RELATED PARTY AGREEMENTS AND TRANSACTIONS

According to statements on Schedule 13D filed with the SEC by ESL, ESL beneficially owns significant portions of both the Company's and Sears Holdings Corporation's outstanding shares of common stock. Therefore, Sears Holdings Corporation, the Company's former parent company, is considered a related party.

On February 11, 2019, Transform Holdco acquired from Sears Holdings substantially all of the go-forward retail footprint and other assets and component businesses of Sears Holdings as a going concern. We believe that ESL holds a significant portion of the membership interests of Transform Holdco and therefore consider that entity to be a related party as well.

In connection with and subsequent to the Separation, the Company entered into various agreements with Sears Holdings which, among other things, (i) govern specified aspects of the Company's relationship following the Separation, especially with regards to the Lands’ End Shops at Sears, and (ii) establish terms pursuant to which subsidiaries of Sears Holdings Corporation are providing services to the Company. Sears Holdings and its affiliates filed notices in connection with the Sears Filing identifying certain contracts between the Company and Sears entities as contracts that might be assumed and assigned to Transform Holdco as part of Transform Holdco’s acquisition. To date, the only contract that has been formally assumed and assigned to Transform Holdco is the retail operations agreement governing the operation of Lands' End Shops at Sears.

The components of the transactions between the Company and Sears Holdings, which exclude pass-through

payments to or from third parties, are as follows.

Lands' End Shops at Sears

Related party costs charged by Sears Holdings to the Company related to Lands' End Shops at Sears are as follows:



(in thousands)	Fiscal 2018		Fiscal 2017		Fiscal 2016
Rent, CAM and occupancy costs	14,798		22,084		24,727
Rental services, store labor	13,719		21,934		24,052
Financial services and payment processing	1,644		2,455		2,834
Supply chain costs	465		741		979
Total expenses	$	30,626	$	47,214	$	52,592
Number of Lands' End Shops at Sears at period end⁽¹⁾	49		174		216

⁽¹⁾ During Fiscal 2018, Fiscal 2017 and Fiscal 2016, 125, 42 and 9 Lands' End Shops at Sears were closed, respectively.

Rent, CAM and Occupancy Costs

The Company rents space in store locations owned or leased by Sears Roebuck. The agreements include a cost per square foot for rent, CAM and occupancy costs. The lease terms for the remaining individual store locations terminate by January 31, 2020.

Retail Services, Store Labor

The Company contracts with Sears Roebuck to provide hourly labor and required systems and tools to service customers in the Lands' End Shops at Sears. This includes dedicated staff to directly engage with customers and allocated overhead. The dedicated staff undergoes specific Lands' End brand training. Required tools include point-of-sale, price lookup and labor scheduling systems.

Financial Services and Payment Processing

The Company contracts with SHMC to provide retail financing and payment solutions at the Lands' End Shops at Sears, primarily based upon customer credit card activity, including third-party payment acceptance, credit cards and gift cards.

Supply Chain Costs

The Company contracts with Sears Roebuck to provide logistics, handling, transportation and other services, primarily based upon inventory units processed, to assist in the flow of merchandise from vendors to the Lands' End Shops at Sears locations.

General Corporate Services

Related party costs charged by Sears Holdings to the Company for general corporate services are as follows:



(in thousands)	Fiscal 2018		Fiscal 2017		Fiscal 2016
Sourcing	$	7,530	$	10,243	$	10,878
Shop Your Way	933		1,119		2,301
Shared services	190		176		192
Total expenses	$	8,653	$	11,538	$	13,371

Sourcing

The Company contracts with a subsidiary of Sears Holdings to provide agreed upon buying agency services, on a non-exclusive basis, in foreign territories from where the Company purchases merchandise. These services, primarily based upon quantities purchased, include quality-control functions, regulatory compliance, product claims management and new vendor selection and setup assistance. The Company's contract under which it receives sourcing services from an affiliate of Sears Holdings runs through June 30, 2020.

These amounts are capitalized into inventory and are expensed through cost of goods sold over the course of inventory turns and included in Cost of sales in the Consolidated Statements of Operations.

Shop Your Way

Prior to April 4, 2018, Lands’ End and SHMC were party to a Shop Your Way retail establishment agreement that governed Lands’ End’s participation in Sears Holdings' Shop Your Way member loyalty program. The Company continues to participate, to a limited extent, in Shop Your Way. Customers earn points issued by SHMC on purchases made in Lands’ End Shops at Sears which may be redeemed to pay for future purchases at Lands’ End Shops at Sears. The Company pays SHMC an agreed-upon fee for points issued in connection with purchases from the Company. All Shop Your Way program expenses are recorded in Cost of sales in the Consolidated Statements of Operations.

Shared Services

The Company contracts with SHMC to provide certain shared corporate services. During Fiscal 2018, these shared services include compliance services.

Use of Intellectual Property or Services

Related party revenue charged by the Company to Sears Holdings for the use of intellectual property or services is as follows:



(in thousands)	Fiscal 2018			Fiscal 2017			Fiscal 2016
Call center services	$	—		$	1,160		$	8,207
Outfitters revenue	845			1,045			1,574
Credit card revenue	709			980			1,147
Royalty income	189			213			221
Gift card expense	(17		)	(32		)	(32		)
Total	$	1,726		$	3,366		$	11,117

Call Center Services

The Company had entered into a contract with SHMC to provide call center services in support of Sears Holdings’ Shop Your Way member loyalty program. This income was net of agreed upon costs directly attributable to the Company providing these services. The income was included in Net revenue and costs are included in Selling and administrative expenses in the Consolidated Statements of Operations. The contract for call center services expired on April 30, 2017.

Outfitters Revenue

The Company sells store uniforms and other apparel to Sears Holdings from time to time. Revenue related to these sales is included in Net revenue in the Consolidated Statements of Operations.

Credit Card Revenue

The Company has entered into a contract with SHMC to provide credit cards for customer sales transactions. The Company earns revenue based on the dollar volume of revenue and receives a fee based on the generation of new credit card accounts. This income is included in Net revenue in the Consolidated Statements of Operations.

Royalty Income

The Company entered into a licensing agreement with SHMC whereby royalties are paid in consideration for sharing or use of intellectual property. Royalties received under this agreement are included in Net revenue in the Consolidated Statements of Operations.

Gift Card Revenue (Expense)

The Company has entered into a contract with SHCP to provide gift cards for use by the Company. The Company offers gift cards for sale on behalf of SHCP and redeems such items on the Company's websites, retail stores and other retail outlets for merchandise. The Company receives a commission fee on the face value for each gift card it sells, and a payment from Sears Holdings for certain Lands' End-branded gift cards that are redeemed by Sears Holdings for non-Lands' End merchandise. The Company pays a transaction/redemption fee to SHCP for each gift card the Company redeems. The income, net of associated expenses, is included in Net revenue in the Consolidated Statements of Operations.

Additional Related Party Balance Sheet Information

Following the Sears Filing, the Company began netting payables due to Sears against receivables due from Sears if and as allowed under its contracts. As a result, receivables and payables have been netted on February 1, 2019, and are presented as a net receivable balance in Accounts receivable, net in the Consolidated Balance Sheets.

At February 1, 2019, the Company recorded a $0.1 million net receivable balance from Sears Holdings in Accounts receivable, net and $0 in Accounts payable in the Consolidated Balance Sheets. On February 2, 2018 the Company recorded $2.0 million in Accounts receivable net, to reflect amounts due from Sears’ Holdings and $2.9 million in Accounts payable to reflect amounts due to Sears Holdings’ in the Consolidated Balance Sheets.

In the third quarter Fiscal 2018, the Company recorded a non-cash charge of $2.6 million in Other expense, net, in the Consolidated Statement of Operations due to establishing a reserve against the indemnification asset related to the indemnification by Sears Holdings Corporation of the pre-Separation UTBs (including penalties and interest) for which Sears Holdings Corporation is responsible under the Tax Sharing Agreement. Due to the Sears Filing, there is substantial doubt regarding the collectability of this contingent asset. At February 1, 2019 and February 2, 2018, respectively, a $0 and $7.4 million indemnification receivable was recorded in Other assets in the Consolidated Balance Sheets.