FORM OF SERVICES AGREEMENT Between SEARS HOLDINGS MANAGEMENT CORPORATION And SEARS HOMETOWN AND OUTLET STORES, INC.

ARTICLE I. SERVICES

1.01

1.02

1.03

1.04

1.05

1.06

1.07

1.08

1.09

1.10

ARTICLE II. CHARGES AND PAYMENTS FOR SERVICES

2.01

2.02

2.03

ARTICLE III. TERMINATION

3.01

3.02

3.03

3.04

ARTICLE IV. CONFIDENTIALITY

4.01

4.02

ARTICLE V. INDEMNIFICATION; LIMITATION OF LIABILITY

5.01

5.02

5.03

5.04

ARTICLE VI. MISCELLANEOUS

6.01

6.02

6.03

6.04

Additional Defined Terms:

Term

“Assets”

Additional Defined Terms:

Term

Service or Business Area

Services

Fees

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.

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.

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, ▇▇▇▇▇▇▇ 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.

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 PIP 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.

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 SHC legal direction.

•        Track eligibility, and payment of retention awards (issued pre-Separation).

•        Transfer Long-Term Incentive Program payments information to SHO (for Q2 2012 performance, payable in 2013) (SHC 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.

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 ▇▇▇▇▇▇▇ 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.

Service or Business Area

Services

Fees

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.

Diversity/Associate Networks:

•        Assist management in creating processes to welcome the efforts of associates to establish diversity and associate networks

Analytics and Reporting:

•        Perform ad-hoc and cyclical reporting and Workforce Analytics (WFA) administration.

•        Conduct human capital analytics projects.

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.

Service or Business Area

Services

Fees

Support Center Benefits

•        SHC benefits provided to Support Center employees

Continuing Support Services (Post 1/1/13)

[Preliminary Listing; subject to revision based on ADP Agreement and SHO Management decisions]

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.

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.

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.

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.

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

Service or Business Area

Services

Fees

•        Cash clearing accounts

•        Daily investment

•        Cash forecasting

•        Cash flow

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

Disbursements

•        Process accounts payable

•        Match merchandise receipt to invoice

•        Approve invoices

•        Cutting and receiving checks from vendors

•        Correspond with vendors

Service or Business Area

Services

Fees

•        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

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.

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 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

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

Service or Business Area

Services

Fees

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)

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

Service or Business Area

Services

Fees

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

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

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.

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 ▇▇▇▇▇▇▇ 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

$296,000 per year plus all third party contractor costs, some of which are set forth in this section below.

Hourly rate for special projects and additional procurement Services not set forth in this Agreement: $62.00 per hour

Service or Business Area

Services

Fees

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.

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.

5.       Temporary labor Services handling and processing.

Travel Services:

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.

Travel Services (American Express), which as of the Effective Date is $62,500 per year;

Service or Business Area

Services

Fees

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.

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)

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

Monthly Fees

1238 stores

$7,169

Service or Business Area

Services

Fees

2. Credit Facility Administration

Advise on credit facility structure implementation or renewals and obtain lenders. Execute borrowings, provide monthly bank reporting and validate facility compliance and fees.

$3,403

Continuing to support / send emails:

•        Promotional / Trigger emails

Core emails (standard promotional emails sent to customers)

All prices/rates are performed by a 3^rd party contractor. Current price is noted below:

Variable rate:

Email rates range between $4-$7 per 1,000 email sends

Service or Business Area

Services

Fees

Fraud Solutions

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.

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

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

*  unable to determine if expenses were incurred for these services

All prices/rates are performed by a 3^rd party contractor. Current price is noted below:

RSA: $1.00 per order

RED: $0.025 per transaction

Fraud / outsorts: $7.23 per order

LivePerson

Provide hosting and selling services through our online customer care network. Services include chat and consulting (rates for chat and phone are based on monthly contacts).

Kana Platform*

•        Customer service support system utilize by the customer care network in order to supply customer contact support.

All prices/rates are performed by a 3^rd party contractor. Current price is noted below.

Variable rate depending on volume:

•        Chat: $0.43 per contact (avg. monthly contacts for 2011 was 9k)

Service or Business Area

Services

Fees

•        Kana response is OBU’s CCN email system. We receive and respond to CCN customer emails in this system.

Vendor Direct

•        Supporting our online vendor direct to customer fulfillment channel

•        Outlet is setup to bring on vendors for this channel but no action has been taken to do so

*  2012 rate likely to change due to system upgrade of Kana

•        Phone: Live Person does not handle calls for Hometown, Outlet, or Hardware

•        $700 license fee per user (one-time fee) plus 18% annual maintenance fee on every license fee

•        $700 license fee for the email support system (Kana response) plus 18% annual maintenance fee for every license fee.

Rates contingent upon bringing vendors on.

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.

Fees and expenses will be billed by SHMC directly to SHO. Fees are for 2012 and are estimated based on planned volume.

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.

Service or Business Area

Services

Fees

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

$82,500 per year

Plus Procurement Support

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

Service or Business Area

Services

Fees

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).

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 ▇▇▇▇ SHO directly for all services provided by APT

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, the SHMC must provide notice in writing 180 days prior.

Note: PMI and AdPlan are replaced by IMPACT

These systems include:

System

Function

Service or Business Area

Services

Fees

Local Ad

Online digital circular

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 150/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

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

Service or Business Area

Services

Fees

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 ($150/hour rate)

Provide Crisis & Emergency Management Services

Weather monitoring and notification Services

Crisis response and planning Services

Risk assessment models

Mitigation strategies

Consultative services as needed ($150/hr)

Manage public sector partnerships (FEMA/Department of Homeland Security)

Critical incident reporting and management system

$ 30,000 /year

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

Critical Safety Management ($150/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

$ T&M         -

Service or Business Area

Services

Fees

•     Management and guidance

Critical Health Management

•     Bed bugs

•     TB, other infectious diseases

Regulatory Agency Activity Management

•     Citation review

•     Investigations

Informal conference, negotiation and settlement

Ongoing Safety Expenses by SHO businesses: ($150/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

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 rsources at actual contractor fees plus expenses)

Cycle shrink reporting (additional analysis and research will be at $150 hour rate)

Civil demand & restitution collection management.

Service or Business Area

Services

Fees

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 ($150/hour rate)

Business / owner investigations+A26 ($150/hour rate)

Theft investigation management to resolve and apprehend dishonest customers and employees ($150/hour rate)

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

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 $150/hour rate

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

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

Service or Business Area

Services

Fees

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 provides 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

“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

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.

-through at cost

EMPLOYEE COMMISSION ADMINISTRATION SUPPORT SERVICES

Franchised and non-franchised locations

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, Dealer, Outlet, Hardware, Home Appliance Showroom

b.       Store location moves to/from franchised status require 4 business days lead time*

Service or Business Area

Services

Fees

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 “Dealer” 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

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.

Out-of- Pocket Costs

Travel expenses and third party fees charged-through at cost

Service or Business Area

Services

Fees

$2,566 per week

Agreed upon cost is all inclusive and reflects labor + travel.

All damages must be reported at receipt of fixtures. Possible hidden damage should be noted on ▇▇▇▇ of lading.

(coordinate with ▇▇▇ ▇▇▇▇▇▇▇▇▇ in Procurement)

Service or Business Area

Services

Fees

Service or Business Area

Services

Fees

Service or Business Area

Services

Fees

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

SHMC/RSBU agrees to provide the following services to SHO:

•        On an as needed basis, the SHC Facilities organization 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

•        Repairs and Maintenance for dock ramps

•        Roof Repairs

•        Fire Protection/Alarm System Repairs/Maintenance

•        Compactors & ▇▇▇▇▇▇ Repairs/Maintenance

•        Energy Management – Service & Repairs

Service or Business Area

Services

Fees

•        On an as needed basis the SHC Facilities Organization 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 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.)

SHC will continue to provide SHO services and support for Environmental Affairs at a rate of $25K,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),

3.       Regulatory report preparation and submittal,

$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”

1.       Third party contractor costs.

Service or Business Area

Services

Fees

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,

2. Third party contractor costs. Plus 20%

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.

Service or Business Area

Services

Fees

13.     Environmental Management System Maintenance and Usage

14.     Engineering Consultant Support (when necessary to assist with complex issues),

15.     Asbestos Abatement Contractors (as needed to support renovation and maintenance activities).

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.

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.

1.       Routine notifications of stop sale/recall information for SHLD branded product SHMC uses a tiered approach to product reviews, technical advice and consultation.

Service or Business Area

Services

Fees

2.       Direction on applicable standards and regulatory issues

3.       Review and interpret technical data and/or laboratory testing reports (including #2)

4.       Product testing and review (including #s 2 and 3 in this Section above)

Tier 1

Consultation, data review

0-5 reviews $150

6 or more reviews $250

Tier 2

Product testing/review (includes contact with third party test facilities, vendors etc)

0-5 reviews $250

6 or more reviews $300

Service or Business Area

Services

Fees

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 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.

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 SHC 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 to alert our systems of the shipment details

•        Oversees performance, ensuring optimal container loading, timely and accurate data transmissions

•        Provides shipment tracking tools to SHC users

•        Creates transit matrix which establishes lead time from vendor delivery to store delivery

Service or Business Area

Services

Fees

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

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 for 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

Service or Business Area

Services

Fees

          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

•        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

Service or Business Area

Services

Fees

•        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.      SHO Responsibilities

•        Provide an annual and quarterly forecase; update monthly.

•        Notify SHMC of any new store openings or closings.

•        Stores and DCs must only unload their designated portion of co-loaded product, taking Good up to the next partition in truck (partition labeled with next store #), in the timeframe allotted by the unloading standards established by SHMC.

10.    IT System

•        System integration

•        Network security and system access

See description of services and processes set forth in Appendix 6 of the Merchandising Agreement.

Service or Business Area

Services

Fees

New Merchandising Implementations

1.       Submit new unique items to Flow Path Team that require DC stocking following established Flow Path process

•        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

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.

Service or Business Area

Services

Fees

In either of the above cases, the SHO planogram team will modify planograms as necessary and provide to the SHC team for quality review and import to the SHC 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.

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.

Service or Business Area

Services

Fees

•        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.

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.

Service or Business Area

Services

Fees

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 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

Service or Business Area

Services

Fees

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

Service or Business Area

Services

Fees

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

•        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 Putaway / store SHMC items per recommended handling vendor packaging guidelines and SLS current operating processes

Service or Business Area

Services

Fees

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, every day

•        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

•        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

Service or Business Area

Services

Fees

•        Generate an outbound ASN (EDI 856 Electronic Shipping Notice) which matches contents of the trailer to support store receiving process

•        Create a ▇▇▇▇ 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 we 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 50 US states and associated territories (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 shipped directly from SLS distribution centers

Service or Business Area

Services

Fees

(DDCs and RRCs). HAS (Home Appliance Showrooms) do not have cross dock services (break pack, EMP, JIT, multiple items/multiple stores per carton) available.

4.       Storage

•        Provide the real estate footprint to accommodate DC planned inventory

•        Capacity available will be based on SHO’s inventory plan. Rate is defined in the rate schedule. 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 shall 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

Service or Business Area

Services

Fees

•        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

•        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. SHO will receive no adjustment for (and SLS is not liable to SHO for) inventory shrink or gain.

6.       Special Services

•        Requests from SHO which are not part of SHMC’s 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 Manager of Supply Chain Operations assigned to SHO.

•        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)

Service or Business Area

Services

Fees

•        Full Truckload special off-site store sales

•        Store Openings

•        Store Closings

•        Planned

•        Unplanned

•        Other services not specified in Supply Chain’s Scope of Services schedule

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

•        Manage the liquidation of damaged merchandise (assigned to the damage bin) per SHMC guidelines

•        SHMC manages store liquidation recoveries such as ‘Craftsman Tool Returns’ and Store RA/RGI flowing via SHMC’s reverse logistics network.

8.      Facility Operations

•        Description of the facilities available to SHO and Facility hours of operations

•        Provided in attached Exhibit XX

•        Facilities operate year round with the exception of Holidays as per SHMC’s standard operating procedures.

•        Access to the facilities will be accommodated in accordance with SHMC’s standard operating procedures.

9.      Logistics Services