cause and include with the notice a statement estimating the effect of the Condition

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or Cause on the Excused Party’s ability to perform its obligations in this Agreement in accordance with their terms. If the Condition or Cause prevents the Excused Party from performing its obligations in this Agreement in accordance with their terms for more than thirty consecutive calendar days either SHMC or SHO may terminate this Agreement upon delivery of written notice to the other, but the Terminating Party may not seek to recover damages from the Excused Party resulting from the Condition or Cause. With respect to each Condition or Cause that results from a restraint of law or government, the Excused Party will make Good Faith efforts to cause the removal or repeal of the Condition or Cause.

XX. Notice .

Notices under this Agreement are sufficient if given by nationally recognized overnight courier service, certified mail (return receipt requested), facsimile with electronic confirmation, or personal delivery to the other party at the address below:


If to SHMC:		Sears Holdings Management Corporation

		3333 Beverly Road
		Hoffman Estates, IL 60179
		Attn: SVP & President OnLine, Marketing, and Pricing

If to SHO:		Sears Hometown and Outlet Stores, Inc.
		3333 Beverly Road
		Hoffman Estates, IL 60179
		Attn: Vice President, Supply Chain and Technology

XXI. Relationship of Parties . For all purposes, including federal and state tax purposes, nothing contained in this Agreement will be deemed or construed by the parties or any third party to create a partnership, joint venture or of any association between the Parties, and no act of either Party will be deemed to create any such relationship. SHMC and SHO each will take all additional actions as the other may request to evidence and affirm the non-existence of any such relationship, and that neither Party will become bound by any representation, act or omission of the other. Neither Party will file suit using the name of the other Party or any of its Affiliates.

XXII. Expenses . Except as expressly provided in this Agreement, each Party will be solely responsible for the costs and expenses incurred by the Party in connection with the exercise of its rights and performance of its obligations under this Agreement.

XXIII. No Third Party Beneficiaries . There are no third-party beneficiaries to this Agreement except that SHMC Indemnified Parties and SHO Indemnified Parties are intended third party beneficiaries of Section XV. Except as provided in the preceding sentence, the Parties do not intend the benefits of this Agreement to inure to any third party or any rights, claims or causes of action against a Party to be created in favor of any person or entity other than the other Party.

XXIV. Severability . If any provision of this Agreement is determined to be unenforceable, the Parties intend that this Agreement be enforced as if the unenforceable provisions were not present and that any partially valid and enforceable provisions be enforced to the extent that they are enforceable.

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XXV. No Waiver . A Party does not waive any right under this Agreement by failing to insist on compliance with any of the terms of this Agreement or by failing to exercise any right in this Agreement. Any waivers granted under this Agreement are effective only if recorded in a writing signed by the Party granting the waiver.

XXVI. Cumulative Rights . The rights and remedies of the Parties under this Agreement are cumulative, and either Party may enforce any of its rights or remedies under this Agreement or other rights and remedies available to it at law or in equity.

XXVII. Construction . Except as otherwise expressly provided in this Agreement, the following rules will apply hereto: (a) the singular includes the plural and the plural includes the singular; (b) “or” is not exclusive and “include” and “including” are not limiting; (c) a reference to any agreement or other contract includes any permitted modifications, supplements, amendments and replacements; (d) a reference in this Agreement to a Section or Appendix is to the Section of or Appendix to this Agreement unless otherwise expressly provided; (e) a reference to a Section in this Agreement will, unless the context clearly indicates to the contrary, refer to all sub-parts or sub-components of any said article or section; (f) words such as “hereto,” “hereof,” and “herein,” and other words of like import will, unless the context clearly indicates to the contrary, refer to the whole of this Agreement and not to any particular clause hereof; (g) a reference in this Agreement contemplating certain action by a Party “after consultation with” or “in consultation with” another Party does not mean that the consent or approval of such other Party is required or contemplated in connection with such action; (h) a reference to “mutually agree,” “mutually agreed” and “mutual agreement” with respect to a matter each individually means that a written agreement; and (I) “will” expresses an imperative, an obligation, and a requirement.

XXVIII. Further Assurances . Each of SHMC and SHO will produce or execute such other documents or agreements as may be necessary or desirable for the execution and implementation of this Agreement and the consummation of the transactions specified herein and to take all such further action as the other Party may reasonably request in order to give evidence to the consummation of the transactions specified herein.

XXIX. Survival . Each term of this Agreement that would, by its nature, survive the termination or expiration of this Agreement will so survive, including the obligation of either Party to pay all amounts accrued hereunder and including without limitation Article X (Ownership of Data), Article XI (Confidentiality), Article XIII (Books and Records), Article XVI Indemnification, Article XVIII (Exclusion of Consequential Damages; Limitation of Liability, and Section XXXVI (Governing Law, Jurisdiction ; Waiver of Jury Trial).

XXX. Entire Agreement; Modifications . This Agreement, including all Appendices attached which are incorporated by this reference, constitute the complete and final agreement of the parties pertaining to the Agreement. No modification of this Agreement is binding unless it is in writing and signed by SHMC and SHO.

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XXXI. Glossary . The following terms are defined in the text of the Agreement, as indicated:


Term		Section
Actual Redemption Rate		Appendix VI.C.
Affiliate		This Section
Auditing Party		XIII.
Authorized Provider		Appendix R.B.
Authorized Vendor		Appendix R.B.
Base Points		Appendix R.B.
Bonus Points		Appendix R.B.
Stockholding Change		This Section
Competitor		This Section
Complying Change		III.
Confidential Business Information		XI.A.
Confidential Personal Information		XI.C.
Dispute		XIV.B.2
Dispute Notice		XIV.B.1
Effective Date		II.
Implicit Interest		VII.A.2.
Indemnified Parties		XVI.
Initial Redemption Rate		Appendix VI.C
Measurement Period		Appendix VI.C
Member		Appendix R.B.
Member Number		Appendix R.B.
Monthly Member Analytics		VII.A.2.
SHO Opt-In		VII.A.2.
SYW Operating Committee		XIV.A
Personal Shopper Program		VII.A.3.
POS System		V.B.
Program		Recital A.
Program-Eligible Purchases		Appendix R.B.
Program Terms and Conditions		Recital B.
Purchase Points		Appendix VI.C.
Rate Card		VII.A.1.
Separation Agreement		II.
SHLD		II.

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SHMC Mark		VIII.A.
SHO Mark		VIII.B.
Term		II.
Terminating Party		XII.A.1.
Transaction Information		V.A.
True-Up Fee		Appendix VI.C.
Unresolved Dispute		XIV.B.1.

“ Affiliate ” means (A) with respect to SHO, each of its subsidiaries, (B) with respect to SHMC, Sears Holdings Corporation and each of its subsidiaries, and (C) with respect to a Competitor, each Person that directly or indirectly and by whatever means controls, is under common control with, or is controlled by, the Competitor.

“ Stockholding Change ” means a Competitor becomes, directly or indirectly, at any time after the date of this Agreement and by whatever means the beneficial owner of more than 50% of the total voting power of SHO’s outstanding securities entitled, to vote in, or carrying the right to direct voting with respect to, directly or indirectly and by whatever means the election of SHO’s board of directors.

“ Competitor ” means each Person and each of its Affiliates that operates a points-issuance/redemption business that competes in any material respect with the Program or with any other rewards or points-issuance/redemption business operated by SHMC or any of its Affiliates.

“ Person ” means an individual, a sole proprietorship, a partnership, a joint venture, a limited liability company, a corporation, and all other entities.

XXXII. Assignment . This Agreement may not be assigned by SHO without the prior written consent of SHMC except that SHO may assign this Agreement to an Affiliate. SHMC may assign this Agreement without restriction.

XXXIII. Counterparts . This Agreement may be executed in any number of counterparts, all of which together will constitute one and the same instrument, but in making proof of this Agreement, it will not be necessary to produce or account for more than one such counterpart. Any facsimile or PDF e-mailed version of an executed counterpart will be deemed an original.

XXXIV. Good Faith and Fair Dealing . Outlet Stores and Sears each will exercise Good Faith in the performance of its obligations in this Agreement. “ Good Faith ” means honesty in fact and the observance of reasonable commercial standards of fair dealing in accordance with Applicable Law.

XXXV. Condition Precedent to the Effectiveness of this Agreement . This Agreement will not become effective until it has been approved by the Audit Committee of the Board of Directors of SHLD.

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XXXVI. Governing Law; Jurisdiction; Waiver of Jury Trial .

A. Governing Law . This Agreement will be construed in accordance with, and governed by, the federal laws of the United States, including but not limited to the Lanham Act, and the internal laws of the State of Illinois other than its conflict of laws principles and the Illinois Franchise Disclosure Act. This Agreement will not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.

B. Jurisdiction . Each of the Parties submits, for itself and its property, to the exclusive jurisdiction of all Illinois state courts and federal courts of the United States of America sitting in Cook County, Illinois, and all appellate courts to each thereof, in all actions and proceedings arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of all judgments relating thereto, and each of the Parties (i) will commence all such actions and proceedings only in such courts, (ii) will cause all claims in respect of all such actions and proceedings to be heard and determined in such Illinois state court or, to the extent permitted by law, in such federal court, (iii) waives, to the fullest extent it may legally and effectively do so, all objections that it may now or hereafter have to the laying of venue of all such actions and proceedings in any such Illinois state or federal court, and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such actions and proceedings in all such Illinois state and federal courts. A final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section XX. Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by law.

C. Waiver of Jury Trial. Each Party acknowledges that each controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, it irrevocably and unconditionally waives all rights it may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party certifies and acknowledges that (i) it understands and has considered the implications of such waivers, (ii) it makes such waivers voluntarily, and (iii) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section XXXVI.

[Signatures on following page]

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Sears Holdings Management Corporation		Sears Hometown and Outlet Stores, Inc.

By:	/s/ Imran Jooma	By:	/s/ W. Bruce Johnson
Imran Jooma		W. Bruce Johnson
SVP & President OnLine, Marketing, and Pricing		Chief Executive Officer and President

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Appendix R.B

Program Terms and Conditions

Terms and Conditions of the ShopYourWayRewards ^SM Program

Effective Date April 12, 2012

These Terms and Conditions (as they may be amended from time to time, these “ Terms ”) apply to all members of the ShopYourWay Rewards Program (the “ Program ”) offered by Sears Holdings Management Corporation (together with its affiliated companies, “ Company ”). Upon your completion of the enrollment process you: (i) become a ShopYourWay Rewards Member (“ you ” or “ Member ”), (ii) are issued a Member Number (“ Member Number ”), and (iii) agree that you have read and agree to these Terms. These Terms are subject to periodic changes that Company may make in its sole discretion. Company is entitled to modify the participation requirements (the “ Participation Requirements ”) for Members at any time. Unless otherwise specified herein, all changes to these Terms and the Participation Requirements apply to all Members, including Members enrolled before the date the changes take effect.

YOU AGREE WITH COMPANY AS FOLLOWS:

1. Program-Eligible Purchases : “ Program-Eligible Purchases ” means Qualifying Purchases and Qualifying Prescriptions. “ Qualifying Purchases ” means qualifying purchases of products and services (i) at Company’s Stores, (ii) from food concessions at Company Stores , (iii) from Company-branded catalogs, (iv) at participating Company licensed businesses (products and services selected by these businesses from time to time), (v) from participating Company-branded and Company-sponsored websites, (vi) from participating third-parties that are designated by Company from time to time in its sole discretion (“ Authorized Vendors ”), and (vii) from participating third-party vendors that are designated by Authorized Providers in accordance with terms and conditions established by the Authorized Providers and approved by Company in its sole discretion. “ Company Stores ” means the following stores located in the United States: Sears; Sears Grand; Sears Essentials; Sears Hometown Stores; Sears Home Appliance Showrooms; Sears Hardware; Sears Outlet; Sears Auto Centers; Sears Home Services; Kmart; Lands’ End; The Great Indoors; and mygofer. All references to the United States herein include Puerto Rico. “ Qualifying Prescriptions ” means prescriptions filled at Kmart Pharmacies. “ Authorized Providers ” are third-party providers, such as networks, aggregators, sponsors, and consumer credit-card issuers, that Company from time to time in its sole discretion authorizes to participate in the Program.

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2. Excluded Purchases and Layaway . The following are excluded from Qualifying Purchases (collectively “ Non-Qualifying Purchases ”): (i) sales and use taxes; (ii) service fees; (iii) donations to charitable organizations; (iv) commercial account purchases; (v) purchases of lottery tickets, licenses, tobacco, alcohol, firearms, gift cards, postage, gasoline, and Western Union services; (vi) bill payments; (vii) credit card payments; (viii) purchases that include a redemption of Points for some part or all of the purchase price; (ix) purchases of products and services via ServiceLive.com, including any fees paid to ServiceLive.com; (x) layaway payments made prior to when you became a Member; (xi) shipping and delivery charges; (xii) purchases from third-party vendors (other than Authorized Vendors and other than participating third-party vendors that are designated by Authorized Providers) on Company-branded and Company-sponsored websites if to complete a purchase the customer is redirected to the third-party vendor’s or other website (other than a Company-branded or Company-sponsored website); (xiii) Sears and Kmart auctions on eBay; (xiv) the portion of any purchase price which is eliminated due to a coupon or other discount, (xv) purchases, transactions, and other items excluded by the terms and conditions established by Authorized Providers or by Authorized Vendors; (xvi) purchases outside the United States and (xvii) other items determined by Company from time to time in its sole discretion. Layaway payments made after you become a Member will become Qualifying Purchases when you make your final layaway payment. The following are not Qualifying Prescriptions (collectively “ Non-Qualifying Prescriptions ”): (A) prescriptions paid for in whole or in part by state or federal healthcare programs; (B) prescriptions filled by Kmart Pharmacies located in AL, AR, NJ, MA, or NY; and (C) prescriptions for controlled substances filed by Kmart Pharmacies located in LA.

3. Earning Points : When you present your Member Number at the point of sale in accordance with these Terms you earn base points on your Program-Eligible Purchase amount (“ Base Points ”) at the rate or rates established by Company from time to time in its sole discretion. As of January 29, 2012 Members earn Base Points at the rate of one Base Point for every $0.10 of Qualifying Purchase amount, which rate may change without notice. If as of January 29, 2012 your Qualifying Purchase amount is not a multiple of $0.10 you earn one additional Base Point if your Qualifying Purchase amount ends in $0.05 or more. For example, a Qualifying Purchase amount of $10.75 will earn 108 Base Points, while a Qualifying Purchase amount of $10.74 will earn 107 Base Points. As of January 29, 2012 you earn 500 Base Points for each Qualifying Prescription filled regardless of the dollar amount of the Qualifying Prescription, which rate may change without notice. Members residing in the United States may also earn additional Base Points on non-purchase activities pursuant to the terms and conditions governing those activities as adopted by Company from time to time (which terms and conditions are incorporated into, and become a part of, these Terms).

Bonus Members may earn bonus points, in addition to Base Points, on specified Qualifying Purchases pursuant to the terms and conditions of promotional offers (which terms and conditions are incorporated into, and become a part of, these Terms) published by Company from time to time (“ Bonus Points ”). “ Bonus Members ” are Members who maintain a valid email address in their Program profile and who remain opted-in the Program to receiving promotional emails from the Program. Members who opt-out of receiving promotional emails from the Program (“ Base Members ”) do not receive Bonus Points. Base Points and Bonus Points are together referred to in these Terms as “ Points. ”

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If a Bonus-Point offer gives Bonus Members the opportunity to earn, in Points, a specified multiple or percentage of a Qualifying Purchase or dollar value (for example, “2x Points,” “2% of value in Points,” or “$2 back in Points”) (a “ Multiplier Offer ”) the specified multiple, percentage, or dollar amount of Bonus Points earned will include the Base Points earned on the purchase. For example, a Bonus Member will earn 1,000 Base Points on a $100 Qualifying Purchase. If a “2x” Multiplier Offer is applicable to the Qualifying Purchase, the total Points the Bonus Member will earn on the Qualifying Purchase will be 2,000.

If Company, in its discretion, permits a Bonus Member to combine two or more Multiplier Offers on a Qualifying Purchase, the total number of Points the Bonus Member will earn on the Qualifying Purchase will be equal to the sum of (i) the total Base Points earned for the Qualifying Purchase (the “ Total Base Points ”) and (ii) the Bonus Points for each Multiplier Offer based on the specified multiple, percentage, or dollar amount for the Multiplier Offer less that portion of the Total Base Points that is attributable to the Multiplier Offer. For example, if a total Qualifying Purchase is $290 ($40 for shoes and $250 for tools) and if Company permits a Bonus Member to combine two Multiplier Offers (one that is 2% in Points for shoes and the other that is 10x in Points for tools) the total Points that the Bonus Member will earn on the Qualifying Purchase will be 25,800 calculated as follows: 2,900 Total Base Points (400 for shoes and 2,500 for tools) + 400 Bonus Points for shoes (800-400) + 22,500 Bonus Points for tools (25,000-2,500) = 25,800 total Points earned.

POINTS ARE NOT EARNED ON (A) NON-QUALIFYING PURCHASES, (B) NON-QUALIFYING PRESCRIPTIONS, OR (C) PROGRAM-ELIGIBLE PURCHASES MADE PRIOR TO YOUR ENROLLMENT DATE. BONUS POINTS ARE NOT EARNED ON PROGRAM-ELIGIBLE PURCHASES MADE PRIOR TO THE START DATE OF ANY BONUS POINT OFFER OR PROMOTION. Points are issued into your Points account within approximately 30 days from the date of the Qualifying Purchases, except that Points for Qualifying Prescriptions may be issued on a quarterly basis and Points for Qualifying Purchases from Authorized Vendors and from participating third-party vendors that are designated by Authorized Providers may be issued up to 90 days from the date of the Qualifying Purchases. You may review your Point balance in your Points account at shopyourway.com/rewards (the “ Rewards Site ”, or such other site as designated by Company from time to time). You do not acquire property rights in any Points in, or earned but not yet issued into, your Points account.

You may also earn Base Points and, if you are a Bonus Member, Bonus Points on purchases from, or using services provided by, eligible third parties (including without limitation Authorized Vendors and Authorized Providers) pursuant to the terms and conditions governing those purchases as adopted, or approved, by Company from time to time (which terms and conditions are incorporated into, and become a part of, these Terms).

Company from time to time in its sole discretion may establish multiple rates for earning Base Points and Bonus Points that differentiate among Members on the basis of, or that depend on, reflect, or are affected by, Member achievement of specified levels of Program-Eligible Purchases, Qualifying Purchases, Qualifying Prescriptions, or similar criteria.

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Company from time to time in its sole discretion may sell or otherwise transfer Points for cash or other consideration to Members, Authorized Vendors, and Authorized Providers.

4. Point Redemption and Expiration; Special Promotions . You may redeem Points in Your Points account as determined by Company from time to time in its sole discretion. As of January 29, 2012 Members may redeem Points on all Program-Eligible Purchases except for purchases from Sears Home Services, purchases of Prescriptions, purchases from Authorized Vendors, purchases from Authorized Providers, and purchases from participating third-party vendors that are designated by Authorized Providers. You may redeem your Points at the rate or rates determined by Company from time to time in its discretion (the “ Redemption Value ”), which rate or rates are incorporated into, and become a part of, these Terms. You may redeem your Points only to pay all or a part of the purchase price for Program-Eligible Purchases. POINTS HAVE NO CASH VALUE AND MAY NOT BE REDEEMED FOR CASH, CREDIT, OR OTHER VALUE. NO CREDIT, CASH, OR OTHER VALUE WILL BE GIVEN FOR UNUSED POINTS. ALL POINTS EXPIRE WITHOUT CREDIT, PAYMENT, OR OTHER VALUE TO YOU AT THE END OF THE CALENDAR QUARTER THAT INCLUDES THE 12 MONTH ANNIVERSARY OF THE DATE THOSE POINTS WERE EARNED. Calendar-quarter end dates are March 31, June 30, September 30, and December 31. For example, Points earned on November 1, 2011 expire on December 31, 2012.

From time to time Company may offer Members the chance to win various prizes, including Points. NO PURCHASE WILL BE NECESSARY TO PLAY OR WIN these prizes. Rules and restrictions apply to these promotions and will be published with the applicable promotion. Further, Company may in its sole discretion, from time to time, also award Point(s) to Members, or to any subset of Members. Notwithstanding anything to the contrary herein, Company may, in its sole discretion, attach additional or different terms to any Points awarded by Company, including, without limitation, establishing different (including shorter) expiration dates for any Points provided by Company.

Company from time to time in its sole discretion may establish multiple Redemption Values that differentiate among Members on the basis of, or that depend on, reflect, or are affected by, Member achievement of specified levels of Program-Eligible Purchases, Qualifying Purchases, or similar criteria.

5. Returns : Any Points you earn on a Program Eligible Purchase are deducted from your Points account if you return the merchandise, or cancel the service, comprising that Program Eligible Purchase, even if: (i) you have redeemed those Points prior to the return, and (ii) the deduction from your Points account results in a negative Points balance.

6. Negative Points Balance . If you have a negative Points balance, you will still earn Points on Program-Eligible Purchases, which will be applied to Your Points account until a positive Points balance is restored and thereafter. However, while your Points balance is negative, you will not be able to redeem Points until the positive Points balance is restored. If you return a Program Eligible Purchase while your Points balance is negative, Company reserves the right to deduct an amount equal to the Redemption Value of that negative Points balance from the purchase price to

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be paid to you with respect to that return. For example, if your Points balance is negative 1,000 Points and you return a $10.00 Program Eligible Purchase, then you will receive $9.00 in cash or store credit, and 1,000 Points (a Redemption Value of $1.00) will be applied to your Points account.

7. Participation : There is no Program membership fee. As of April 12, 2012, the Participation Requirements for each Member, are that such Member: (i) is 13 years of age or older (ii) is a resident of the United States (including Puerto Rico), or Mexico (iii) has provided to Company (as part of their Program profile) such Member’s correct: (a) First Name, (b) Last Name, and (c) Zip Code, and (iv) has provided a valid unique email address that such Member has the right to use. Company may request proof of identification and age to verify (A) your eligibility for Program membership, (B) membership participation, and (C) your compliance with these Terms.

If as a result in a change by Company in the Participation Requirements a Member no longer meets the requirements for participation, then, from the date of such change, such Member will no longer be entitled to earn Points (and all purchases from the date of such change by such Member will be Non-Qualifying Purchases), unless and until such Member meets the revised Participation Requirements. Notwithstanding the foregoing, Members who have not provided the information required in Section 7(iii) and Section 7(iv) above (but who were valid Members prior to imposition of such requirements), will be entitled to continue as full Members of the Program (with the same rights and responsibilities as other Members); provided that Company reserves the right to remove this exception at any time.

If you provide Company with your mobile telephone number (x) Company may send to your mobile telephone number SMS (text) and other messages, (y) with respect to those messages you may be charged data and message rates, and (z) if you reply “stop” to a Company message to your mobile number Company may send to you an additional message confirming your “stop” reply.

8. Loss of Membership Number, Restrictions, and Taxes : You are entitled to only one Member Number and one Points account. Company will issue you a new Member Number and transfer your Point balance, even if negative, to your new Member Number but only if you surrender your old Member Number. If you have more than one Points account we may, in our discretion, combine your Points accounts into one Points account. You will immediately notify Company in the event of a lost or stolen Member Number. Unless you have timely notified Company of a lost or stolen Member Number, Company is not responsible for (i) lost or stolen Member Numbers or (ii) any misuse resulting from lost or stolen Member Numbers. Your Member Number and, if you have a Membership card your Membership card, remain the property of Company and must be surrendered upon request. Member Numbers and Points are not transferable and may not be sold, resold, exchanged, or bartered. Company may terminate Points, or any portion of your Points balance, at any time, without prior notice. Program benefits can be terminated by Company at any time regardless of how much you participate in the

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Program. Company may adjust your Points account status or Points balance, at any time and without notice, due to any (A) computer error, (B) technical issues experienced by Company, (C) machine malfunction, (D) employee, customer, or other error, or (E) fraud or other misuse of Points or the Program. All transactions involving Points are subject to review and verification by Company. All Points are for one-time use, and all transactions involving Points are final unless otherwise determined by Company. Any violation of these Terms may result in the confiscation or cancellation of your Points and the suspension or termination of your Membership. Points you earn or are awarded may be subject to taxation, for which you are solely responsible.

9. Overall Program Terms : The Program is void where prohibited by law. Participation in the Program is subject to these Terms and all other terms and conditions, rules, policies, and procedures that Company may establish or change at any time and from time to time without notice. Company may change the Program at any time and without notice, including but not limited to (i) changing the Program’s earning rates, (ii) changing the Program’s structure, (iii) removing or changing Points including the rate at which Points are earned, (iv) changing the Redemption Value of Points, (v) raising or lowering Point levels, (vi) revising the procedures and rules for earning or redeeming Points, (vii) changing when Points expire, (viii) associating, combining, integrating, linking, or merging the Program with other programs, and (ix) associating, combining, integrating, linking, or merging other programs with the Program. Company may make these changes even if these changes affect your ability to use Points already accumulated. You are responsible for remaining knowledgeable about these Terms. The interpretation and application of these Terms is at the sole discretion and determination of Company, which in each case is final and conclusive. Company assumes no responsibility for errors caused by equipment or system malfunctions, acts of God, or incorrect Member information. If you wish to discontinue your participation in the Program you may cancel at any time by contacting: ShopYourWay Rewards Customer Relations at P.O. Box 365, Dodgeville, WI 53533 or by calling 800.991.8708 during business hours. Important Notice Concerning Credit Card / Financing Offers: THE INFORMATION YOU HAVE GIVEN COMPANY FOR THE PROGRAM MAY BE USED TO MAKE PREAPPROVED CREDIT OFFERS TO YOU. The laws of the State of Illinois apply to the Program and these Terms without regard to any conflict of law rules that may require the application of the laws of another jurisdiction.

If to access your Points account you use a user ID and password you are fully responsible for maintaining their confidentiality. You are fully responsible for all activities that occur with respect to your user ID and password whether or not you authorize the activities. You must immediately notify Company of any unauthorized use of your user ID or password of which you become aware. You acquire no property rights in your password, Member Number, or Points account. You may not give access to your Points account to any third-party on-line service, including but not limited to any points management service, points tracking service, points aggregation service, or other service.

10. Confidential Arbitration : ALL DISPUTES COMPANY OR YOU HAS RELATING IN ANY WAY TO THE PROGRAM (INCLUDING WITHOUT LIMITATION WITH RESPECT TO COMPANY’S DISCLOSURES, EMAIL AND MOBILE SMS (TEXT) MESSAGES

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COMPANY SENDS TO YOU, OR ANY CONTACT INFORMATION YOU SUPPLY TO COMPANY IN CONNECTION WITH THE PROGRAM), THESE TERMS, OR THE REWARDS SITE WILL BE SUBMITTED TO CONFIDENTIAL ARBITRATION IN THE FEDERAL JUDICIAL DISTRICT IN WHICH YOU RESIDE, EXCEPT TO THE EXTENT THAT YOU HAVE, IN ANY WAY, VIOLATED OR THREATENED TO VIOLATE ANY COMPANY INTELLECTUAL PROPERTY RIGHT. All arbitrations required by these Terms will be conducted under the rules then prevailing of the American Arbitration Association. The arbitrator’s award is binding and may be entered in any court of competent jurisdiction. To the fullest extent permitted by applicable law no arbitration brought under, or with respect to, the Program, these Terms, any Company disclosure, any email or SMS (text) message that Company sends to you, any contact information you supply to Company in connection with the Program, or the Rewards Site is to be joined to an arbitration involving any other party subject to these Terms whether through class arbitration proceedings or otherwise.

For arbitration claims you assert against Company in accordance with this section (but not for any arbitration claim against you) Company will pay all of your administrative, hearing, and arbitrator’s fees and costs for the arbitration (but not the fees, expenses, and costs of your lawyers, experts, or witnesses) in excess of any filing fee you would have been required to pay to file the claim as a lawsuit in a state or federal court (whichever is greater) in the judicial district in which you reside. Unless unlawful, Company will pay its, and you will pay your, lawyers’, experts’, and witness fees, expenses, and costs with respect to all claims.

To the extent permitted by law, you will not agree to act as a representative or a private attorney general, or in any other representative capacity, or participate as a member of a class of claimants in any lawsuit against Company in any court, or in arbitration, with respect to any claims arising under these Terms, the Program (including without limitation with respect to Company’s disclosures, email and mobile SMS (text) messages Company sends to you, or any contact information you supply to Company in connection with the Program), or your status as a Member. This waiver will survive the termination of the relationship between you and Company.

Company or you may seek injunctive relief in any state or federal court in Chicago, Illinois, USA, and Company and you consent to the exclusive jurisdiction and venue in the state and federal courts in Chicago, Illinois, USA for injunctive relief purposes.

NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THESE TERMS, UNDER NO CIRCUMSTANCES IS COMPANY LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE, EXEMPLARY, OR CONSEQUENTIAL DAMAGES.

The employees of Company and its affiliates and individuals eligible for an Associate discount are eligible to participate in the Program. See 88sears.com for Associate enrollment and participation guidelines.

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These Terms and Conditions apply to the ShopYourWay Rewards Program offered by Company to ShopYourWay Rewards members. Please read these Terms and Conditions carefully as they govern all aspects of the Shop Your Ways Rewards Program. Visit the Rewards Site for the most current Terms and Conditions.

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Appendix II

Effective Date

The Effective Date referred to in Article II is September , 2012.

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Appendix VI.C

Points Issuance Fee

[***] A total of four pages were omitted and filed separately with the Securities and Exchange Commission.

[***]

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Appendix VI.E

Reimbursement for Points Redemption

SHMC will reimburse SHO at the rate of $0.001 for each Point accepted for redemption by SHO in accordance with Section VI.E of the Shop Your Way Rewards Retail Establishment Agreement to which this Appendix is attached.

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Appendix VII.A.1

Rate Card and Email Support Services

Definitions:

“ CPM ” means cost per thousand.

“ Hero ” means the primary featured product in a multiple product email. The Hero is featured at the top of the email, and determines the subject line of the email.

“ Slice ” means one of 4-6 sub-features or products in an email. The Slice is typically displayed “below the fold” e.g. not visible until/unless Member scrolls down in the email, or some equivalent action depending on the format of the email.

“ Solo ” means an email campaign that features a single business unit or store format.

“ TI ” means targeted interactions.

“ Trigger ” means any metric or event used to generate an automatic communication to a Member, for example, emails sent upon purchase of merchandise, or POS contact.

Rate Card


				Cost
Email Campaign Development and Deployment Services

One (1) Dedicated Email Campaign Manager - required upon SHO request for an email campaign or campaigns.				$170,000/annually; billed at $14,167/month; may be hired on a month-to-month basis as mutually agreed by the Parties.

Email Campaigns to SHO Opt-Ins or Members designated as Implicit Interests (as defined in the Agreement) • Includes Transactional Communications, Existing Triggers, Shopper Recap, and eReceipts				$4.00 CPM

Email Campaigns to Members not designated as SHO opt-ins or as Implicit SHO Interests				$15 CPM for Solo campaigns

• Includes Solos, SHMC/SYWR promotional, and other campaigns to non-SHO exclusive customers				$10 CPM for SHO Hero

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				$1 CPM for Slice

				One (1) Email Campaign per Month to 500,000 Members at $4 CPM Cost

Customized SYW Promotion and Event Campaigns • Includes for example campaigns such as “Secret Sales,” “Liquidity Injection,” or “Extreme Redeem,” etc.				$15 CPM for Solo campaigns

Special Projects/New Development – defined in a separate SOW • Includes new Triggers, New/Revised transactional messaging and communications, or other net new campaigns				Rate Card + CPM (if applicable, otherwise as defined in SOW)


Email Creative/Coding Development Services

New Trigger/Transactional Template		$	16,000
New Dynamic Promotional Template		$	8,000
New Standard Email Postcard Template		$	4,000
Banners/Trolley’s		$	500
Critical Changes	(changes requested less than 5 days prior to launch date)
	Hero	$	5,000
	Slice	$	2,500



Analytics

Ad Hoc Analyses				$200/hour

Segmentation and other larger projects				Per agreed upon SOW

Personalization Services

TI @ POS (SHO)				$0.03 per print
TI propensity models (includes quarterly re-scoring)				$15,000/each

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TI Implementation into new email campaign				$5,000 per campaign
Other TI requests				Per agreed upon SOW



Hourly rates for OBU Engineering/User experience/Marketing Planning personnel
Group	Role	Rate
Product Mgmt	Product Manager	$	100.00
Merchandising	Merchant	$	80.00
Marketing	Marketing Coordinator	$	80.00
Creative & UX	Creative Director	$	150.00
	Art Director	$	125.00
	Web Designer	$	80.00
	Principal UX Architect	$	125.00
	UX Architect	$	95.00
	Copywriter	$	80.00
	Taxonomist	$	110.00
	Front End Developer	$	90.00
	UX Project Manager	$	90.00
Engineering	Technical Project Manager	$	90.00
	Engineering Lead	$	110.00
	Developer	$	75.00
	QA Engineer	$	75.00
	Support Engineer	$	75.00

Email Support Schedule


	Services	Notes

Note: Fees for email support services not included in the Services Agreement will be the equivalent fees defined in the Rate Card

	• SHC/OBU will continue to provide support for non-SYW related promotional and trigger emails

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		• Promotional emails		a.) SHC/OBU will continue to provide standard promotional emails to Sears Opt-Ins with additional SHO Opt-In or Implicit Interest in SHO including specific business line/category promotional offer

				b.) SHO will continue to have the opportunity to purchase promotional banners/content in standard OBU promotional emails

		• Trigger Emails		SHC/OBU will continue to provide support for the following trigger emails: • Shopping Cart Abandonment emails for SearsOutlet.com • Post Order emails for SearsOutlet.com • Shopper Recap emails • Digital receipt email • Post order emails for in-store purchases
		• Special Projects/New Campaign Development		Defined in a separate written SOW

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Appendix XIII.A

SYW Operating Committee

In accordance with section XIII.A of the Shop Your Way Rewards Retail Establishment Agreement to which this Appendix is attached, SHO and SHMC hereby designate the following persons as members of the SYW Operating Committee:

For SHO

1. J.J. Ethridge

2. Beau Warren

3. Lauri Turjeman

For SHMC

1. Michael Anderson

2. Philip Emmanuele

3. Sandeep Swaminathan

Initial Chairperson : Michael Anderson

Exhibit 10.9

TAX SHARING AGREEMENT

This Tax Sharing Agreement (the “Agreement”), dated as of the 8th day of August, 2012, is by and among Sears Holdings Corporation, a Delaware corporation (“Sears Holdings”), and Sears Hometown and Outlet Stores, Inc., a Delaware corporation (“SHO”), and all of its direct and indirect Subsidiaries (SHO and its present and future Subsidiaries shall be collectively referred to herein as the “SHO Companies”).

WHEREAS, one or more of the SHO Companies is a member of the affiliated group of corporations of which Sears Holdings is the common parent corporation and which files a consolidated federal income tax return and combined and consolidated state tax returns;

WHEREAS, following the Rights Closing Date (as such term is defined in the Separation Agreement between SHC and SHO, dated as of August 8, 2012 (the “Separation Agreement”)), such SHO Companies will no longer be included in the affiliated group of corporations (within the meaning of Section 1504 of the Code) of which Sears Holdings is the common parent; and

WHEREAS, Sears Holdings and the SHO Companies desire to set forth their agreement regarding the allocation of taxes, the filing of tax returns, the administration of tax contests and other related tax matters.

NOW, THEREFORE, in consideration of the mutual obligations and undertakings contained herein, the parties agree as follows:

ARTICLE I

DEFINITIONS

As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined):

“Affiliate” means, with respect to any specified person, a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the specified person.

“Code” means the Internal Revenue Code of 1986, as amended, or any successor thereto, as in effect with respect to the taxable period in question.

“Consolidated Group” means the affiliated group of corporations (within the meaning of Section 1504 of the Code) of which Sears Holdings is the common parent (and any successor group).

“Final Determination” shall mean the final resolution of liability for any Tax with respect to a taxable period (i) by Internal Revenue Service Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the Internal Revenue Service (the “IRS”), or by a comparable form under the laws of other jurisdictions; except that a Form 870 or 870-AD or comparable form that reserves (whether by its terms or by operation of the law) the right of the taxpayer to file a claim for a refund and/or the right of the Taxing Authority to assert a further

deficiency shall not constitute a Final Determination; (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and may not be appealed; (iii) by a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreements under the laws of other jurisdictions; (iv) by any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the Taxing Authority jurisdiction; or (v) by any other final disposition, including by reason of the expiration of the applicable statute of limitations.

“Member” has the meaning assigned in Treasury Regulation Section l.1502-1.

“Post-Closing Tax Period” means any taxable period beginning after the Rights Closing Date and, with respect to a taxable period that begins on or before such date and ends thereafter, the portion of such taxable period beginning after the Rights Closing Date.

“Pricing Adjustment” shall mean an adjustment by a Taxing Authority of any transfer pricing arrangement or other intercompany transaction between Sears Holdings or any of its Subsidiaries (on the one hand) and any of the SHO Companies (on the other hand) with respect to any Post-Closing Tax Period.

“Pre-Closing Tax Period” means any taxable period ending on or before the Rights Closing Date and, with respect to a taxable period that begins on or before such date and ends thereafter, the portion of such taxable period ending on the Rights Closing Date.

“Pre-Closing Taxes” means any Taxes (other than Unpaid Non-Income Taxes) that are imposed on, allocated or attributable to or incurred or payable by the SHO Business for any Pre-Closing Tax Period, provided that Pre-Closing Taxes shall be computed without regard to the carryback of any Tax Benefit Item from a Post-Closing Tax Period. For purposes of calculating “Pre-Closing Taxes”, any liability for Taxes attributable to a Tax period that begins before and ends after the Rights Closing Date shall be apportioned between the portion of such period ending on such date and the portion of such period beginning after such date (a) in the case of real and personal property Taxes, by apportioning such Taxes on a per diem basis and (b) in the case of all other Taxes, on the basis of a closing of the books, provided, that exemptions, allowances or deductions that are calculated on an annual basis shall be apportioned on a per diem basis.

“Separate Return Taxable Income” means, with respect to each taxable period or portion thereof and each state or locality for which the allocation is being computed, the amount of income calculated by multiplying the separate entity’s or group of entities’ (as applicable) tax base for that state or locality by the State Group’s apportionment formula for that state or locality, and taking into consideration nonapportionable items of income for that separate entity or group of entities (as applicable). If during any taxable period an SHO Company ceases to be a State Affiliated Company in any state or locality, the “Separate Return Taxable Income” for such taxable period in such state or locality shall be calculated as if the taxable period of such SHO Company ended on the date that such SHO Company ceased to be a State Affiliated Company in such state or locality.

“SHO Business” means the business and assets contributed to SHO pursuant to the Separation Agreement.

“State Affiliated Companies” means all entities that Sears Holdings determines are included in a State Combined or Consolidated Return or that any jurisdiction determines under applicable law are included in a State Combined or Consolidated Return.

“State Combined or Consolidated Return” means a single state or local Tax Return filed for (i) one or more of Sears Holdings and its Subsidiaries as well as (ii) one or more SHO Companies.

“State Group” means any group of corporations filing a State Combined or Consolidated Return.

“Subsidiary” means a corporation, limited liability company, partnership or other entity, whether or not such entity is treated as such for tax purposes.

“Tax” or “Taxes” means any and all forms of taxation, whenever created or imposed by a Taxing Authority, and, without limiting the generality of the foregoing, shall include net income, alternative or add-on minimum, estimated, gross income, sales, use, ad valorem, gross receipts, value added, franchise, profits, license, transfer, recording, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profit, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any related interest, penalties or other additions to tax, or additional amounts imposed by any such Taxing Authority.

“Taxing Authority” means a national, foreign, municipal, state, federal or other governmental authority responsible for the administration of any Tax.

“Tax Benefit Item” means any net operating loss, unused foreign Tax credit, unused charitable deduction, unused capital loss, or similar unused Tax benefit item arising with respect to the SHO Companies in a given taxable period, computed as though the SHO Companies had independently filed a federal, state or local Tax Return for such taxable period including all of the SHO Companies.

“Tax Controversy” means any pending or threatened audit, dispute, suit, action, proposed assessment or other proceeding relating to Taxes.

“Tax Return” means any return, filing, questionnaire or other document, including requests for extensions of time, filings made with estimated Tax payments, claims for refund and amended returns, that may be filed for any taxable period with any Taxing Authority in connection with any Tax (whether or not a payment is required to be made with respect to such filing) or any information reporting requirement.

“Unpaid Non-Income Taxes” means any Taxes (other than income Taxes) that are imposed on, allocated or attributable to or incurred or payable by the SHO Business or the SHO Companies for any Pre-Closing Tax Period, provided that Unpaid Non-Income Taxes shall include Taxes only to the extent such Taxes are accrued and unpaid as of the Rights Closing Date. For purposes of calculating “Unpaid Non-Income Taxes”, any liability for Taxes attributable to a Tax period that begins before and ends after the Rights Closing Date shall be apportioned between the portion of such period ending on such date and the portion of such period beginning after such date (a) in the case of real and personal property Taxes, by apportioning such Taxes on a per diem basis and (b) in the case of all other Taxes, on the basis of a closing of the books, provided, that exemptions, allowances or deductions that are calculated on an annual basis shall be apportioned on a per diem basis.

ARTICLE II

PREPARATION AND FILING OF TAX RETURNS

Section 2.01. Sears Holdings Consolidated Group Tax Returns .

Sears Holdings shall timely prepare and file (or cause to be timely prepared and filed) all federal income Tax Returns for the Consolidated Group. The SHO Companies shall provide to Sears Holdings all financial data and any other information and documentation reasonably requested by Sears Holdings in connection with the filing of any such federal income Tax Returns.

Section 2.02. State Combined or Consolidated Returns .

(a) Sears Holdings or one or more of its Subsidiaries shall prepare all State Combined or Consolidated Returns. To the extent permitted by law, Sears Holdings (or one of its Subsidiaries) shall timely file each such State Combined or Consolidated Return. If Sears Holdings (or one of its Subsidiaries) is not permitted to file any such State Combined or Consolidated Return, an SHO Company shall file such State Combined or Consolidated Return. The person responsible pursuant to the forgoing for filing any such State Combined or Consolidated Return shall timely pay (or cause to be timely paid) any Tax that is due in connection with any such State Combined or Consolidated Return. The SHO Companies shall provide to Sears Holdings all financial data and any other information and documentation reasonably requested by Sears Holdings in connection with the preparation of any such State Combined or Consolidated Return.

(b) To the extent reasonably requested by the SHO Companies, Sears Holdings shall (i) consult with the SHO Companies regarding the preparation of a State Combined or Consolidated Return if the SHO Companies are responsible for any portion of the Taxes reported thereon and (ii) deliver any such State Combined or Consolidated Return to the SHO Companies for review and comment no later than five days prior to the date on which such State Combined or Consolidated Return is due. Sears Holdings shall consider in good faith any changes to such State Combined or Consolidated Tax Return reasonably requested by the SHO Companies, to the extent that such changes relate to items for which the SHO Companies have responsibility hereunder.

Section 2.03. Other Tax Returns of the SHO Companies .

(a) The SHO Companies shall timely prepare and file, or cause to be timely prepared and filed, all appropriate Tax Returns relating to all Taxes attributable to the SHO Companies’ business other than those described in sections 2.01 and 2.02 herein.

(b) To the extent any Tax Return described in Section 2.03(a) would result in Pre-Closing Taxes and Taxes other than Pre-Closing Taxes, Sears Holdings or one or more of its Subsidiaries shall prepare such Tax Return. The SHO Companies shall provide to Sears Holdings all financial data and any other information and documentation reasonably requested by Sears Holdings in connection with the preparation of any such Tax Return. A SHO Company shall file such Tax Return and shall timely pay (or cause to be timely paid) any Tax that is due in connection with any such Tax Return. To the extent reasonably requested by the SHO Companies, Sears Holdings shall (i) consult with the SHO Companies regarding the preparation of such Tax Return and (ii) deliver such Tax Return to the SHO Companies for review and comment no later than five days prior to the date on which such Tax Return is due. Sears Holdings shall consider in good faith any changes to such Tax Return reasonably requested by the SHO Companies, to the extent that such changes relate to items for which the SHO Companies have responsibility hereunder. Within 15 days of filing any such Tax Return, Sears Holdings shall pay SHO the amount of Pre-Closing Taxes shown on such Tax Return.

ARTICLE III

ALLOCATION AND PAYMENT OF CONSOLIDATED FEDERAL TAXES

Section 3.01. Payment of Consolidated Federal Income Tax . Sears Holdings shall be responsible for all payments of federal income Tax due with respect to the Consolidated Group.

Section 3.02. Carrybacks . In the event any federal Tax Benefit Item of the SHO Companies for any taxable period after they cease being Members of the Consolidated Group is eligible to be carried back to a taxable period while the SHO Companies were Members of the Consolidated Group, the SHO Companies shall, where possible, elect to carry such amounts forward to subsequent taxable periods. If the SHO Companies are required by law to carry back any such federal Tax Benefit Item, the SHO Companies shall be entitled to a payment at the time and to the extent that such Tax Benefit Item reduces the federal income Tax liability of the Consolidated Group. For purposes of computing the amount of the payment described in this section 3.02, one or more federal Tax Benefit Items shall be considered to have reduced the Consolidated Group’s federal income Tax liability in a given taxable period by an amount equal to the difference, if any, between (i) the amount of the Consolidated Group’s federal income Tax

liability for the taxable period computed without regard to such federal Tax Benefit Item or Items and (ii) the amount of the Consolidated Group’s federal income Tax liability for the taxable period computed with regard to such federal Tax Benefit Item or Items. For the avoidance of doubt, if the SHO Companies are required to carry back a federal Tax Benefit Item, such federal Tax Benefit Item shall reduce the Consolidated Group’s federal income Tax liability only after all federal Tax Benefit Items of Sears Holdings have been applied to reduce the Consolidated Group’s federal income Tax liability in such taxable period. Appropriate reconciliation payments shall be made in the event that it is subsequently determined that a Tax Benefit Item did not reduce the Consolidated Group’s federal income Tax liabilities, including by reason of any such Tax Benefit Item being subsequently disallowed in whole or in part or by reason of other Tax benefits becoming available.

ARTICLE IV

ALLOCATION AND PAYMENT OF

COMBINED/CONSOLIDATED STATE AND LOCAL TAXES

Section 4.01. Payment of Combined/Consolidated State and Local Tax . With respect to Post-Closing Tax Periods, the SHO Companies shall pay to Sears Holdings, or Sears Holdings shall pay to the SHO Companies (in the case of a State Combined or Consolidated Return filed by an SHO Company, or in the case of payments with respect to Tax Benefit Items pursuant to section 4.02(d)), at the times provided by section 4.03, the amounts determined under section 4.02.

Section 4.02. Allocation of Combined/Consolidated State and Local Tax . The state and local Tax liability of the SHO Companies and all the other State Affiliated Companies for each State Combined or Consolidated Return shall be calculated in the following manner:

(a) An allocation of Tax (or payment attributable to a state or local Tax Benefit Item) pursuant to this Article IV shall be made to the SHO Companies only if Sears Holdings determines that an SHO Company has a nexus presence in a state or locality for which the allocation of Tax or payment attributable to a state or local Tax Benefit Item is being determined. If Sears Holdings has no nexus presence in a state or locality, then all Tax or payments attributable to a state or local Tax Benefit Item shall be allocated to the SHO Companies.

(b) Each allocation of Tax pursuant to this Article IV shall be computed between the SHO Companies as one group and all other State Affiliated Companies as a separate group.

(c) Except as otherwise provided herein (including section 7.03), with respect to any State Combined or Consolidated Tax Return that is an income Tax Return, the Tax allocated to the SHO Companies shall equal the product of (i) the statutory rate imposed by the relevant state or locality for the Tax covered by such Tax Return and (ii) the amount (if any) of positive Separate Return Taxable Income for the SHO Companies with respect to such Tax Return. For purposes of this section 4.02(c), the SHO Companies’ allocated Tax shall not be reduced by the SHO Companies’ carrybacks and carryovers of state or local Tax Benefit Items from other taxable periods (such items being addressed by section 4.02(d)).

(d) Sears Holdings shall pay to the SHO Companies, in accordance with section 4.03, the amount, if any, by which one or more state or local Tax Benefit Items of the SHO Companies arising in a Post-Closing Tax Period reduced a State Combined or Consolidated Return Tax liability with respect to any taxable period for which a State Combined or Consolidated Return is filed by Sears Holdings after the date of this Agreement but only to the extent that Sears Holdings receives the benefit of such reduction (taking into account the provisions of this Agreement). In computing the amount of the payment under this section 4.02(d), one or more state or local Tax Benefit Items shall be considered to have reduced the State Combined or Consolidated Return Tax liability in a given taxable period by an amount equal to the difference, if any, between (i) the amount of the State Combined or Consolidated Return Tax liability with respect to the taxable period computed without regard to such state or local Tax Benefit Item or Items and (ii) the amount of the State Combined or Consolidated Return Tax liability with respect to the taxable period computed with regard to such state or local Tax Benefit Item or Items. Appropriate reconciliation payments shall be made in the event that it is subsequently determined that a Tax Benefit Item did not reduce the State Combined or Consolidated Return Tax liability in a given taxable period, including by reason of any such Tax Benefit Item being subsequently disallowed in whole or in part or by reason of other Tax benefits becoming available. In no event shall the amount paid by Sears Holdings under this section 4.02(d) with respect to any state or local Tax Benefit Item exceed the amount that the SHO Companies would have received if they had independently filed a state or local Tax Return including all of the SHO Companies. SHO shall pay to Sears Holdings, in accordance with section 4.03 herein, the amount, if any, by which one or more state or local Tax Benefit Items of Sears Holdings or any of its Subsidiaries reduced a State Combined or Consolidated Return Tax liability with respect to any taxable period for which a State Combined or Consolidated Return is filed after the date of this Agreement but only to the extent that an SHO Company receives the benefit of such reduction (taking into account the provisions of this Agreement). For the avoidance of doubt, the provisions of this section 4.02(d) are subject to section 7.03.

(e) With respect to any State Combined or Consolidated Return that is not an income Tax Return, the applicable state or local Tax liability shall be allocated among the SHO Companies and all the other State Affiliated Companies pro rata based on the Tax that would have been paid by the SHO Companies as one group, on the one hand, and all other State Affiliated Companies as a separate group, on the other hand.

Section 4.03. Payment .

(a) The computation of the state or local Tax allocations, as well as any required payment to and from Sears Holdings, shall be made within 15 days after Sears Holdings or any of its Affiliates (other than the SHO Companies), or any SHO Company, makes a payment to, or receives a payment credit or offset from, any Taxing Authority pursuant to this Article IV. All decisions relating to the allocation and payment of Taxes under this Article IV shall be made at the reasonable discretion of Sears Holdings.

(b) The same method used for the calculation of estimated Tax for any State Combined or Consolidated Return shall be used to determine the amount of estimated Tax allocated to the SHO Companies. With regard to any estimated Tax that is calculated based upon income of a prior taxable period, the payments under this Agreement shall also be calculated based upon such income and appropriate adjustments made when the final Tax Return is filed with respect to such estimated Tax. For estimated Tax calculated in any other manner, the payments under this Agreement shall be determined based upon the principles of section 4.02.

Section 4.04. Carrybacks . In the event any state Tax Benefit Item of the SHO Companies with respect to any taxable period after they cease being State Affiliated Companies is eligible to be carried back to a taxable period while the SHO Companies were State Affiliated Companies, the SHO Companies shall, where possible, elect to carry such amounts forward to subsequent taxable periods. If the SHO Companies are required by law to carry back any such state Tax Benefit Item, the SHO Companies shall be entitled to a payment to the extent that such a payment would be required under the terms of section 4.02(d).

ARTICLE V

PAYMENT OF OTHER TAXES

Section 5.01 Other Taxes . All Taxes of (or with respect to) an SHO Company shall be paid by the SHO Companies, other than (i) Taxes of the Consolidated Group, (ii) Taxes reportable on a Tax Return described in Section 2.02(a) (which the SHO Companies shall pay to the extent required by Article IV), and (iii) Pre-Closing Taxes.

Section 5.02. Unpaid Non-Income Taxes . Notwithstanding any other provision of this Agreement, SHO shall be responsible for and pay all Unpaid Non-Income Taxes.

ARTICLE VI

TAX DEFICIENCIES AND REFUNDS

6.01. Pre-Closing Taxes . Sears Holdings shall be responsible for (and shall indemnify the SHO Companies from and against) all Pre-Closing Taxes, including any Pre-Closing Taxes resulting from any audit, amendment, other change or adjustment. Any refund of Pre-Closing Taxes (whether by payment, credit, offset against other Taxes due or otherwise) shall be for the benefit of (and paid to) Sears Holdings.

6.02. Post-Closing State Group Taxes . Subject to section 7.03, if as a result of any audit, amendment, other change or adjustment to the state or local Taxes of any State Group there is an additional amount of such state or local Taxes (other than Pre-Closing Taxes) due and payable or a refund of such state or local Taxes (other than Pre-Closing Taxes) previously paid (whether by payment, credit, offset against other Taxes due or otherwise), the obligations of the parties shall be redetermined under section 4.02 as if the adjustments made as a result of such audit were included as part of the original Tax Return filed and any payments made under this Agreement shall be adjusted or reimbursed in accordance with the foregoing.

ARTICLE VII

COOPERATION AND TAX CONTROVERSY

Section 7.01. Cooperation .

(a) Sears Holdings and the SHO Companies shall cooperate fully at such time and to the extent reasonably requested by the other party in connection with the preparation and

filing of any Tax Return or the conduct of any Tax Controversy concerning any issues or any other matter contemplated hereunder. Such cooperation shall include, without limitation, (i) the retention and provision on demand of books, records, documentation or other information relating to any Tax Return until the later of (x) the expiration of the applicable federal or state statute of limitation (giving effect to any extension, waiver, or mitigation thereof) and (y) in the event any claim has been made under this Agreement for which such information is relevant, until a Final Determination with respect to such claim; (ii) the filing or execution of any document that may be necessary or reasonably helpful in connection with the filing of any Tax Return, or claim for a refund of Taxes previously paid, by either party, or in connection with any Tax Controversy addressed in the preceding sentence (including a requisite power of attorney); and (iii) the use of the parties' best efforts to obtain any documentation from a governmental authority or a third party that may be necessary or helpful in connection with the foregoing. Each party shall make its employees and facilities reasonably available on a mutually convenient basis to facilitate such cooperation.

(b) Sears Holdings and the SHO Companies shall use reasonable efforts to keep each other advised as to the status of Tax Controversies involving any issue which could give rise to any liability of the other party under this Agreement. Sears Holdings and the SHO Companies shall each promptly notify the other of any inquiries by any Taxing Authority or any other administrative, judicial or other governmental authority that relate to any Tax that may be imposed on the other or any Affiliate of the other that might give rise to any liability under this Agreement. Sears Holdings shall have sole control of any Tax Controversy relating to the Consolidated Group or to any Pre-Closing Taxes. Sears Holdings shall have sole control of any Tax Controversy relating to any State Combined and Consolidated Return, provided, that in the case of any such Tax Controversy that may affect Taxes for which the SHO Companies have responsibility hereunder, the SHO Companies may participate in such Tax Controversies at their own expense. If the potential liability of the SHO Companies under this Agreement relating to any Tax Controversy exceeds $500,000, Sears Holdings shall not settle or concede such Tax Controversy without the prior written consent of the SHO Companies, not to be unreasonably withheld, conditioned or delayed.

Section 7.02. Contest Provisions . Subject to the cooperation provisions in section 7.01, Sears Holdings shall have the right to resolve any difference or disagreement on any matter that arises out of the application and interpretation of this Agreement; provided, however, that Sears Holdings shall (i) in good faith cooperate and consult with the SHO Companies in an effort to resolve any differences with respect to Sears Holdings’ position with regard to such matter, (ii) in good faith consider the SHO Companies’ position on such matter and (iii) advise the SHO Companies of the reason for rejecting any such recommendation for alternative positions.

Section 7.03. Certain Adjustments . Notwithstanding sections 4.02 and 6.02, in the event there is a Pricing Adjustment with respect to any Tax Return that results in additional taxable income to Sears Holdings, SHO or any of their respective Subsidiaries (or any tax group that includes any such person), (i) if such adjustment is with respect to a State Combined or Consolidated Tax Return, the adjustments arising from such Pricing Adjustment shall be disregarded in applying sections 4.02 and 6.02 to the extent necessary in order to put Sears Holdings (and its Subsidiaries) or SHO (and its Subsidiaries), as the case may be, in the same after tax position with respect to such State Combined or Consolidated Tax Return as such person

would have occupied if there had been no such additional taxable income (as determined by Sears Holdings in good faith) and (ii) after the application of clause (i) (but without duplication) or if clause (i) does not apply, as the case may be, (A) SHO shall indemnify Sears Holdings for any additional Tax that Sears Holdings (or any of its Subsidiaries) would otherwise bear as a result of such additional taxable income and (b) Sears Holdings shall indemnify SHO for any additional Tax that the SHO Companies would otherwise bear as a result of such additional taxable income. The amount of any payment under this section 7.03 shall be increased by any Taxes incurred by the person receiving such payment as a result of the receipt of such payment. Any payment required under this section 7.03 shall be made within 15 days after the indemnified party makes a payment to any Taxing Authority as a result of a Pricing Adjustment. In the event that, following a Pricing Adjustment with respect to a Tax Return, Sears Holdings determines that it is appropriate to apply that Pricing Adjustment to another Tax Return or in filing other Tax Returns going forward, this section 7.03 (and sections 4.02 and 6.02) shall be applied as if a Pricing Adjustment had been made with respect to such other Tax Returns.

ARTICLE VIII

MISCELLANEOUS

Section 8.01. Effective Date . This Agreement applies to all matters related to any Tax Returns filed, Taxes paid, adjustments made in respect of any Tax, and any other matters involving Taxes on or after the Rights Closing Date between or among (i) Sears Holdings or any of its Subsidiaries (other than the SHO Companies) and (ii) the SHO Companies. This Agreement will not become effective unless it has been approved by the Audit Committee of the Board of Directors of Sears Holdings.

Section 8.02. Complete Agreement . This Agreement constitutes the entire agreement of the parties concerning the subject matter hereof. Any other agreements, whether or not written, in respect of any Tax between or among Sears Holdings and the SHO Companies shall be terminated and have no further effect. This Agreement may not be amended except by an agreement in writing signed by the parties hereto. This Agreement is being executed on August 30, 2012 and shall supersede any version of this Agreement that was executed previously.

Section 8.03. Notices . Notices under this Agreement are sufficient if given by nationally recognized overnight courier service, certified mail (return receipt requested), or email or facsimile with electronic confirmation or personal delivery to the other Party at the address below:


If to SHO:		Sears Hometown and Outlet Stores, Inc.
		3333 Beverly Road
		Hoffman Estates, IL 60179
		Attn.: General Counsel
		Facsimile: ( )



If to Sears Holdings:		Sears Holdings Corporation
		3333 Beverly Road B2-131B
		Hoffman Estates, IL 60179
		Attn.: Vice President, Tax
		Facsimile: (847) 286-4908

With a copy to:		Sears Holdings Corporation
		3333 Beverly Road B6-210B
		Hoffman Estates, IL 60179
		Attn: General Counsel
		Facsimile: (847) 286-2471

Section 8.04. Governing Law; Jurisdiction; Waiver of Jury Trial .

(a) Governing Law . This Agreement will be construed in accordance with, and governed by, the federal laws of the United States, including the Lanham Act, and the internal laws of the State of Illinois, other than its conflict of laws principles and the Illinois Franchise Disclosure Act. This Agreement will not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.

(b) Jurisdiction . Each of the Parties submits, for itself and its property, to the exclusive jurisdiction of all Illinois state courts and federal courts of the United States of America sitting in Cook County, Illinois, and all appellate courts to each thereof, in all actions and proceedings arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of all judgments relating thereto, and each of the Parties (A) will commence all such actions and proceedings only in such courts, (B) will cause all claims in respect of all such actions and proceedings to be heard and determined in such Illinois state court or, to the extent permitted by law, in such federal court, (C) waives, to the fullest extent it may legally and effectively do so, all objections that it may now or hereafter have to the laying of venue of all such actions and proceedings in any such Illinois state or federal court, and (D) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such actions and proceedings in all such Illinois state and federal courts. A final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 8.03. Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by Applicable Law.

(c) Waiver of Jury Trial . Each Party acknowledges that each controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore,

it irrevocably and unconditionally waives all rights it may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party certifies and acknowledges that (A) it understands and has considered the implications of such waivers, (B) it makes such waivers voluntarily, and (C) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 8.04(c).

Section 8.05. Successors and Assigns . A party’s rights and obligations under this Agreement may not be assigned without the prior written consent of the other party. All of the provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. If any party to this Agreement forms or acquires one or more Subsidiaries which become Members of the Consolidated Group or a State Affiliated Company, such party will cause any such Subsidiary to be bound by the terms of this Agreement, and this Agreement shall apply to any such Subsidiary in the same manner and to the same extent as the current party.

Section 8.06. Intended Third Party Beneficiaries . This Agreement is solely for the benefit of the parties to this Agreement and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without this Agreement.

Section 8.07. Legal Enforceability . Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of the prohibition or unenforceability without invalidating the remaining provisions. Any prohibition or unenforceability of any provision of this Agreement in any jurisdiction shall not invalidate or render unenforceable the provision in any other jurisdiction.

Section 8.08. Expenses . Unless otherwise expressly provided in this Agreement, each party shall bear any and all expenses that arise from its respective obligations under this Agreement. In the event either party to this Agreement brings an action or proceeding for the breach or enforcement of this Agreement, the prevailing party in such action or proceeding, whether or not such action or proceeding proceeds to final judgment, shall be entitled to recover as an element of its costs, and not as damages, such reasonable attorneys’ fees as may be awarded in the action or proceeding in addition to whatever other relief to which the prevailing party may be entitled.

Section 8.09. Counterparts . This Agreement may be executed and delivered (including by facsimile transmission) in counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.

Section 8.10. Change in Law . If, after the date this Agreement is executed, as a result of an amendment to the Code, the promulgation of proposed, temporary or final regulations, the issuance of a ruling by a Taxing Authority, the decision of any court, or a change in any applicable state or local law, Sears Holdings believes that it is necessary or helpful to amend the provisions of this Agreement in order to preserve the rights and benefits contemplated herein, each of the parties hereto agrees to negotiate in good faith all such amendments and modifications as shall be necessary or appropriate in order to preserve as nearly as possible for the parties hereto the rights and benefits contemplated herein.

[Remainder of page intentionally left blank; signature page to follow]

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.


SEARS HOLDINGS CORPORATION

By:		/s/ Lawrence J. Meerschaert


Name:		Lawrence J. Meerschaert
Title:		Vice-President, Tax



SEARS HOMETOWN AND OUTLET STORES, INC

By:		/s/ W. Bruce Johnson


Name:		W. Bruce Johnson
Title:		Chief Executive Officer and President

Exhibit 10.10

Execution Version

EMPLOYEE TRANSITION AND ADMINISTRATIVE SERVICES AGREEMENT

THIS EMPLOYEE TRANSITION AND ADMINISTRATIVE SERVICES AGREEMENT (this “ Agreement ”), dated as of August 31, 2012, is made by and between (i) Sears Holdings Management Corporation on behalf of itself and its Affiliates (“ SHMC ” or the “ Service Provider ”); and (ii) Sears Hometown and Outlet Stores, Inc. (“ SHO ”), Sears Authorized Hometown Stores, LLC (“ Hometown ”), and Sears Outlet Stores, L.L.C. (“ Outlet ” and together with SHO and Hometown, collectively the “ SHO Group ”).

RECITALS

WHEREAS, Service Provider is a wholly owned subsidiary of Sears Holdings Corporation (“ SHLD ”), and SHLD has determined that it would be appropriate, desirable and in the best interests of SHLD and the shareholders of SHLD to separate the SHO Business from SHLD; and

WHEREAS, SHLD and SHO have entered into the Separation Agreement, dated August 8, 2012 (the “ Separation Agreement ”), pursuant to which SHLD intends to distribute to its stockholders its entire interest in the SHO Business by way of a Rights Offering; and

WHEREAS, after the Rights Offering, it is contemplated by the parties that certain employees working for the SHO Business will be transferred to the SHO Group, and Service Provider will provide certain administrative services to the SHO Group for a certain period of time, all on the terms and conditions set forth herein; and

NOW, THEREFORE , in consideration of the foregoing and mutual covenants and agreements contained herein and in the Separation Agreement, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.1 Capitalized Terms . Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Separation Agreement.

1.2 Certain Defined Terms . For the purposes of this Agreement:

“ Affiliate ” means (solely for purposes of this Agreement and for no other purpose) (i) with respect to SHO, its Subsidiaries, and (ii) with respect to the Service Provider, SHLD and the subsidiaries of SHLD (other than Sears Canada, Inc.).

“ Benefit Plan “ means, with respect to an entity, each plan, program, policy, agreement, arrangement or understanding that is a deferred compensation, executive compensation, incentive bonus or other bonus, pension, profit sharing, savings, retirement,

severance pay, salary continuation, life, death benefit, health, hospitalization, sick leave, vacation pay, disability or accident insurance or other employee benefit plan, program, agreement or arrangement, including any “employee benefit plan” (as defined in Section 3(3) of ERISA) sponsored, maintained or contributed to by such entity or to which such entity is a party or under which such entity has any obligation; provided that no SHLD Restricted Stock Award, nor any plan under which any such SHLD Restricted Stock Award is granted, shall constitute a “Benefit Plan” under this Agreement. In addition, no Employment Agreement shall constitute a Benefit Plan for purposes hereof.

“ Benefits Transition Period ” has the meaning set forth in Section 3.4 (f) .

“ Cash Retention Award ” or “ Other Cash Retention Award ” has the meaning set forth in Section 3.6.

“ COBRA “ means continuation of group health coverage provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended and regulations promulgated thereunder.

“ Code ” means the U.S. Internal Revenue Code of 1986, as amended and regulations promulgated thereunder.

“ Continuing Plans ” has the meaning set forth in Section 3.4(f) .

“ Employment Agreement “ means any individual employment, retention, incentive bonus, severance or other individual compensatory agreement between any employee and a member of the SHLD Group or the SHO Group.

“ ERISA “ means the Employee Retirement Income Security Act of 1974, as amended and regulations promulgated thereunder.

“ Party ” means (a) SHO, Hometown, and Outlet, on the one hand, and (b) SHMC, on the other hand.

“ Person ” is defined in the Separation Agreement, but for convenience is duplicated here, provided that the definition in the Separation Agreement controls. Person means any individual, partnership, firm, corporation, limited liability company, association, trust, joint venture, unincorporated organization, other entity or Governmental Authority, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.

“ Plan Payee “ means, as to an individual who participates in a Benefit Plan, such individual’s dependents, beneficiaries, alternate payees and alternate recipients, as applicable under such Benefit Plan.

“ Separation Agreement ” is defined in the Recitals hereof.

“ SHLD Benefit Plan “ means, as of the Rights Closing Effective Time, any Benefit Plan sponsored, maintained or made available by any member of the SHLD Group. SHLD Benefit Plan shall also mean any multi-employer plan (as defined in Section 3(37) of

ERISA) to which any member of the SHLD Group contributes for the benefit of its employees. For the avoidance of doubt, no member of the SHLD Group shall be deemed to sponsor or maintain any Benefit Plan if its relationship to such Benefit Plan is solely to administer such Benefit Plan or provide to SHO any reimbursement in respect of such Benefit Plan. The SHLD Benefit Plans (excluding any multi-employer plans) shall be those Benefit Plans sponsored, maintained or made available solely by one or more members of the SHLD Group following the Rights Closing Effective Time. SHLD Benefit Plans shall not include the SHO AIP and the SHO LTIP upon the assignment and assumption of such plans by SHO as of the Rights Closing Effective Time.

“ SHLD Common Stock ” means the common stock of SHLD, par value $0.01 per share.

“ SHLD DC Plan ” means each of the following qualified defined contribution plans: the Sears Holdings 401(k) Savings Plan, the Lands’ End, Inc. Retirement Plan, and the Sears Holdings Puerto Rico Savings Plan.

“ SHLD ” means Sears Holdings Corporation.

“ SHLD Employment Agreement “ means all Employment Agreements to which any member of the SHLD Group is a party and to which no member of the SHO Group is a party or beneficiary as of the Rights Closing Effective Time. SHLD Employment Agreements shall not include any Employment Agreement originally between a member of the SHLD Group and a SHO Employee that is assigned to and assumed by the SHO Group as of the Rights Closing Effective Time, in accordance with Section 3.3(d) below. The SHLD Employment Agreements shall be the responsibility of one or more members of the SHLD Group following the Rights Closing Effective Time.

“ SHLD Group “ is defined in the Separation Agreement, but for convenience is duplicated here, provided that the definition in the Separation Agreement controls. SHLD Group means, collectively, SHLD and all of its Subsidiaries other than members of the SHO Group.

“ SHLD Restricted Stock Award ” has the meaning set forth in Section 3.6 .

“ SHLD Severance Plan ” has the meaning set forth in Section 3.4(e) .

“ SHLD Pension Plan ” has the meaning set forth in Section 3.4(b)(i) .

“ SHLD SRIP ” has the meaning set forth in Section 3.4(b)(ii) .

“ SHLD Welfare Plan “ means each SHLD Benefit Plan that is a Welfare Plan.

“ SHO AIP ” has the meaning set forth in Section 3.5 .

“ SHO Benefit Plan “ means any Benefit Plan sponsored, maintained or made available by any member of the SHO Group, and any Benefit Plan made available to SHO Employees by a designee at the direction of SHO. During the applicable Benefits Transition

Period, the Continuing Plans shall be deemed SHO Benefit Plans, which are made available by SHO to eligible SHO Employees. No member of the SHLD Group shall be deemed to sponsor or maintain any SHO Benefit Plan if its relationship to such Benefit Plan is solely to administer such Benefit Plan or provide to SHO or any SHO Employee (or Plan Payee) any reimbursement in respect of such Benefit Plan. In addition, SHLD is not responsible for any federal or state liability that SHO, the SHO Benefit Plan, or SHO’s designee may incur due to the relationship between SHO and the designee, or the structure of the SHO Benefit Plan.

“ SHO Employee ” is defined in Section 3.1 .

“ SHO Employee Liabilities ” means all potential or actual employment-related, employee benefits-related, or other Liabilities, whether arising on or after the Rights Closing Effective Time, with respect to: (a) SHO Employees (and their respective Plan Payees); (b) any other individuals asserting rights or obligations stemming from their services to or in connection with the SHO Group or the SHO Business; (c) SHO Employment Agreements; and (d) the SHO Benefit Plans, except as otherwise provided in this Agreement or the Separation Agreement.

“ SHO Employment Agreement “ means any Employment Agreement (a) between the SHLD Group and a SHO Employee who is transferred to SHO as of the Rights Closing Effective Time, or (b) to which any member of the SHO Group is a party and to which no member of the SHLD Group is a party. The SHO Employment Agreements shall be the sole responsibility of one or more members of the SHO Group as of the Rights Closing Effective Time.

“ SHO Group “ is defined in the Separation Agreement, but for convenience is duplicated here, provided that the definition in the Separation Agreement controls. SHO Group means, collectively, SHO, Hometown, Outlet, and all other Persons that hereafter become a Subsidiary of SHO.

“ SHO LTIP ” has the meaning set forth in Section 3.5 .

“ SHO Welfare Plan “ means each SHO Benefit Plan that is a Welfare Plan, including Welfare Plans sponsored or maintained by SHO or by a designee of SHO and made available to SHO Employees, and including the Continuing Plans, as of the Rights Closing Effective Time or during the Benefits Transition Period.

“ Welfare Plan “ means each Benefit Plan that provides life insurance, health care, dental care, vision care, employee assistance programs (EAP), accidental death and dismemberment insurance, disability, severance, vacation or other group welfare or fringe benefits, including, but not limited to, a benefit that is an “employee welfare benefit plan” as described in Section 3(1) of ERISA.

1.3 Other . In this Agreement (i) “include,” “includes,” and “including” are inclusive and mean, respectively, “include without limitation,” “includes without limitation,” and “including without limitation,” (ii) “or” is disjunctive but not necessarily exclusive, (iii) “will” expresses an imperative, an obligation, or a requirement, (iv) numbered “section” and “article” references refer to sections and articles, respectively, of this Agreement unless otherwise specified, (v) unless otherwise indicated all references to a number of days will mean calendar days unless otherwise specified and all references to months or years will mean calendar months or years, and (vi) $ or Dollars will mean U.S. Dollars.

ARTICLE II

TERM

2.1 General Term . This Agreement shall be in effect commencing immediately following the “Rights Closing Effective Time” specified in the Separation Agreement and continuing until 5:00 p.m. (Central Time) on the last day of the sixty-sixth month following the Rights Closing Effective Time, subject to earlier termination in accordance with Section 6.1 .

ARTICLE III

TREATMENT OF SHO EMPLOYEES ON AND AFTER THE EFFECTIVE DATE

3.1 Transfer of Employees .

(a) On the Rights Closing Effective Time, (a) all employees of the SHO Group (“ Existing SHO Group Employees ”) will remain employees of the SHO Group; and (b) all employees of the SHLD Group who are properly coded in the HRIS systems under code “SHS,” and all other employees of the SHLD Group who are then working primarily for the SHO Business, shall be transferred from the SHLD Group to a member of the SHO Group or its designee in accordance with applicable Law (“ Transferred Employees ”). The Existing SHO Group Employees and the Transferred Employees are referred to collectively as the “ SHO Employees .” As a result, members of the SHO Group or their designees will be or become the employers of all of the SHO Employees.

(b) For the avoidance of doubt: (i) SHO Employees shall include all employees described above who are on a leave of absence, whether paid or unpaid, from which such employee is permitted to return (in accordance with his or her employer’s personnel policies, as applicable, or applicable Law, as of the Rights Closing Effective Time (“ Inactive SHO Employee ”); and (ii) the parties shall complete Schedule 4.1 hereto prior to the Rights Closing Effective Time, constituting a list of all the SHO Employees (including employees on leave), and such schedule shall be binding on the parties.

(c) Service Provider and/or its Affiliates and the SHO Group shall take reasonable steps to effect an orderly transfer of the Transferred Employees as of the Rights Closing Effective Time and the applicable employment-related data related to the SHO Employees (including but not limited to salary, payroll, benefit coverage, and compensation history) to the SHO Group, effective as of the Rights Closing Effective Time (or such earlier date as may be agreed by the parties). Notwithstanding the foregoing, SHMC shall retain copies of or continue to have access to such employment-related data as needed to provide the Administrative Services contemplated herein. The SHO Group shall pay Service Provider reasonable charges for its and its Affiliates’ services and expenses in connection with the transfer of employees and the transfer of applicable information. In the event that the SHO Group does not accept the transfer of any SHO Employee, or any SHO Employee elects not to

continue in his or her employment, then the SHO Group shall be responsible for, and shall reimburse Service Provider for, the costs and liabilities arising out of or relating to Service Provider’s or its Affiliate’s termination or retention of such employees, including without limitation any severance-related liability to which such SHO Employee is or claims to be entitled.

(d) The terms of this Agreement (including the obligations of SHO pursuant to this Article IV ) shall apply to any Inactive SHO Employee, and SHMC shall deliver to SHO a list of the names of all Inactive SHO Employees as of the Rights Closing Effective Time and SHO shall maintain and update such list and provide thereafter to SHMC as needed to provide the Administrative Service contemplated hereunder. Until the earlier of the date on which an Inactive SHO Employee is able to return to active employment status, and presents him or herself for work, and the end of the Benefits Transition Period, SHMC shall (a) provide to such Inactive Service Employee (and each beneficiary or eligible dependent thereof) coverage or eligibility for coverage under the applicable SHLD Benefit Plans, subject to the terms, conditions and continued availability of such plans, and (b) administer, on behalf of SHO, all claims relating to employee benefit obligations with respect to such Inactive SHO Employee (and each beneficiary or eligible dependent thereof); provided , however , that SHO shall reimburse SHMC for all costs associated with all such Inactive Service Employees in accordance with Section 5.1 and 5.5 of this Agreement to the extent Service Provider is required to make any payments during the Benefits Transition Period or thereafter under SHLD Benefit Plans in effect as of the Rights Closing Effective Time and/or during the Benefits Transition Period.

3.2 Notice Requirements . The SHO Group shall bear any liability that may accrue to the SHO Employees or to any unit of government under the Worker Adjustment and Retraining Notification Act of 1988, as amended (the “ WARN Act ”), or any similar state Law, arising out of (a) the transactions under the Separation Agreement and this Agreement, including the transfer of employees pursuant hereto, and (b) any actions any action taken by the SHO Group after the Rights Closing Effective Time.

3.3 Assignment and Assumption of Liabilities . Effective as of the Rights Closing Effective Time, Service Provider hereby assigns and SHO hereby assumes and/or retains, all of the following liabilities, obligations and agreements with respect to the SHO Employees, whether arising before or after the Rights Closing Effective Time, except as expressly otherwise provided in Section 3.4 (for purposes of this Agreement “ Assumed Liabilities ”):

(a) the existing collective bargaining agreements;

(b) all of the following obligations of Service Provider with respect to the SHO Employees: (i) accrued but unpaid salaries, wages, overtime, bonuses/incentives, including without limitation the incentive programs referred to in Section 3.3(e) below and the related payroll taxes; (ii) liabilities for accrued but unpaid vacation, illness and other approved leaves of absence; and (iii) liabilities for insurance and pension contributions to multi-employer plans, if any, pursuant to the terms of any applicable collective bargaining agreement;

(c) all liabilities and requirements under COBRA with respect to all SHO Employees and their respective Plan Payees who, immediately prior to the Rights Closing

Effective Time, were participating in, or entitled to present or future benefits under the SHLD Welfare Plans (which shall be deemed to be a SHO Welfare Plan during the Benefits Transition Period), pursuant to COBRA or who have a COBRA qualifying event (as defined in Section 4980B of the Code) on or after the Rights Closing Effective Time;

(d) all liabilities arising out of or relating to all SHO Employment Agreements;

(e) all liabilities arising out of or relating to claims made by or with respect to SHO Employees under any SHLD Severance Plan;

(f) all accruals and outstanding liabilities arising out of or relating to (i) fiscal year 2012 under the SHLD AIP and (ii) the 2010, 2011 and, if applicable as of the Rights Closing Effective Time, the 2012 fiscal year accruals and liabilities under SHLD LTIP, to the extent attributable to Transferred Employees, in accordance with Section 3.5 ;

(g) all liabilities arising out of or relating to any SHO Cash Retention Award or Other Cash Retention Award, in accordance with Section 3.6 ;

(h) all other Liabilities with respect to the employment, service, termination of employment or termination of service of any SHO Employees, their respective Plan Payees, and other service providers (including any individual who is, or was, an independent contractor, temporary employee, temporary service worker, consultant, freelancer, agency employee, leased employee, on-call worker, incidental worker, or nonpayroll worker of any member of SHO or in any other employment, non-employment, or retainer arrangement, or relationship with any member of SHO), in each case to the extent arising in connection with or as a result of employment with or the performance of services for the SHO Business from and after the Rights Closing Effective Time, and

(i) all other SHO Employee Liabilities, except as excluded under Section 3.4(b), (c) and (d) .

Effective as of the Rights Closing Effective Time, SHO shall be solely responsible for all the SHO Assumed Liabilities, and SHMC and its Affiliates shall not have any obligation for SHO Employee Liabilities. SHMC will provide copies of all SHO Employment Agreements and other assumed documents to SHO. SHMC shall use reasonable efforts to transfer or cause to be transferred to SHO documentation related to such SHO Employment Agreements, including offer letters, agreements and other instruments reasonably required for the maintenance and administration of the SHO Employment Agreements

3.4 Cessation of Participation and Allocation of Liabilities With Respect to Benefit Plans .

(a) Benefit Plans Generally . Except as otherwise specifically provided in Section 3.4(f) of this Agreement, as of the Rights Closing Effective Time, each SHO Employee (and each such individual’s Plan Payees) shall cease participation in all SHLD Benefit Plans (subject to COBRA obligations, which are assumed by the SHO Group pursuant to Section 3.3(c) above) and, as of such time, SHO shall or shall cause another member of the SHO Group to have in effect or make available such SHO Benefit Plans, including Continuing Plans during the Benefits Transition Period, as are necessary to comply with its obligations pursuant to this Agreement.

(b) Pension Benefits .

(i) As of the Rights Closing Effective Time, each SHO Employee who is a participant in the Sears Holdings Pension Plan (the “ SHLD Pension Plan ”) (which is a frozen defined benefit pension plan) will cease to actively participate in the SHLD Pension Plan and will be treated as a terminated participant or retiree, as applicable, under the SHLD Pension Plan. No additional service will accrue under the SHLD Pension Plan after such date for any purpose (e.g., eligibility or vesting) with respect to a SHO Employee until or unless such SHO Employee again becomes a SHLD employee. Notwithstanding any other provision contained herein, neither SHO nor its Affiliates will have any Liability with respect to the SHLD Pension Plan for any SHO Employee, and their respective Plan Payees, except as required by Law.

(ii) As of the Rights Closing Effective Time, each SHO Employee who is a participant in the Sears, Roebuck and Co.’s Supplemental Retirement Income Plan (the “ SHLD SRIP ”) (which is a frozen, non-qualified deferred compensation plan that supplements the pension benefit under the SHLD Pension Plan for certain participants of the SHLD Pension Plan) will cease to actively participate in the SHLD SRIP and will be treated as a terminated participant or retiree, as applicable, under the SHLD SRIP. No additional service will accrue under the SHLD SRIP after such date for any purpose (e.g., eligibility or vesting). Notwithstanding any other provision contained herein, neither SHO nor any SHO Affiliate will have any Liability with respect to the SHLD SRIP for any SHO Employee, and their respective Plan Payees, except as required by Law.

(iii) As soon as practicable after the Rights Closing Effective Time, the recordkeeper for the SHLD Pension Plan and SHLD SRIP will inform the SHO Employees who are participants in the SHLD Pension Plan and SHLD SRIP of their rights thereunder; and SHLD will process distributions in accordance with the terms of the SHLD Pension Plan and SHLD SRIP, as applicable.

(i) As of the Rights Closing Effective Time, each SHO Employee who is a participant in a SHLD DC Plan will cease to actively participate in such SHLD DC Plan and each such SHO Employee will be treated as a terminated participant under the SHLD DC Plan, and no additional service will accrue under the SHLD DC Plan after such date for any purpose (e.g., eligibility or vesting) until or unless such SHO Employee again becomes an SHLD employee. Notwithstanding any other provision contained herein, neither SHO nor any SHO Affiliate will have any Liability with respect to an SHLD DC for any SHO Employee, and their respective Plan Payees, except as required by Law.

(ii) As soon as practicable after the Rights Closing Effective Time, SHO Employees will be informed of their options with respect to their account balances under the SHLD DC Plans.

(d) Employee Stock Purchase Plan . All SHO Employees shall cease active participation in the Sears Holdings Corporation Associate Stock Purchase Plan (the “ SHLD Associate Stock Purchase Plan ”) with respect to offering periods ending after the Rights Closing

Effective Time and shall be treated in the same manner as other similarly situated terminated employees of SHMC or its Affiliates. For the avoidance of doubt, the SHO Employees who participated in the SHLD Associate Stock Purchase Plan prior to the Rights Closing Effective Time shall continue to participate in any offering period under SHLD Associate Stock Purchase Plan ending prior to the Rights Closing Effective Time (subject to any action taken by any such SHO Employee who is participating in this plan to terminate his or her participation prior to the Rights Closing Effective Time). SHO will have no Liability with respect to the SHLD Associate Stock Purchase Plan for any SHO Employee, except as required by Law.

(e) Severance Plans . All SHO Employees shall cease to be eligible to participate under any transition pay plan sponsored by SHLD (“ SHLD Severance Plans ”) as of the Rights Closing Effective Time. Service Provider (including its Subsidiaries and Affiliates) shall have no Liability or obligation under any SHLD Severance Plan with respect to SHO Employees, and the transfer of an employees of the SHO Group to SHO shall not entitle any such SHO Employee to severance-related pay or benefits under any SHLD Severance Plan. To the extent the SHO Group establishes a severance plan or policy, SHMC shall provide Administrative Services with respect to such plan or policy in accordance with Article IV and Appendix B .

(f) Welfare Plans .

(i) Continuing Plans . As of the Rights Closing Effective Time, the SHO Employees will be eligible to continue to participate in certain SHLD Welfare Plans, as described in, and for the periods and subject to the limitations described in, Appendix B (such plans referred to as the “ Continuing Plans ”), to the extent they were eligible to participate in such plans prior to the Rights Closing Effective Time or become eligible to participate during the Benefits Transition Period (as defined herein). Notwithstanding anything herein to the contrary, participation in such plans is subject to the terms, conditions and continued availability and maintenance of such plans, as they may change from time to time, and SHMC and its Affiliates shall have the right to terminate and modify such plans from time to time; provided that unless required by Law or by a third party carrier or service provider, SHMC and its Affiliates shall not initiate a change in such plans that is targeted to exclude the SHO Employees. With respect to each Continuing Plan, the period from the Rights Closing Effective Time through the date on which such Continuing Plan ceases to be available to the SHO Employees, whether by operation, expiration, or termination of such plan or otherwise, is referred to as the “ Benefits Transition Period .” During the Benefits Transition Period, SHMC will be the third party administrator with respect to the Continuing Plans on behalf of SHO, and SHO will be the fiduciary of such plans for ERISA purposes with respect to SHO Employees participating in a Continuing Plan.

(ii) Expiration of Continuing Plans . The Benefits Transition Period for a Continuing Plan shall cease as of the earlier of (A) the end of the applicable Benefits Transition Period as set forth in Appendix B , or (B) the effective date of a SHO Benefit Plan established to replace such Continuing Plan, as of which date the SHO Employees shall cease to participate or be eligible to participate in such Continuing Plan.

(iii) Other Plans . Except with respect to the Continuing Plans as described in Section 3.4(f)(i) above, all SHO Employees shall cease to be eligible to participate in any SHLD Welfare Plan (subject to COBRA continuation coverage rights, if any) as of the Rights Closing Effective Time.

3.5 Incentive Plans .

(a) Annual Incentive Plan . The SHO Employees shall cease to be eligible to receive any incentive award under the Sears Holdings Annual Incentive Plan (“ SHLD AIP ”) as of the Rights Closing Effective Time. SHO and the SHO Group shall, prior to or as of the Rights Closing Effective Time, establish an Annual Incentive Plan (“ SHO AIP ”), effective as of the Rights Closing Effective Time, and shall be solely responsible for all annual incentive awards that become payable under the terms of the SHO AIP for 2012 and any other performance period ending on or after the Rights Closing Effective Time. All accruals and outstanding liabilities arising out of or relating to fiscal year 2012 attributable to Transferred Employees under the SHLD AIP will be transferred to and assumed by SHO and the SHO Group under the SHO AIP as of the Rights Closing Effective Time or prior to the payment date, as agreed by the parties prior to the Rights Closing Effective Time. SHO and the SHO Group hereby accept and agree to such assumption and agree to pay all such liabilities under the SHO AIP.

(b) Long-Term Incentive Plans . The SHO Employees shall cease to be eligible to receive any incentive award under the Sears Holdings Corporation Long-Term Incentive Program (“ SHLD LTIP ”) as of the Rights Closing Effective Time. SHO and the SHO Group shall, prior to or as of the Rights Closing Effective Time, establish a Long-Term Incentive Program (“ SHO LTIP ”), effective as of the Rights Closing Effective Time, and shall be solely responsible for all incentive awards that become payable under the terms of the SHO LTIP for 2012 and any other performance period ending on or after the Rights Closing Effective Time. All accruals and outstanding liabilities arising out of or relating to (i) the close out of the 2010-2012 and 2011-2013 incentive programs under the SHLD LTIP with respect to the SHO Employees and (ii) the 2012-2014 incentive program, if any, will be transferred to and assumed by SHO and the SHO Group under the SHO LTIP as of the Rights Closing Effective Time or prior to the payment date, as agreed by the parties prior to the Rights Closing Effective Time. SHO and the SHO Group hereby accept and agree to such assumption and agree to pay all such liabilities the SHLD LTIP.

(c) SHO also shall be solely responsible for any other incentives or bonuses that have been awarded to SHO Employee as of or after the Rights Closing Effective Time that become payable to SHO Employees under any other SHO incentive or bonus program with respect to 2012 and any other performance period ending on or after the Rights Closing Effective Time.

3.6 Restricted Stock Awards; Cash Retention Awards .

(a) Any unvested restricted stock award with respect to SHLD Common Stock including any cash right or award issued with respect to such restricted stock award (“ SHLD Restricted Stock Award ”) that was granted under or pursuant to any equity compensation plan or arrangement of SHLD, that, as of the Rights Closing Effective Time, is held by any SHO Employee, shall be forfeited in accordance with its terms. As of the Rights Closing Effective Time, SHO will award each such SHO Employee equivalent cash retention award (“ SHO

Cash Retention Award ”), which will continue to be subject to the same (remaining) vesting schedule as the SHLD Restricted Stock Award it replaces. Equivalent value with respect to the forfeited portion of the SHLD Restricted Stock Award constituted by SHLD Common Stock will be determined based upon the market closing price of SHLD Common Stock on the day before the Rights Closing Effective Time during regular trading hours. That closing price will be multiplied by the number of forfeited shares (rounded down to the nearest whole share) for each award to arrive at the dollar value of the Replacement Cash Retention Award. To the extent a SHO Employee also has unvested cash rights or awards issued with respect to his or her unvested SHLD Restricted Stock Award, this amount shall be added to arrive at the value of a SHO Cash Retention Award. All SHO Cash Retention Awards shall be assigned to and assumed by the SHO Group as of the Rights Closing Effective Time in accordance with Section 3.3 .

(b) Any outstanding SHLD employee retention award payable in cash that was awarded to, and as of the Rights Closing Effective Time is held by, any SHO Employee (“ SHLD Cash Retention Awards ”) shall be assigned to and assumed by the SHO Group as of the Rights Closing Effective Time in accordance with Section 3.3 (“ Other Cash Retention Award ”).

3.7 No Duplication or Acceleration of Benefits. Notwithstanding anything to the contrary in this Agreement or the Separation Agreement, no SHO Employee shall receive benefits under a SHLD Benefit Plan that duplicate benefits provided by the corresponding SHO Benefit Plan. Furthermore, unless expressly provided for in this Agreement or the Separation Agreement or required by applicable Law, no provision in this Agreement shall be construed to create any right to accelerate vesting or entitlements to any compensation or Benefit Plan on the part of any SHO Employee or former SHO Employee, except as specifically provided for under SHO Employment Agreement or Cash Retention Award or Other Cash Retention Award.

3.8 Service Crediting under SHO Benefit Plans .

(a) General . From and after the Rights Closing Effective Time or after the Benefits Transition Period, as applicable, SHO shall, and shall cause its Affiliates, and successors to, provide credit under the SHO Benefit Plans to SHO Employees for their service with SHO and its predecessors and affiliates (including but not limited to service for the SHO Business, the SHO Group, Service Provider and SHLD) for all purposes to the same extent that such service was recognized under the relevant SHLD Benefit Plans prior to the Rights Closing Effective Time or under the relevant Continuing Plan prior to the lapse of the Benefits Transition Period. Service shall be credited under SHO Benefit Plans for all purposes, including but not limited to, determining eligibility to participate, vesting, and eligibility to retire; provided , however , that service shall not be recognized to the extent that such recognition would result in the duplication of benefits.

(b) Noncontinuous Employees . If a former employee of the SHO Group or SHLD Group (such Group, the “ Original Group “) becomes employed by a member of the other Group (such Group, the “ Transferee Group ”) without having been continuously employed by a member of the Original Group from the Rights Closing Effective Time through the date such former employee commences active employment with a member of the Transferee Group, then the Benefits Plans of the Transferee Group will not recognize for any purpose such individual’s

service with the Original Group before or after the Rights Closing Effective Time, except to the extent required by Law or the terms of any such Benefit Plan. If a former employee is rehired by his or her Original Group then all such individual’s service shall be recognized by the Benefit Plans of the Original Group to the extent required by Law the terms of any such Benefit Plan.

3.9 Assignment of Employment Agreements . All SHO Employment Agreements will be assigned to and assumed by SHO, pursuant to Section 3.3 . SHMC will provide copies of all SHO Employment Agreements and other assumed documents to SHO. SHMC shall use reasonable efforts to transfer or cause to be transferred to SHO documentation related to such SHO Employment Agreements, including offer letters, agreements and other instruments reasonably required for the maintenance and administration of the SHO Employment Agreements.

3.10 Administration of SHO Benefit Plans . As of and after the Rights Closing Effective Time, SHO or its delegate shall be exclusively responsible for administering each SHO Benefit Plan, excluding Continuing Plans, and each SHO Employment Agreement in accordance with its terms and for all obligations and liabilities with respect to the SHO Employment Agreements and all benefits owed to individuals who are parties to the SHO Employment Agreements, whether entered into before, on or after the Rights Closing Effective Time. SHO shall not assume sponsorship, maintenance or administration of any Benefit Plan or Employment Agreement that is not a SHO Benefit Plan or a SHO Employment Agreement or receive or assume any assets or liabilities in connection with any such Benefit Plan or Employment Agreement. Further, SHO agrees to enforce the non-competition provision and related definition of “Sears Competitor” under any Employment Agreement assumed by SHO as of the Rights Closing Effective Time, with respect to any termination occurring after the Rights Closing Effective Time with protective covenants still in effect after the Rights Closing Effective Time and during the term of the Services Agreement.

3.11 Plan-Related Litigation . Notwithstanding anything herein to the contrary, the management of the defense of all litigation related to the SHLD Benefit Plans, the SHLD Employment Agreements, the SHO Benefit Plans and the SHO Employment Agreements shall be governed by the Separation Agreement, and this Agreement shall govern the allocation of Liabilities related to any such litigation.

3.12 Workers’ Compensation . Except as otherwise expressly provided below, the SHLD Group shall be responsible for all worker’s compensation Liabilities relating to, arising out of or resulting from any claim by a SHO Employee resulting from an accident or other work-related injury that occurs prior to the Rights Closing Effective Time; provided , however , that with respect to claims by SHO Employees relating to, arising out of or resulting from an accident or other work-related injury that occurs prior to the Rights Closing Effective Time, the provisions of Section 8.1(b) of the Separation Agreement shall apply. Except as otherwise expressly provided below, the SHO Group shall be solely responsible for all worker’s compensation Liabilities relating to, arising out of or resulting from any claim by a SHO Employee resulting from an accident or other work-related injury occurring on or following the Rights Closing Effective Time. With respect to any claim by a SHO Employee relating to, arising out of or resulting from an occupational disease (an “ OD Claim ”) which becomes manifest at any time prior to, on or after the Rights Closing Effective Time, if different from the allocation outlined above based on the date the claim arose, Liabilities with respect to such claim

shall be allocable by and between the SHLD Group and the SHO Group in a manner consistent with the manner in which such liabilities are allocated in accordance with the provisions of applicable Law between the respective issuers of workers’ compensation coverage purchased by each such entity, provided , however , that to the extent any portion of an OD Claim is deemed to have arisen on a date prior to the Rights Closing Effective Time, such claim shall be subject to the provisions of Section 8.1(b) of the Separation Agreement. The SHO Group and the SHLD Group shall each use its commercially reasonable best efforts to cooperate with each other and their respective carriers in respect of any such OD Claim, in order to carry out the intent of the immediately preceding sentence, and comply with the terms of the underlying contracts or policies covering such SHO Employee with respect to any such OD Claim and any applicable law.

3.13 Cooperation . Service Provider and SHO shall, and shall cause their respective Affiliates to use reasonable best efforts to cooperate with respect to any employee compensation or benefits matters that Service Provider or SHO, as applicable, reasonably determines require the cooperation of both Service Provider and SHO in order to accomplish the objectives of this Agreement. Without limiting the generality of the preceding sentence, (a) Service Provider and SHO shall cooperate in coordinating each of their respective payroll systems in connection with the transfers of SHO Employees to the SHO Group’s payroll as of the Rights Closing Effective Time, and (b) Service Provider shall transfer records to the SHO Group as reasonably necessary for the proper administration of the participation of SHO Employees in any SHO Benefit Plan, to the extent such records are in Service Provider’s possession. The obligations of SHO and Service Provider to cooperate pursuant to this Section 3.13 shall remain in effect until all audits of all Benefit Plans and certification of goals and payments under a SHLD AIP or SHLD LTIP, with respect to which the other Party may have information, have been completed or the applicable statute of limitations with respect to such audits has expired.

ARTICLE IV

ADMINISTRATIVE SERVICES

4.1 Administrative Services . During the term of this Agreement, Service Provider (or its Subsidiaries or Affiliates) will provide to the SHO Group certain human resource administrative and business process outsourcing services, as described in Statements of Work (“ SOWs ”) to be entered into between the Parties or as otherwise agreed in writing by the Parties (such services referred to as the “ Administrative Services ”). The Administrative Services shall include aspects of payroll administration services, time and attendance, employee scheduling, human resources and benefits administration, employee contact center and support services, recruiting and learning support, compensation management support, leadership development, and other human resources and benefits-related services. Service Provider may provide the Administrative Services directly or through a designee, or may subcontract out all or a portion of the Administrative Services. Except as otherwise provided in the applicable Statement of Work, nothing in this Agreement shall give Service Provider an exclusive right to provide, or require the SHO Group to purchase exclusively from Service Provider, any administrative services.

4.2 Use of Services . The SHO Group agrees to the following with regard to its use of the Administrative Services:

(a) The SHO Group, and not Service Provider, will be solely responsible for all decisions relating to the relationship between the SHO Group and SHO Employees.

(b) The SHO Group will be responsible for the manner in which it uses Administrative Services, including the manner in which it interprets and acts upon any guidance or recommendation provided by Service Provider.

(c) The SHO Group will be responsible for the consequences of any instruction or request SHO may give to Service Provider.

(d) The SHO Group shall use Administrative Services in accordance with the terms and conditions of this Agreement as well as any policies established by Service Provider (or its Subsidiaries or Affiliates) from time to time (provided such policies shall not limit or otherwise modify the terms of this Agreement, including the parties rights or obligations hereunder).

(e) The SHO Group shall not resell, directly or indirectly, the Administrative Services or any portion thereof to any Party other than SHO, its Subsidiaries or Affiliates.

4.3 SOWs . All SOWs must be in writing and signed by both parties to be effective. In the event of a conflict among the terms of the various documents that at any given time constitute this Agreement, the following order of precedence shall apply: (a) any Amendment thereto (as defined below) shall control over any conflicting terms in the document that it is amending (e.g., a SOW or this Agreement); and (b) the Agreement shall control over any conflicting terms of an SOW, unless the SOW specifically references conflicting terms of this Agreement that the SOW is changing.

4.4 Inherent Services . If any services, functions, tasks, activities, or other responsibilities not specifically described in any SOW but which are reasonably required for the proper performance and provision of the Administrative Services described in any SOW to the same extent and in the same manner as if specifically described herein (collectively, “ Inherent Services ”), such services, functions, tasks, activities, and responsibilities shall be deemed to be included within the scope of the Administrative Services to be provided hereunder, as if such services, functions, tasks, activities, and responsibilities were specifically described in this Agreement or a SOW.

4.5 Standard of Care . Except as otherwise set forth in this Agreement, Service Provider does not assume any responsibility under this Agreement other than to render the Administrative Services in good faith, without willful misconduct or gross negligence. Service Provider makes no other guarantee, representation, or warranty of any kind (whether express or implied) regarding any of the Services provided hereunder, and expressly disclaims all other guarantees, representations, and warranties of any nature whatsoever, whether statutory, oral, written, express or implied, including any warranties of merchantability or fitness for a particular purpose and any warranties arising from course of dealing or usage of trade. Service Provider will only be obligated to provide Services in a manner consistent with past practice (including prioritization among projects for Service Provider, Service Provider’s Affiliates, and SHO). Notwithstanding anything herein to the contrary, Service Provider shall not provide any legal services or legal advice to the SHO Group, the SHO Group is not entitled to rely on Service Provider for legal advice and counsel, nor shall Service Provider’s advice be construed as legal advice.

4.6 Good Faith Cooperation; Alternatives . Service Provider and the SHO Group will use good faith efforts to cooperate with each other in all matters relating to the provision and receipt of the Administrative Services, including acquisition of required third-party contractor consents (if any). If Service Provider reasonably believes it is unable to provide any Service because of a failure to obtain third-party contractor consents or because of impracticability, Service Provider will notify the SHO Group promptly after Service Provider becomes aware of such fact and the parties will cooperate to determine the best alternative approach.

4.7 Use of Third Parties . Service Provider may use any Affiliate or any unaffiliated third-party contractor to provide the Administrative Services to the extent the Affiliate or the unaffiliated third-party contractor provides comparable services to Service Provider or, if not, if the SHO Group gives its prior written consent (which consent the SHO Group will not unreasonably withhold or delay).

4.8 Assets of the SHO Group . During the term of this Agreement, (i) Service Provider and its Affiliates and third-party contractors may use, at no charge, all of the software and other assets, tangible and intangible, of the SHO Group (together, the “ Assets ”) to the extent necessary to perform the Administrative Services, and (ii) the SHO Group will consult with Service Provider prior to upgrading or replacing any of the Assets that are necessary for Service Provider to provide the Administrative Services.

4.9 Ownership of Data and Other Assets . Neither Party will acquire any right, title or interest in any Asset that is owned or licensed by the other and used to provide the Administrative Services. All data provided by or on behalf of a Party to the other Party for the purpose of providing the Administrative Services will remain the property of the providing Party; provided, however, that with respect to any Continuing Plans, Service Provider shall have the right to retain all data needed to satisfy record retention best practices and ERISA reporting and disclosure requirements. To the extent the provision of any Administrative Service involves intellectual property, including software or patented or copyrighted material, or material constituting trade secrets, neither Party will copy, modify, reverse engineer, decompile or in any way alter any of such material, or otherwise use such material in a manner inconsistent with the terms and provisions of this Agreement, without the express written consent of the other Party. All specifications, tapes, software, programs, services, manuals, materials, and documentation developed or provided by Service Provider or its Affiliates and utilized in performing this Agreement, will be and remain the property of Service Provider or its Affiliates and may not be sold, transferred, disseminated, or conveyed by the SHO Group to any other entity or used other than in performance of this Agreement without the express written permission of Service Provider.

4.10 Termination of an Individual Service for Convenience by SHO . Subject to the next sentence, the SHO Group, upon 60-day’s prior written notice to Service Provider, may terminate for the SHO Group’s convenience any individual Administrative Service at the end of a SHO fiscal month. The SHO Group may not terminate an individual Administrative Service if the termination would adversely affect Service Provider’s ability to perform another Administrative Service. If any individual Administrative Service is terminated, the

Administrative Service Fee shall be reduced by the amount of the reduction in Service Provider’s variable costs attributable to the terminated Administrative Service, which reduction amount SHO and Service Provider shall determine by good faith negotiations. The SHO Group agrees to reimburse Service Provider for any costs incurred in the termination of such a service at the request of the SHO Group.

4.11 Adjustments. If after the Effective Date, Service Provider determines in good faith that items included in the Administrative Services cannot be provided or need to be adjusted, then upon Service Provider’s demonstration of such facts, the Parties shall in good faith negotiate an appropriate adjustment to the Administrative Services. In addition, if there is a change in legislation, adoption of a regulation or other matters that affect Service Provider’s ability to provide certain of the Administrative Services, then upon Service Provider’s demonstration of such facts, the Parties shall in good faith negotiate an appropriate adjustment to the Administrative Services to be provided.

ARTICLE V

PAYMENTS BY SHO

5.1 Fee for Administrative Services . In consideration for the Administrative Services, the SHO Group shall pay to Service Provider the fees and cost reimbursements set forth on Appendix A (collectively, the “ Administrative Service Fee ”), in the manner set forth on Appendix A . The Administrative Service Fee will not include amounts payable under the Services Agreement. The payment of the Administrative Service Fee shall be made by wire transfer to an account to be designated by Service Provider, at such times as shall be agreed between the parties. The payment of the Administrative Service Fee shall not be subject to any right of setoff.

5.2 Audit Rights . The SHO Group shall have the right, from time to time upon reasonable prior notice and during normal business hours, to inspect Service Provider’s records as reasonably necessary to verify the calculation of costs and fees payable by the SHO Group to Service Provider under this Agreement, including third party vendor statements and accounts.

5.3 Recalculation of Administrative Service Fees . The parties acknowledge and agree that the Administrative Service Fee was calculated based on the expectation that the fee will compensate Service Provider for its costs related to the provision of Administrative Services under this Agreement (including wages, benefits, and insurance, but excluding costs of SHO Claims covered by the indemnification provisions of this Agreement, costs of termination or severance which are otherwise to be reimbursed by the SHO Group, and costs of additional services) plus the profit margin described on Appendix A . If after the date hereof Service Provider in good faith determines that the Administrative Services Fee was miscalculated, or did not fully take into account all costs (other than the excluded costs referred to in the preceding sentence), or otherwise does not compensate Service Provider for such costs plus such profit margin, then upon Service Provider’s demonstration of such facts, the parties shall in good faith negotiate an appropriate adjustment to the Administrative Service Fee. In addition, if there is a change in legislation, adoption of a regulation or other matters that result in an increase or decrease in the cost or amount of services from those currently being projected by Service Provider, then upon Service Provider’s demonstration of such facts, the parties shall in good faith negotiate an appropriate adjustment to the Administrative Service Fee.

5.4 Covered Administrative Services . The Administrative Services Fee shall be for the Administrative Services which shall be more fully described in SOWs or other agreements to be agreed to prior to the Rights Closing Effective Time. In the event that SHO desires Service Provider to provide additional or more comprehensive services, the Parties shall negotiate with respect to the provision of such services and the fees therefore.

5.5 Expenses . In addition to the Administrative Service Fee, the SHO Group will reimburse Service Provider for all other reasonable out-of-pocket expenses actually incurred in its performance of the Administrative Services, that are not included in the Administrative Service Fee (“ Expenses ”). To the extent reasonably practicable, Service Provider will provide the SHO Group with notice of such Expenses prior to incurring them. The SHO Group shall reimburse Service Provider for or will pay directly any or all third-party contractors providing services to or for the benefit of the SHO Group.

5.6 Taxes; Insurance . Fees do not include applicable taxes. The SHO Group will be responsible for the payment of all taxes payable in connection with the Administrative Services including sales, use, excise, value-added, business, service, goods and services, consumption, withholding, and other similar taxes or duties, including taxes incurred on transactions between and among Service Provider, its Affiliates, and third-party contractors, along with any related interest and penalties (“ Transaction Taxes ”). The SHO Group will reimburse Service Provider for any deficiency relating to Transaction Taxes that are the SHO Group’s responsibility under this Agreement. Notwithstanding anything in this Section 5.6 to the contrary, each Party will be responsible for its own income and franchise taxes, employment taxes, and property taxes. Each Party will provide to the other Party any resale exemption, multiple points of use certificates, treaty certification and other exemption information reasonably requested by the other Party.

ARTICLE VI

TERMINATION

6.1 Termination of this Agreement .

(a) Subject to the next sentence, either Party may terminate this Agreement in the event of a material breach of this Agreement by the other Party if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within thirty (30) days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Party’s delivery of notice to the breaching Party.

(b) Either Party may terminate this Agreement (whichever Party is entitled to terminate, the “ Terminating Party ”) effective immediately upon thirty (30)-days’ advance written notice to the other Party if (i) the Terminating Party or any of its Affiliates terminates the Separation Agreement as a result of a material breach of, or a material default by, the other Party or its Affiliates of their obligations in the Separation Agreement, (ii) the Terminating Party or any of its Affiliates terminates a License Agreement in accordance with its terms as a result of a

material breach of, or a material default by, the other Party or its Affiliates of their obligations in the License Agreement, (iii) the Terminating Party or any of its Affiliates terminates the Merchandising Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other Party or its Affiliates of their obligations in the Merchandising Agreement, or (iv) the Terminating Party or any of its Affiliates terminates the Shop Your Way Rewards Retail Establishment Agreement dated August 8, 2012 between SHO and Service Provider (the “ SYW Agreement ”) in accordance with its terms as a result of a material breach of, or a material default by, the other Party or its Affiliates of their obligations in the SYW Agreement. “ License Agreement ” means each of the following, each dated August 8, 2012: the Store License Agreement between Hometown and SHMC; the Store License Agreement between Sears Home Appliance Showrooms, LLC and SHMC; the Store License Agreement between Outlet and SHMC; and the Trademark License Agreement between SHO and Sears, Roebuck and Co.

(c) Service Provider may terminate this Agreement if a Stockholding Change (as defined in the Services Agreement) occurs.

(d) The SHO Group and Service Provider each may terminate this Agreement after the Rights Closing Effective Time, upon at least one year’s prior written notice to the other delivered after the Rights Closing Effective Time (provided such termination date shall be at the end of a payroll period).

ARTICLE VII

INDEMNIFICATION AND INSURANCE

7.1 Indemnification by SHO Group . The SHO Group will defend, indemnify, and hold harmless Service Provider and its Affiliates and their respective Representatives, from and against any and all costs, liabilities, losses, penalties, expenses and damages (including reasonable attorneys’ fees) of every kind and nature (“ Losses ”) arising from or relating to third-party claims, demands, litigation, and suits related to or arising out of the SHO Employees, the employment or termination of the SHO Employees, or this Agreement (including the performance or nonperformance of services under this Agreement) (together “ SHO Claims ”), except to the extent that such SHO Claims are caused by: (i) a failure by Service Provider to comply with reasonable instructions from the SHO Group; or (ii) any grossly negligent act or omission, willful misconduct, or willful failure of Service Provider, its Affiliates, or their respective Representatives in performance of this Agreement. Without limitation, SHO Claims shall include any claims, demands, litigation and suits arising under or relating to out, or out of, any labor, employment, benefit or other matter relating to any SHO Employee or any former SHO Employee or any alleged or claimed SHO Employee, any claims relating to whether an individual is or is not considered a SHO Employee, and any claims with respect to hiring, failure to hire, firing, promoting, disciplining, discrimination, harassment, classification, or other matter relating to any SHO Employee or any former SHO Employee, alleged or claimed.

7.2 Indemnification by Service Provider . Service Provider will defend, indemnify, and hold harmless the SHO Group and their respective Affiliates, and their respective Representatives, from and against any and all costs, liabilities, losses, penalties, expenses and damages (including reasonable attorneys’ fees) of every kind and nature arising from third-party

claims, demands, litigation, and suits, that: (a) relate to bodily injury or death of any person or damage to real and/or tangible personal property directly caused by the gross negligence or willful misconduct of Service Provider or its Affiliates during the performance of the Services, or (b) relate to the infringement of any copyright or trade secret by an Asset owned by Service Provider or its Affiliates and used by Service Provider in the performance of the Services (together, “ SP Claims ”). Notwithstanding the obligations set forth above in this Section 7.2 , Service Provider will not defend or indemnify the SHO Group, their respective Affiliates, or their respective Representatives to the extent that such SP Claims are caused by: (i) a breach of any provision of this Agreement by any member of the SHO Group; (ii) any grossly negligent act or omission, willful misconduct, or willful failure of any member of the SHO Group, their respective Affiliates, or their respective Representatives in performance of this Agreement; or (iii) with respect to infringement claims: (A) any SHO Group member’s use of the Asset in combination with any product or information not provided by Service Provider; (B) Any SHO Group member’s distribution, marketing or use for the benefit of third parties of the Asset; (C) any SHO Group member’s use of the Asset other than as contemplated by this Agreement; or (D) information, direction, specification or materials provided by or on behalf of any SHO Group member. SHO Claims and SP Claims are each individually referred to as a “ Claim. ”

7.3 Procedure . In the event of a Claim, the indemnified Party will give the indemnifying Party as well as the Service Provider Legal Department prompt notice in writing of the Claim; but the failure to provide such notice will not release the indemnifying Party from any of its obligations under this Article except to the extent the indemnifying Party is materially prejudiced by such failure. Upon receipt of such notice the indemnifying Party may assume the defense of the Claim, and if it does assume it will be entitled to control the defense of the Claim at its expense and through counsel of its choice, by giving notice of its intention to do so to the indemnified Party within twenty (20) business days of the receipt of such notice from the indemnified Party. The indemnifying Party will not, without the prior written consent of the indemnified Party, (i) settle or compromise any Claim or consent to the entry of any judgment that does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the indemnified Party of a written release from all liability in respect of the Claim or (ii) settle or compromise any Claim in any manner that may adversely affect the Indemnified Party other than as a result of money damages or other monetary payments that are indemnified hereunder. The indemnified Party will have the right at its own cost and expense to employ separate counsel and participate in the defense of any Claim.

7.4 Limitation of Liability . Except for (a) each Party’s indemnity and defense obligations as set forth in Sections 7.1 , 7.2 , and 7.3 and other liabilities to unaffiliated third parties, and (b) a Party’s breach of its confidentiality obligations, in no event will either Party be liable for any consequential, incidental, indirect, special, or punitive damages, losses or expenses (including business interruption, lost business, lost profits, or lost savings) even if it has been advised of their possible existence. The sole liability of Service Provider and its Affiliates for any and all claims in any manner related to this Agreement will be the payment of direct damages, not to exceed (for all claims in the aggregate) the Fees received by Service Provider under this Agreement. Notwithstanding anything in this Agreement to the contrary, Service Provider will not be liable for damages caused by Service Provider’s third-party contractors; however, to the extent permitted in a TP Agreement, Service Provider will pass through to SHO applicable rights and remedies under the respective TP Agreement.

7.5 Performance . SERVICE PROVIDER MAKES NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, THAT THE SERVICES PROVIDED HEREUNDER ARE OR WILL BE ADEQUATE OR SUFFICIENT (AS TO QUANTITY, QUALITY OR TYPE) TO MEET THE NEEDS (INCLUDING ANY SPECIFICALLY IDENTIFIED NEEDS) OR OBJECTIVES OF SHO WITH RESPECT TO THE CONDUCT OF THE BUSINESS. EXCEPT AS SET FORTH IN THIS AGREEMENT, THE SERVICES ARE PROVIDED ON AN “AS-IS” BASIS.

7.6 Insurance . The SHO Group warrants and represents to Service Provider that it has in force at the Rights Closing Effective Time of this Agreement, and will maintain during this Agreement, the following insurance coverage and minimum limits. Such coverage shall be provided at the SHO Group’s sole cost and expense and shall and purchased from companies having a rating of A- VII or better in the current Best’s Insurance Reports published by A.M. Best Company:

(a) Commercial General Liability, with coverage including, but not limited to, premises/operations, contractual, personal and advertising injury, and products/completed operations liabilities, with limits of at least $5,000,000 per occurrence for bodily injury and property damage combined. Limits of liability requirements may be satisfied by a combination of Commercial General Liability and Umbrella Excess Liability policies

(b) Comprehensive automobile liability insurance covering all owned, hired, and non-owned SHO vehicles, with minimum limits of One Million and No/100 Dollars ($1,000,000.00) combined single limit per occurrence for bodily injury and property damage liability. The SHO Group warrants that all persons operating the SHO Group’s vehicles are duly licensed and covered under the SHO Group’s automobile liability insurance policy without exception.

(c) Workers’ compensation insurance coverage on its employees (including the SHO Employees), individual owners who work in the business and not included in SHO Employees, and any SHO Group subcontractor employees or independent contractors. Alternatively, with respect to any SHO Group subcontractors or independent contractors, the SHO Group shall require its subcontractors and independent contractors to maintain workers’ compensation insurance coverage if the SHO Group has not obtained workers’ compensation coverage for SHO Group subcontractors or independent contractors. The SHO Group shall keep certificates of insurance documenting such coverage on file and provide them to Service Provider upon request. The SHO Group agrees to reimburse and indemnify Service Provider for any costs or expenses incurred by Service Provider as a result of the SHO Group’s breach of this provision or the failure of any subcontractor or independent contractor of the SHO Group to maintain workers’ compensation insurance coverage.

(d) All SHO Group insurance policies required herein shall provide for thirty (30) days written notice to Service Provider prior to cancellation or non-renewal of the coverage. All such insurance policies shall be endorsed to waive any and all rights of subrogation against Service Provider, its parent company, and its Subsidiaries and Affiliates. Service Provider, its parent company and its Subsidiaries and Affiliates shall be named as additional insureds, with the standard “separation of Insureds” provision or an endorsement for cross-liability coverage.

The policies shall be endorsed to state that coverage is primary, and non-contributory with other available coverage, both at no additional cost or expense to Service Provider

(e) The SHO Group shall submit certificates of insurance to Service Provider evidencing all insurance required pursuant to this Agreement within thirty (30) days of execution of this Agreement and at any renewal or replacement of such policies.

ARTICLE VIII

CONFIDENTIAL INFORMATION, WORK PRODUCT, AND INFORMATION

SECURITY

8.1 Confidential Information .

(a) “Confidential Information” means all non-public information received by a Party, its Affiliates, and their respective Representatives (together, the “ Receiving Party ”) relating to the other Party, its Affiliates, and their respective Representatives (together, the “ Disclosing Party ”), in connection with this Agreement, including information concerning SHO Employees, pricing, service history, customer information and lists (except to the extent that these may be shared under privacy laws and regulations), employee information, sourcing and third party contractor information, costs, product specifications and methods of operations, business plans, strategies, financial information, information technology information, and other proprietary information, regardless of the manner or medium in which it is furnished to or otherwise obtained by the Receiving Party; provided , that the term “Confidential Information” does not include information which (i) is or becomes generally available to the public other than as a result of a disclosure by the Receiving Party in violation of this Agreement, (ii) is or was available to the Receiving Party on a non-confidential basis prior to its disclosure to the Receiving Party by the Disclosing Party, provided that such information did not become available to the Receiving Party, from a Person who, to the Receiving Party’s knowledge and at the time of receipt by the Receiving Party of the relevant information, is bound by a confidentiality agreement with respect to such information with (or other confidentiality obligation to) the Disclosing Party or another Person or (iii) was or becomes available to the Receiving Party on a non-confidential basis from a source other than the Disclosing Party, provided that such source is or was (at the time of receipt of the relevant information) not, to the Receiving Party’s knowledge, bound by a confidentiality agreement with respect to such information with (or other confidentiality obligation to) the Disclosing Party or another Person.

(b) The Receiving Party will not disclose, and will cause its Affiliates and Representatives not to disclose, any Confidential Information of the Disclosing Party to any Person; provided , however, that each Party will be responsible in any event for the acts or omissions of its Affiliates and Representatives to whom it discloses the Disclosing Party’s Confidential Information; and provided , further, that Confidential Information may be disclosed only:

(i) to the Receiving Party’s Affiliates and Representatives in the normal course of performance of Receiving Party’s obligations under this Agreement;

(ii) by the Receiving Party to the extent required by applicable Law, rule or regulation (including complying with any oral or written questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process to which such Party is subject), with prior notice, if legally permitted, to the Disclosing Party;

(iii) by the Receiving Party, if such Person determines in good faith that such disclosure is required in order to comply with such Person’s obligations under the federal or state securities laws, rules or regulations, the rules of the NASD or the Nasdaq Stock Market or any other similar body), with prior notice, if legally permitted, to the Disclosing Party; or

(iv) with the prior written consent of the Disclosing Party.

(c) Nothing contained herein will prevent the use (subject, to the extent possible, to a protective order) of Confidential Information in connection with the assertion or defense of any claim by or against the other Party.

(d) Each Party acknowledges that if it breaches this Agreement, the other Party may be irreparably and immediately harmed and may not be made whole by monetary damages. Accordingly, the Disclosing Party, in addition to any other remedy to which it may be entitled in law or equity, is entitled to pursue any injunction or injunctions to prevent breaches of this Agreement and to compel specific performance of this Agreement, without the need for proof of actual damages.

(e) If Service Provider’s agreement (or that of a Subsidiary or an Affiliate) with an unaffiliated third-party contractor performing services hereunder (“ TP Agreement ”) includes confidentiality terms that are less restrictive than this Agreement (i.e., the TP Agreement permits broader sharing or disclosure of confidential information than permitted in this Agreement), then, notwithstanding anything in this Agreement to the contrary, the less-restrictive confidentiality terms of the TP Agreement will (i) control over this Agreement and (ii) govern Service Provider’s rights and obligations in this Agreement regarding the sharing of SHO Confidential Information with the unaffiliated third-party contractor, but in each circumstance only to the extent necessary to permit the unaffiliated third-party contractor to perform the services.

8.2 IT Information Security . The SHO Group, to the extent it uses information technology systems not provided by Service Provider, and Service Provider will comply with the provisions of SHMC’s IT information security policy, as the same may be revised by SHMC and provided to the SHO Group from time to time, with respect to their activities under this Agreement, including but not limited to data relating to SHO Employees.

ARTICLE IX

MISCELLANEOUS

9.1 Expenses . Except as otherwise provided herein, each Party will bear its own expenses with respect to the transactions contemplated by this Agreement.

9.2 Waiver of Compliance . Any failure of a Party to comply with any obligation, covenant, agreement or condition in this Agreement may be waived in writing by the other Party, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

9.3 Amendment . This Agreement may not be amended except by a written amendment signed by each Party.

9.4 Assignment . The SHO Group may not assign its rights or obligations under this Agreement without the prior written consent of Service Provider, to be withheld in Service Provider’s absolute discretion. A Stockholding Change will constitute an assignment of this Agreement by the SHO Group for which assignment Service Provider’s prior written consent will be required. Service Provider may freely assign its rights and obligations under this Agreement to any of its Affiliates without the prior consent of SHO; provided, that any such assignment will not relieve Service Provider of its obligations hereunder. This Agreement will be binding on, and will inure to the benefit of, the successors and assigns of the parties.

9.5 Notices . All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement must be in writing and will be deemed to have been duly given (a) when delivered by hand, (b) three (3) business days after it is mailed, certified or registered mail, return receipt requested, with postage prepaid, (c) on the same business day when sent by facsimile if the transmission is completed before 5:00 p.m. recipient’s time, or one business day after the facsimile is sent, if the transmission is completed on or after 5:00 p.m. recipient’s time or (d) one (1) business day after it is sent by Express Mail, Federal Express or other courier service, as follows:

(a) if to Service Provider:

Sears Holdings Management Corporation

3333 Beverly Road B5-119A

Hoffman Estates, IL 60179

Attention: Senior Vice President-Finance

Facsimile: (847) 286-1699

with a copy to:

Sears Holdings Management Corporation

3333 Beverly Road, B6-210B

Hoffman Estates, IL 60179

Attention: General Counsel

Facsimile: (847) 286-2471

(b)

if to the SHO Group, or any member thereof:

Sears Authorized Hometown Stores, LLC

Sears Outlet Stores, L.L.C.

Sears Hometown and Outlet Stores, Inc.

3333 Beverly Road B4-150A

Hoffman Estates, IL 60179

Attention: Senior Vice President and Chief Operating Officer

Facsimile: (847) 286-7838

with a copy to:

Sears Hometown and Outlet Stores, Inc.

3333 Beverly Road B6-260A

Hoffman Estates, IL 60179

Attention: General Counsel

Facsimile: (847) 286-0266

or such other address as the person to whom notice is to be given has furnished in writing to the other parties. A notice of change in address will not be deemed to have been given until received by the addressee.

9.6 Survival . The provisions of Articles III, V, VI, VII, VIII, and IX will survive any termination or expiration of this Agreement.

9.7 Headings . The article and section headings contained in this Agreement are inserted for reference purposes only and will not affect the meaning or interpretation of this Agreement.

9.8 No Third Party Rights . Except for the indemnification rights under this Agreement of any Service Provider or SHO indemnitee in their respective capacities as such, this Agreement is intended to be solely for the benefit of the parties and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties.

9.9 Counterparts . This Agreement may be executed by facsimile and in any number of counterparts, each of which will be deemed to be an original, and all of which together will be deemed to be one and the same instrument.

9.10 Severability . If any provision of this Agreement is declared by any court of competent jurisdiction to be illegal, invalid, void or unenforceable, such provision will (to the extent permitted under applicable Law) be construed by modifying or limiting it so as to be legal, valid and enforceable to the maximum extent compatible with, and possibly under, applicable Law, and all other provisions of this Agreement will not be affected and will remain in full force and effect.

9.11 Entire Agreement . This Agreement (including the appendices hereto), as well as the Separation Agreement and the Services Agreement, constitute the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. In the event of any conflict between the Separation Agreement and the Services Agreement, the provisions of this Agreement shall control with respect to any matter relating to the SHO Employees.

9.12 Force Majeure . Neither Party will be responsible to the other for any delay in or failure of performance of its obligations under this Agreement, or under any order placed pursuant to this Agreement, to the extent such delay or failure is attributable to any act of God, act of terrorism, fire, accident, war, embargo or other governmental act, or riot; provided , however , that the Party affected thereby gives the other Party prompt written notice of the occurrence of any event which is likely to cause any delay or failure setting forth its best estimate of the length of any delay and any possibility that it will be unable to resume performance; provided , further , that said affected Party will use its commercially reasonable efforts to expeditiously overcome the effects of that event and resume performance.

9.13 Fair Construction; Joint and Several Liability . This Agreement will be deemed to be the joint work product of the parties without regard to the identity of the draftsperson, and any rule of construction that a document will be interpreted or construed against the drafting Party will not be applicable. All representations, warranties, indemnification and other obligations of the SHO Group hereunder shall be the joint and several obligations of the SHO Group, and all representations, warranties, indemnification and other obligations of the Service Provider hereunder shall be the joint and several obligations of the Service Provider

9.14 No Agency . Nothing in this Agreement creates a relationship of agency, partnership, or employer/employee between Service Provider and the SHO Group and it is the intent and desire of the parties that the relationship be and be construed as that of independent contracting parties and not as agents, partners, joint venturers or a relationship of employer/employee.

9.15 Services Operating Committee; Dispute Resolution; Mediation .

(a) Services Operating Committee . The Services Operating Committee established pursuant to the Services Agreement (the “ Services Operating Committee ”) will address all day-to-day operational, financial, and other issues that may arise with respect to this Agreement, including its interpretation, the parties’ intent reflected in this Agreement, and the policies and practices between Service Provider and its Affiliates and the businesses comprising SHO’s businesses in effect immediately prior to the Rights Closing Effective Time, and all Disputes (as defined below). The Services Operating Committee will discuss all of these issues and will attempt to resolve informally all Disputes in accordance with the applicable provisions of the Services Agreement.

(b) Dispute Resolution by the Services Operating Committee .

(i) If a Dispute arises, neither Party may take any formal legal action (such as seeking to terminate this Agreement, seeking mediation in accordance with Section 9.15(c) , or instituting or seeking any judicial or other legal action, relief, or remedy with respect to or arising out of this Agreement) unless the Party has first (i) delivered a notice of dispute (the “ Dispute Notice ”) to all of the members of the Services Operating Committee and (ii) complied with the terms of this Section 9.15(b) . At the first monthly meeting of the Services Operating Committee following the delivery of the

Dispute Notice (the “Dispute Meeting”) the Operating Committee will attempt to resolve all of the Disputes that are the subject the Dispute Notice. Each Party will cause its members on the Services Operating Committee to negotiate in good faith to resolve all Disputes in a timely manner. If by the 10 ^th day following the Dispute Meeting the Services Operating Committee has not resolved all of the Disputes (the “ Resolution Failure Date ”) the parties will proceed to mediate the unresolved Disputes (“ Unresolved Disputes ”) in accordance with Section 9.15(c).

(ii) Subject to the next sentence, “ Dispute ” means each claim, controversy, dispute, and disagreement between, on the one hand, SHO or any of its Affiliates, or any of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns and, on the other hand, Service Provider or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a Party’s performance, or failure to perform, one or more of its obligations in this Agreement.

(c) Mediation of Unresolved Disputes . Service Provider and SHO will in good faith attempt to resolve all Unresolved Disputes by non-binding mediation. Service Provider and SHO will negotiate in good faith to determine the mediator, the mediator’s compensation and related costs, and the applicable rules for the mediation. If by the 15 ^th day following the Resolution Failure Date Service Provider and SHO have been unable to settle an Unresolved Dispute the obligations of Service Provider and SHO in this Section 9.15(c) will terminate with respect to the Unresolved Dispute.

9.16 Condition Precedent to the Effectiveness of this Agreement . This Agreement will not become effective until it has been approved by the Audit Committee of the Board of Directors of SHLD.

9.17 Governing Law; Jurisdiction; Waiver of Jury Trial .

(a) This Agreement will be governed by, and construed in accordance with, the laws of the State of Illinois, without giving effect to the conflicts of law principles thereof. This Agreement will not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.

(b) Each of the parties irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any Illinois state court or Federal court of the United States of America, in either case sitting in Cook County, Illinois, and any appellate court to any thereof, in any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of any judgment relating thereto, and each of the parties irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such courts, (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such Illinois state court or, to the extent permitted by law, in such Federal court, (iii) waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any such action or proceeding in any such Illinois state or Federal court, and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such

action or proceeding in any such Illinois state or Federal court. A final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 9.5 . Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by Law.

(c) EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HERETO HEREBY ( i ) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (ii) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.17(c) .

* * * * *

IN WITNESS WHEREOF, Service Provider and SHO have caused this Agreement to be executed on the date first written above by their respective duly authorized officers.


Sears Holdings Management Corporation

By:		/s/ William Phelan
Name:		William Phelan
Title:		Senior Vice President-Finance


Sears Authorized Hometown Stores, LLC

By:		/s/ John E. Ethridge II
Name:		John E. Ethridge II
Title:


Sears Outlet Stores, L.L.C.

By:		/s/ John E. Ethridge II
Name:		John E. Ethridge II
Title:


Sears Hometown and Outlet Stores, Inc.

By:		/s/ John E. Ethridge II
Name:		John E. Ethridge II
Title:		Vice President, Supply Chain and Technology

LIST OF APPENDICES


Appendix A		Administrative Service Fee
Appendix B		Continuing Plans and Other Benefits-Related Services

Appendix A

Administrative Service Fee and Cost Reimbursement

1. For each of the first 24 months during the Term (the “ Base ASP ”) the monthly Administrative Service Fee will be $30.58 per SHO employee during the month (the “Base Rate”). The Base Rate has been determined by the following formula ($1,896,822 divided by 12) divided by 5,169 (the “ Base Employee Number” ). The amount of $1,896,822 is Service Provider’s total annual costs to provide the Administrative Services during the Base ASP and includes a 30% profit margin. The number of SHO employees for each month during the Base ASP will be determined by the following formula: number of SHO employees at the beginning of the month plus the number of SHO employees at the end of the month, divided by 2.

2. For each of the next two 12-month periods and the final period beginning on the first day following the end of second 12-month period and ending on the last day of the 66 ^th month following the Rights Closing Effective Time (each a “ Remaining ASP ”), SHO and Service Provider will negotiate in good faith to determine the monthly per employee Administrative Service Fee for the Remaining ASP, which negotiations will reflect the following understandings with respect to the amount of the Administrative Service Fee (clauses a and b being subject to clause d):

The monthly per employee Administrative Service Fee will reflect all of Service Provider’s costs and expenses to provide the Administrative Services (together, the “ Total Costs ”);

The monthly per employee Administrative Service Fee will reflect, as Service Provider’s profit margin, an amount equal to 30% of Service Provider’s Total Costs;

The number of SHO employees for each month during each Remaining ASP will be determined by the following formula: number of SHO employees at the beginning of the month plus the number of SHO employees at the end of the month, divided by 2; and

The monthly per employee Administrative Service Fee for the first Remaining ASP will not be greater than 120% of the Base Rate, and the monthly per employee Administrative Service Fee for each of the second Remaining ASP and the third Remaining ASP will not be greater than 120% of the per employee Administrative Service Fee for the immediately preceding Remaining ASP.

3. SHO also will be billed for and pay Service Provider for all gross payroll, compensation related and other direct costs incurred or paid by Service Provider in connection with the services provided hereunder, which shall include, and not be limited to all wages (standard and overtime), bonuses, commissions, severance and termination payments, taxes, insurance costs, benefits, contributions and other direct costs for the SHO Employees. All costs, fees, and reimbursements will be payable by SHO to Service Provider in a manner agreed to by the parties prior to the Rights Closing Effective Time provided that all payroll-related payments shall be funded by SHO in advance of the applicable payroll payment date (including but not limited to the first payroll date).

A - 1

4. SHO will reimburse Service Provider for (a) all costs that are reimbursable by SHO in accordance with the Agreement and (b) for all services that Service Provider performs at SHO’s request and that are not Administrative Services covered by the Administrative Service Fee. In addition, if Service Provider uses a vendor that is not an Affiliate of Service Provider to provide the Administrative Services and during any Remaining ASP the vendor increases its prices to provide the Administrative Services, SHO will reimburse Service Provider for the amount of the increase.

A - 2

Appendix B

Continuing Plans and Other Benefits-Related Service s


Business		Services Provided

CONTINUING PLANS		1. Active Group Health Coverage under the Sears Holdings Medical Plan, Dental Plan and Flexible Benefits Plan ¹ a. Benefits Transition Period – Effective as of the Rights Closing Effective Time through no later than December 31, 2013. b. Post-Rights Closing Effective Time (and so referred to as “Post-Separation”), Service Provider to act as third party administrator on behalf of SHO, which will continue to offer the Sears Holdings Medical Plan, Dental Plan and Flexible Benefits Plan to eligible SHO Employees without interruption post spin 2. COBRA Continuation Coverage ² c. Post-Separation, Service Provider to provide COBRA continuation coverage for medical, dental and health care flexible spending account (FSA), as third party administrator of these plans on behalf of SHO, to SHO employees (and their qualified beneficiaries) participating in these plans who incur a qualifying event under COBRA post-Separation, provided, however, as of January 1, 2014 (or earlier if SHO establishes a SHO Benefit Plan to replace a particular Continuing Plan before January 1, 2014), SHO shall assume COBRA continuation coverage for SHO employees (and their qualified beneficiaries) who incur a qualifying event post-Separation. 3. Other Benefits ³ d. Refer to Exhibit B-1 for a summary of the other benefits sponsored or made available by Service Provider (or a Service Provider affiliate), indicating what was offered to SHO Employees pre-Separation and what will be offered post-Separation, during the Benefits Transition Period. e. Any benefit program of Service Provider (or an Affiliate) not listed in this Appendix B or Exhibit B-1 as offered post-Separation is not intended to be available to SHO Employees post-Separation.

¹	Each SHO Employee will continue to be responsible for the employee portion of his/her active group health coverage, which will continue to be deducted, pre-or post-tax, as applicable, from pay. Coverage will be subject to the terms and conditions and the continued availability of each such plan.

Each SHO Employee (or qualified beneficiary) who incurs a qualifying event under COBRA will be responsible for the cost of COBRA continuation coverage at a rate equal to 102% of the full cost of continued medical and dental coverage. Additional costs related to such COBRA coverage will be paid by SHO. Coverage will be subject to the terms and conditions and the continued availability of each such plan.

³	.Each SHO Employee will continue to be responsible for the employee portion of his/her coverage under any of the other benefits, which will continue to be deducted, pre-or post-tax, as applicable, from such SHO Employee’s SHO pay.

B - 1

Business

Services Provided

4. Benefits Administration – Continuing Plans

• With respect to benefit programs sponsored by Service Provider (or an Affiliate), which will be Continuing Plans for eligible SHO Employees during the Benefits Transition Period, Service Provider will continue to select and manage consultants, brokers, vendors and the like, as necessary to handle:

• Plan design and eligibility;

• Day to day operations of the benefit programs;

• Benchmarking;

• Plan contract performance guarantees; and

• Government required filings (e.g. Form 5500 and SAR filings)

B - 2

Exhibit B-1: Other Continuing Plans

During the Benefits Transition Period, continued participation by associates of SHO under the following other Continuing Plans will continue to be offered to otherwise eligible SHO Employees, according to the following table, as if SHO sponsored or made these benefits available with Service Provider (or an Affiliate) acting as the third party administrator, subject to the terms and conditions and the continued availability of each such program:


Other Benefit Programs	Participation Pre- Separation	Participation Post- Separation	Benefits Transition Period
Short-Term Disability Program	ü	ü	See note 1 below
Company Paid Life Insurance	ü	ü	See note 1a below
Long-Term Disability Program	ü	ü	See note 1 below
Optional Life Insurance	ü	ü	See note 1a below
Business Travel Accident Insurance	ü	ü	See note 1 below
WorkLife Solutions	ü	ü	See note 1 below
Commuter Benefit Program	ü	ü	See note 1 below
Adoption Assistance Program	ü	ü	See note 1 below
Starbridge Program	ü	ü	See note 1 below
Voluntary Benefits Program	ü	ü	See note 1 below
Employee Assistance Program (EAP)	ü	ü	See note 1 below
Associate Stock Purchase Plan	ü	NO	N/A
401(k) Savings Plan	ü	NO	N/A ²
Pension Plan (Frozen)	ü	NO	N/A
Transition Pay Plans	ü	NO	N/A ²

1.	With respect to the noted plans, the Benefits Transition Period shall end as of December 31, 2013, subject to earlier termination in accordance with the definition of Benefits Transition Period in the Agreement.

1a.

With respect to the noted plans, the Benefits Transition Period shall end as of December 31, 2012, unless the insurer for these plans notifies SHMC by the Rights Closing Effective Time that SHO Employees can continue coverage under these plans through December 31, 2013, in which case the Benefits Transition Period for these plans shall be December 31, 2013, all subject to earlier termination in accordance with the definition of Benefits Transition Period in the Agreement.

2.	If the SHO Group establishes a severance plan or policy or 401(k) plan, the Service Provider will, to the extent it is providing payroll services as part of the Administrative Services, handle payment of the severance-related payments and payroll deferrals with respect to such 401(k) plan.

B - 3

Exhibit 31.1

CERTIFICATIONS

I, W. Bruce Johnson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Sears Hometown and Outlet Stores, Inc.

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: September 10, 2012

		/s/ W. Bruce Johnson
		W. Bruce Johnson

		Chief Executive Officer and President
		Sears Hometown and Outlet Stores, Inc.

Exhibit 31.2

CERTIFICATIONS

I, Steven D. Barnhart, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Sears Hometown and Outlet Stores, Inc.

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

(c)

(d)

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: September 10, 2012

		/s/ Steven D. Barnhart
		Steven D. Barnhart

		Senior Vice President and Chief Financial Officer
		Sears Hometown and Outlet Stores, Inc.

EXHIBIT 32

CERTIFICATION

Pursuant to 18 U.S.C. 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

Each of the undersigned, W. Bruce Johnson, Chief Executive Officer and President of Sears Hometown and Outlet Stores, Inc. (the “Company”) and Steven D. Barnhart, Senior Vice President and Chief Financial Officer of the Company, has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 28, 2012 (the “Report”).

Each of the undersigned hereby certifies that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


September 10, 2012

		/s/ W. Bruce Johnson
		W. Bruce Johnson
		Chief Executive Officer and President



		/s/ Steven D. Barnhart
		Steven D. Barnhart
		Senior Vice President and
		Chief Financial Officer