RELATED PARTY DISCLOSURE

Mr. Lampert is Chairman of our Board of Directors and its Finance Committee and is the Chairman and Chief Executive Officer of ESL. Additionally, on February 1, 2013, Mr. Lampert became our Chief Executive Officer, in addition to his role as Chairman of the Board. ESL owned approximately 49% of our outstanding common stock at July 29, 2017 (excluding shares of common stock that ESL may acquire within 60 days upon the exercise of warrants to purchase shares of our common stock).

Bruce R. Berkowitz has been a member of our Board of Directors since February 2016. Mr. Berkowitz serves as the Chief Investment Officer of Fairholme Capital Management, LLC, an investment adviser registered with the SEC, and is the President and a Director of Fairholme Funds, Inc., a SEC-registered investment company providing investment management services to three mutual funds (together with Fairholme Capital Management, LLC and other affiliates, "Fairholme"). Fairholme owned approximately 27% of our outstanding common stock at July 29, 2017 (excluding shares of common stock that Fairholme may acquire within 60 days upon the exercise of warrants to purchase shares of our common stock).

Thomas J. Tisch has been an independent member of our Board of Directors since 2005. Mr. Tisch owned approximately 4% of our outstanding common stock at July 29, 2017.

Unsecured Commercial Paper

During the 26 week periods ended July 29, 2017 and July 30, 2016, ESL and its affiliates held unsecured commercial paper issued by SRAC, an indirect wholly owned subsidiary of Holdings. For the commercial paper outstanding to ESL, the weighted average of each of maturity, annual interest rate and principal amount outstanding was 8.1 days, 8% and $58 million and 34.4 days, 7.97% and $55 million, respectively, during the 26 week periods ended July 29, 2017 and July 30, 2016. The largest aggregate amount of principal outstanding to ESL at any time since the beginning of 2017 was $160 million, and $2 million of interest was paid by SRAC to ESL during the 26 week period ended July 29, 2017.

The commercial paper purchases were made in the ordinary course of business on substantially the same terms, including interest rates, as terms prevailing for comparable transactions with other persons, and did not present features unfavorable to the Company.

LC Facility

On December 28, 2016, the Company, through the Borrowers, entered into the LC Facility Agreement, which was subsequently amended in August 2017, and which provides for a $271 million amended LC Facility. At July 29, 2017 and January 28, 2017, we had $271 million and $200 million, respectively, of letters of credit outstanding under the LC Facility, which amounts were initially committed by entities affiliated with ESL, and the Lenders under the LC Facility maintain cash collateral on deposit with the Issuing Bank of $276 million. $140 million of the amount originally committed by entities affiliated with ESL under the LC Facility has been syndicated to unaffiliated third party lenders as of the date of this report. See Note 2 for additional information regarding the LC Facility, as amended.

2017 Secured Loan Facility

On January 3, 2017, the Company, through the 2017 Secured Loan Borrowers, obtained a $500 million real estate loan facility from the Lenders, entities affiliated with ESL. At July 29, 2017 and January 28, 2017, JPP LLC and JPP II, LLC, entities affiliated with ESL, held $461 million and $500 million of principal amount of the 2017 Secured Loan Facility, respectively. Approximately $39 million of proceeds received from real estate transactions were used to reduce outstanding borrowings under the 2017 Secured Loan Facility, all of which were repaid to entities affiliated with ESL. See Note 2 for additional information regarding the 2017 Secured Loan Facility.

2016 Secured Loan Facility

In April 2016, the Company, through the 2016 Secured Loan Borrowers, obtained a $500 million real estate loan facility from the 2016 Secured Loan Lenders, some of which are entities affiliated with ESL. In May 2017, Sears Holdings reached agreement to extend the maturity of $400 million of the $500 million 2016 Secured Loan Facility maturing in July 2017 to January 2018. At July 29, 2017, July 30, 2016 and January 28, 2017, entities affiliated with ESL held $131 million, $216 million and $216 million, respectively, of principal amount of the 2016 Secured Loan Facility. Proceeds received from real estate transaction were used to reduce outstanding borrowings under the 2016 Secured Loan Facility, of which $84 million was repaid to entities affiliated with ESL. See Note 2 for additional information regarding the 2016 Secured Loan Facility, as amended.

2016 Term Loan

In April 2016, the Company, through the ABL Borrowers, obtained a $750 million senior secured term loan under the Amended Domestic Credit Agreement with a syndicate of lenders, including $146 million (net of original issue discount) from JPP, LLC and JPP II, LLC, entities affiliated with ESL, and $100 million from the Company's domestic pension plans. At July 29, 2017, JPP LLC and JPP II, LLC, and the Company's domestic pension plans, respectively, held $114 million and $76 million of principal of the 2016 Term Loan. At both July 30, 2016 and January 28, 2017, JPP LLC and JPP II, LLC, and the Company's domestic pension plans, respectively, held $150 million and $100 million of principal of the 2016 Term Loan. As disclosed in Note 1, a portion of the proceeds received from the Craftsman Sale were used to reduce outstanding borrowings under the 2016 Term Loan, of which $36 million and $24 million was repaid to JPP LLC and JPP II, LLC, and the Company's domestic pension plans, respectively. See Note 2 for additional information regarding the 2016 Term Loan.

Second Lien Credit Agreement

In September 2016, the Company, through the ABL Borrowers, obtained a $300 million Second Lien Term Loan from the Lenders, entities affiliated with ESL. At both July 29, 2017 and January 28, 2017, JPP LLC and JPP II, LLC held $300 million of principal of the Second Lien Term Loan.

Additionally, as further discussed in Note 2, in July 2017, the Company amended its Second Lien Credit Agreement to create an additional $500 million Line of Credit Loan Facility. The Company received $330 million in net proceeds from Line of Credit Loans during the 13 weeks ended July 29, 2017, including $200 million, $25 million and $20 million from ESL and its affiliates, Mr. Berkowitz and his affiliates, and Mr. Tisch and his affiliates, respectively, which also represents the principal amount of Line of Credit Loans held by these parties at July 29, 2017. See Note 2 for additional information regarding the Second Lien Credit Agreement, as amended.

Senior Secured Notes

At each of July 29, 2017, July 30, 2016 and January 28, 2017, Mr. Lampert and ESL held an aggregate of approximately $11 million of principal of the Company's Senior Secured Notes.

At each of July 29, 2017, July 30, 2016 and January 28, 2017, Fairholme held an aggregate of approximately $46 million of principal of the Company's Senior Secured Notes.

Subsidiary Notes

At each of July 29, 2017, July 30, 2016 and January 28, 2017, Mr. Lampert and ESL held an aggregate of $3 million of principal amount of unsecured notes issued by SRAC (the "Subsidiary Notes").

At each of July 29, 2017, July 30, 2016 and January 28, 2017, Fairholme held an aggregate of $14 million of principal amount of Subsidiary Notes.

Senior Unsecured Notes and Warrants

At both July 29, 2017 and January 28, 2017, Mr. Lampert and ESL held an aggregate of approximately $188 million of principal amount of the Company's Senior Unsecured Notes, and 10,033,472 warrants to purchase shares of Holdings common stock. At July 30, 2016, Mr. Lampert and ESL held an aggregate of approximately $193 million of principal amount of the Company's Senior Unsecured Notes, and 10,033,472 warrants to purchase shares of Holdings common stock.

At July 29, 2017, July 30, 2016 and January 28, 2017, respectively, Fairholme held an aggregate of approximately $362 million, $357 million and $357 million of principal amount of the Company's Senior Unsecured Notes, and 6,648,050, 6,732,415 and 6,713,725 warrants to purchase shares of Holdings common stock.

Sears Canada

ESL owns approximately 45% of the outstanding common shares of Sears Canada (based on publicly available information as of July 27, 2017). Fairholme owns approximately 19% of the outstanding common shares of Sears Canada (based on publicly available information as of August 4, 2017).

Lands' End

ESL owns approximately 65% of the outstanding common stock of Lands' End (based on publicly available information as of July 26, 2017). Holdings and certain of its subsidiaries entered into a transition services agreement in connection with the spin-off pursuant to which Lands' End and Holdings agreed to provide, on an interim, transitional basis, various services, including but not limited to, tax services, logistics services, auditing and compliance services, inventory management services, information technology services and continued participation in certain contracts shared with Holdings and its subsidiaries, as well as agreements related to Lands' End Shops at Sears and participation in the Shop Your Way^® program. The majority of the services under the transition services agreement with Lands' End have expired or been terminated. In July 2016, the Company and Lands' End executed an agreement pursuant to which the Company will provide foreign buying office support and sourcing services to Lands' End. The agreement expires on August 31, 2017.

Amounts due to or from Lands' End are non-interest bearing, and generally settled on a net basis. Holdings invoices Lands' End on at least a monthly basis. At July 29, 2017, Holdings reported a net amount receivable to Lands' End of $1 million in accounts receivable in the Condensed Consolidated Balance Sheet. At January 28, 2017, Holdings reported a net amount payable to Lands' End of $1 million in other current liabilities in the Condensed Consolidated Balance Sheet. Amounts related to revenue from retail services and rent for Lands' End Shops at Sears, participation in the Shop Your Way^® program and corporate shared services were $15 million and $15 million, respectively, for the 13 week periods ended July 29, 2017 and July 30, 2016, and $30 million and $30 million, respectively, for the 26 week periods ended July 29, 2017 and July 30, 2016. The amounts Lands' End earned related to call center services and commissions were $3 million for the 13 week period ended July 30, 2016, and $2 million and $5 million, respectively, for the 26 week periods ended July 29, 2017 and July 30, 2016.

SHO

ESL owns approximately 57% of the outstanding common stock of SHO (based on publicly available information as of December 1, 2016). Holdings and certain of its subsidiaries engage in transactions with SHO pursuant to various agreements with SHO which, among other things, (1) govern the principal transactions relating to the rights offering and certain aspects of our relationship with SHO following the separation, (2) establish terms under which Holdings and certain of its subsidiaries will provide SHO with services, and (3) establish terms pursuant to which Holdings and certain of its subsidiaries will obtain merchandise for SHO.

These agreements were originally made in the context of a parent-subsidiary relationship and were negotiated in the overall context of the separation. In May 2016, the Company and SHO agreed to changes to a number of their related agreements, including extending the merchandise and services agreement until February 1, 2020.

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


•	SHO obtains a significant amount of its merchandise from the Company. We have also entered into certain agreements with SHO to provide logistics, handling, warehouse and transportation services. SHO also pays a royalty related to the sale of Kenmore^®, Craftsman^® and DieHard^® products and fees for participation in the Shop Your Way^® program.


•	SHO receives commissions from the Company for the sale of merchandise made through www.sears.com, extended service agreements, delivery and handling services and credit revenues.


•	The Company provides SHO with shared corporate services. These services include accounting and finance, human resources and information technology.

Amounts due to or from SHO are non-interest bearing, settled on a net basis, and have payment terms of 10 days after the invoice date. The Company invoices SHO on a weekly basis. At July 29, 2017, July 30, 2016 and January 28, 2017, Holdings reported a net amount receivable from SHO of $25 million, $35 million and $81 million, respectively, within accounts receivable in the Condensed Consolidated Balance Sheets. Amounts related to the sale of inventory and related services, royalties, and corporate shared services were $286 million and $321 million, respectively, for the 13 week periods ended July 29, 2017 and July 30, 2016, and $567 million and $656 million, respectively, for the 26 week periods ended July 29, 2017 and July 30, 2016. The net amounts SHO earned related to commissions were $19 million and $22 million, respectively, for the 13 week periods ended July 29, 2017 and July 30, 2016, and $36 million and $44 million, respectively, for the 26 week periods ended July 29, 2017 and July 30, 2016. Additionally, the Company has guaranteed lease obligations for certain SHO store leases that were assigned as a result of the separation. See Note 4 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2017 for further information related to these guarantees.

Also in connection with the separation, the Company entered into an agreement with SHO and the agent under SHO's secured credit facility, whereby the Company committed to continue to provide services to SHO in connection with a realization on the lender's collateral after default under the secured credit facility, notwithstanding SHO's default under the underlying agreement with us, and to provide certain notices and services to the agent, for so long as any obligations remain outstanding under the secured credit facility.

Seritage

ESL owns approximately 7.9% of the total voting power of Seritage, and approximately 39% of the limited partnership units of Seritage Growth Properties, L.P. (the "Operating Partnership"), the entity that now owns the properties sold by the Company in the Seritage transaction and through which Seritage conducts its operations (based on publicly available information as of February 23, 2017). Mr. Lampert is also currently the Chairman of the Board of Trustees of Seritage. Fairholme owns approximately 12% of the outstanding Class A common shares of Seritage and 100% of the outstanding Class C non-voting common shares of Seritage (based on publicly available information as of December 31, 2016).

In connection with the Seritage transaction as described in Note 3, Holdings entered into a master lease agreement with Seritage. The initial amount of aggregate annual base rent under the master lease is $134 million for the REIT properties, with increases of 2% per year beginning in the second lease year. At July 30, 2016, Holdings reported prepaid rent of $9 million within prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. Holdings recorded rent expense of $19 million and $21 million, respectively, in cost of sales, buying and occupancy for the 13 week periods ended July 29, 2017 and July 30, 2016. Rent expense consists of straight-line rent expense of $32 million and $36 million, respectively, offset by amortization of a deferred gain recognized pursuant to the sale and leaseback of properties from Seritage of $13 million and $15 million, respectively, for the 13 week periods ended July 29, 2017 and July 30, 2016.

Holdings recorded rent expense of $38 million and $42 million, respectively, in cost of sales, buying and occupancy for the 26 week periods ended July 29, 2017 and July 30, 2016. Rent expense consists of straight-line rent expense of $64 million and $72 million, respectively, offset by amortization of a deferred gain recognized pursuant to the sale and leaseback of properties from Seritage of $26 million and $30 million, respectively, for the 26 week periods ended July 29, 2017 and July 30, 2016.

In addition to base rent under the Master Lease, Holdings pays monthly installment expenses for property taxes and insurance at all REIT properties where Holdings is a tenant and installment expenses for common area maintenance, utilities and other operating expenses at REIT properties that are multi-tenant locations where Holdings and other third parties are tenants. The initial amount of aggregate installment expenses under the Master Lease was $70 million, based on estimated installment expenses, and currently is $44 million as a result of reconciling actual installment expenses and recapture activity. Holdings paid $12 million and $17 million, respectively, for the 13 week periods ended July 29, 2017 and July 30, 2016, and $24 million and $34 million, respectively, for the 26 week periods ended July 29, 2017 and July 30, 2016, recorded in cost of sales, buying and occupancy. At July 29, 2017, July 30, 2016 and January 28, 2017, respectively, Holdings reported an amount receivable from Seritage of $4 million, $9 million and $14 million within accounts receivable in the Condensed Consolidated Balance Sheets. At July 29, 2017 and January 28, 2017, respectively, Holdings reported amounts payable to Seritage of $24 million and $11 million within other current liabilities in the Condensed Consolidated Balance Sheets.