S-1/A

As filed with the Securities and Exchange Commission on November 17, 2011

Registration No. 333-175105

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 2

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Orchard Supply Hardware Stores Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware	5200	95-4214109
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

6450 Via Del Oro

San Jose, CA 95119

(408) 281-3500

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Michael W. Fox

Senior Vice President, General Counsel and Secretary

Orchard Supply Hardware Stores Corporation

6450 Via Del Oro

San Jose, CA 95119

(408) 281-3500

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

With Copies To:

Dane A. Drobny Senior Vice President, General Counsel and Corporate Secretary Sears Holdings Corporation 3333 Beverly Road Hoffman Estates, IL 60179 (847) 286-2500 William H. Hinman, Jr. Simpson Thacher & Bartlett LLP 2550 Hanover Street Palo Alto, CA 94304 (650) 251-5000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 Registration Statement number of the earlier effective Registration Statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 Registration Statement number of the earlier effective Registration Statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer  x (Do not check if a smaller reporting company)	Smaller reporting company  ¨

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

EXPLANATORY NOTE

This Registration Statement has been prepared on a prospective basis on the assumption that, among other things, the spin-off of the Registrant from Sears Holdings (as described in the Prospectus which is a part of this Registration Statement) and the related transactions and approvals contemplated to occur prior to or contemporaneously with the spin-off will be consummated as contemplated by the Prospectus. There can be no assurance, however, that any or all of such transactions will occur or will occur as so contemplated. Any significant modifications to or variations in the transactions contemplated will be reflected in an amendment or supplement to this Registration Statement.

The information in this Preliminary Prospectus is not complete and may be changed. We may not issue these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Preliminary Prospectus is not an offer to sell nor does it seek an offer to buy these securities.

SUBJECT TO COMPLETION DATED NOVEMBER 17, 2011

PROSPECTUS

Orchard Supply Hardware Stores Corporation

             Shares of Class A Common Stock, Par Value $0.01 Per Share

             Shares of Series A Preferred Stock, Par Value $0.01 Per Share

This Prospectus is being furnished to you as a shareholder of Sears Holdings Corporation (“Sears Holdings”) in connection with the planned distribution (the “Distribution” or the “spin-off”) by Sears Holdings to its shareholders of all the shares of Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”), and Series A Preferred Stock, par value $0.01 per share (the “Preferred Stock”), of Orchard Supply Hardware Stores Corporation (“Orchard”) held by Sears Holdings immediately prior to the spin-off. Immediately prior to the time of the Distribution, Sears Holdings will hold all of Orchard’s outstanding shares of Class A Common Stock and Preferred Stock. At the time of the Distribution, Orchard’s outstanding capital stock will be composed of the following classes of capital stock, each of which is described in greater detail in the “Description of Our Capital Stock” section of this Prospectus:

• Class A Common Stock, which is being distributed in the spin-off, will represent approximately 80% of the general voting power of Orchard’s outstanding capital stock, and will entitle holders thereof to one vote per share;

• Orchard’s Class B Common Stock, par value $0.01 per share (the “Class B Common Stock”), will represent less than 0.5% of the general voting power of Orchard’s outstanding capital stock, and will entitle holders thereof to one-tenth of one vote per share;

• Orchard’s Class C Common Stock, par value $0.01 per share (the “Class C Common Stock”), will represent approximately 20% of the general voting power of Orchard’s outstanding capital stock, and will entitle holders thereof to one vote per share; and

• Preferred Stock, which is being distributed in the spin-off, will represent 100% of Orchard’s outstanding nonvoting capital stock.

At the time of the Distribution, Sears Holdings will distribute all of the outstanding shares of Class A Common Stock and Preferred Stock on a pro rata basis to holders of Sears Holdings common stock. Every              shares of Sears Holdings common stock outstanding as of the close of business on                     , 2011, the record date for the spin-off (the “record date”), will entitle the holder thereof to receive              shares of Class A Common Stock and              shares of Preferred Stock, except that holders of unvested shares of restricted stock of Sears Holdings will receive cash in lieu of shares. The Distribution will be made in book-entry form. Fractional shares of Class A Common Stock or Preferred Stock will not be distributed. Instead, the distribution agent will aggregate fractional shares of the Class A Common Stock and the Preferred Stock into whole shares of each security, sell such whole shares in the open market at prevailing rates and distribute the net cash from proceeds from the sales pro rata to each holder who would otherwise have been entitled to receive fractional shares in the Distribution.

We expect that the spin-off will be tax-free to Sears Holdings shareholders for U.S. federal income tax purposes, except for any cash received in lieu of fractional shares. The Distribution will be effective as of 11:59 p.m., New York City Time on                     , 2011, which we refer to hereinafter as the “distribution date.” Immediately after the Distribution is completed, we will be a publicly traded company independent from Sears Holdings. From and after the Distribution, certificates representing Sears Holdings common stock will continue to represent Sears Holdings common stock, which at that point will include the remaining businesses of Sears Holdings.

No action will be required of you to receive shares of Class A Common Stock and Preferred Stock, which means that:

• no vote of Sears Holdings shareholders is required in connection with this Distribution and we are not asking you for a proxy and you are requested not to send us a proxy;

• you will not be required to pay for the shares of our Class A Common Stock and Preferred Stock that you receive in the Distribution; and

• you do not need to surrender or exchange any of your Sears Holdings shares in order to receive shares of our Class A Common Stock and Preferred Stock, or take any other action in connection with the spin-off.

There is currently no trading market for our Class A Common Stock or Preferred Stock. However, we expect that a limited market, commonly known as a “when-issued” trading market, for our Class A Common Stock and Preferred Stock will develop on or shortly prior to the record date for the Distribution, and we expect “regular-way” trading of our Class A Common Stock and Preferred Stock will begin the first trading day after the completion of the Distribution. We expect to list our Class A Common Stock on the NASDAQ Capital Market under the symbol “OSH” and quote our Preferred Stock on the OTCQB, or the “Pink Sheets” or another over-the-counter (“OTC”) quotation system under the symbol “OSHPA”. “When-issued” trading on the NASDAQ Capital Market is expected to be under the symbol “OSHS.V,” which is different from “OSH,” our “regular-way” trading symbol.

In reviewing this Prospectus, you should carefully consider the matters described under “Risk Factors” beginning on page 20 for a discussion of certain factors that should be considered by recipients of our Class A Common Stock and Preferred Stock.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The date of this Prospectus is                     , 2011.

TABLE OF CONTENTS

Summary	1
Questions and Answers About the Company and the Spin-Off	12
Risk Factors	20
Cautionary Statement Concerning Forward-Looking Statements	42
The Spin-Off	44
Dividend Policy	54
Capitalization	55
Selected Historical Consolidated Financial Data	57
Unaudited Pro Forma Consolidated Financial Data	59
Management’s Discussion and Analysis of Financial Condition and Results of Operations	64
Business	86
Management	94
Compensation of Directors	99
Executive Compensation	100
Security Ownership by Certain Beneficial Owners and Management	115
Certain Relationships and Related Party Transactions	120
Description of Our Capital Stock	126
Shares Eligible for Future Sale	135
Use of Proceeds	137
Determination of Offering Price	138
Legal Matters	139
Experts	140
Where You Can Find More Information	141
Index to Consolidated Financial Statements	F-1
Index to Unaudited Interim Condensed Consolidated Financial Statements	F-24

You should not assume that the information contained in this Prospectus is accurate as of any date other than the date set forth on the cover. Changes to the information contained in this Prospectus may occur after that date, and we undertake no obligation to update the information, except in the normal course of our public disclosure obligations and practices.

i

SUMMARY

This summary highlights information contained elsewhere in this Prospectus and may not contain all of the information that may be important to you. For a more complete understanding of our business and the spin-off, you should read this summary together with the more detailed information and financial statements appearing elsewhere in this Prospectus. You should read this entire Prospectus carefully, including the “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” sections. “Orchard,” “we,” “our,” and “us” refer to Orchard Supply Hardware Stores Corporation and our subsidiaries.

Our Company

We are a California specialty retailer primarily focused on the consumer segment of the home improvement market. Our stores are designed to appeal to convenience-oriented customers, whose purchase occasions are largely driven by their home repair, maintenance and improvement needs throughout the home, garden and outdoor living areas. As of July 30, 2011, we operated 89 full-service hardware stores in California. We opened four new stores in California within the past three years—one in 2010, two in 2009, and one in 2008. Our stores average approximately 43,600 square feet of enclosed space, plus approximately 8,300 square feet of nursery and garden area. Our stores carry a broad assortment of repair and maintenance, lawn and garden and in-home products.

We strive to provide our customers with best-in-class customer service by staffing our stores with knowledgeable managers and employees. We design our stores to be easy to shop in, by using high visibility signage for ease of navigation and lower profile shelving than is typically found in our larger warehouse home center competitors.

We operate in one reportable segment and provide a merchandise mix which consists of various product categories. Our repair and maintenance category consists of plumbing, electrical, paint, tools, hardware, and industrial products. Our lawn and garden category consists of nursery, garden, outdoor power and seasonal products. Our in-home category consists mainly of our housewares and appliances products.

We also focus on the convenience-oriented purchases of the small professional customer. The professional customer’s convenience-oriented purchases are largely motivated by a need for incremental supplies and tools to complete construction projects.

Recent Developments

On October 24, 2011, a subsidiary of the Company entered into a Purchase and Sale Agreement pursuant to which a subsidiary of the Company sold for $21.3 million, all of its interest in its distribution center located in Tracy, California, which is comprised of a building containing approximately 458,360 square feet and the underlying land. In connection with the closing of the sale of the distribution center, a subsidiary of the Company entered into a lease agreement with respect to the distribution center. The commencement date of the lease was October 28, 2011. The lease is a 20-year lease and provides for three five-year extension options. The initial base rent under the lease is $1.7 million per year with 10% increases every five years. The Company will record a loss in the amount of approximately $14 million on the sale of the distribution center in the third quarter of fiscal 2011.

1

Our Competitive Strengths

Our success depends on our ability to remain competitive with respect to our stores’ shopping convenience, the in-stock availability of merchandise and superior customer service by knowledgeable sales professionals. We believe that our competitive strengths are the following:

Our Stores Carry a Wide Variety of Merchandise.

We offer our customers a broad selection of products, including well-known consumer brand names, and we strive to offer high in-stock levels. A typical Orchard store offers a selection of repair and maintenance products comparable to larger warehouse competitors and carries more products than the typical smaller independent hardware store.

Each of our stores offers a wide selection of well-known consumer brand names, such as 3M, Ames/Tru-Temper Tools, Black & Decker, Craftsman, DeWalt, Dickies, Dutch Boy, General Electric, Leviton, Makita, Milwaukee, Miracle-Gro, Moen, Quikrete, RainBird, Rubbermaid, Scotts, Stanley, Toro and Weber. Our private label brands typically generate higher gross profit margins than third-party brands and include Aqua Vista, Bridgewater Orchard, OSH, Pacific Bay and Western Hawk; these private label brands also add to the distinctive nature of our product selection.

In addition, we believe that our year-round garden and nursery categories are key in drawing customers to our stores and will provide a platform for our growth. While we believe that participating in these categories better positions us to successfully compete against the larger warehouse home centers, it also acts as a competitive advantage over smaller independent retailers that typically do not carry the same breadth of assortment as we do in this category. We believe that our lifetime plant guarantee policy also drives customer loyalty.

We Stock High Margin Product Categories.

While our stores offer a wide range of merchandise, in contrast to our larger warehouse home center competitors, we stock repair and maintenance products, not construction materials that typically yield lower gross margins and require substantial selling space. Our limited offerings in these areas allow us to dedicate valuable selling space to higher-margin items that meet the needs of our convenience-oriented customers.

Our Stores Are Easy to Navigate and Convenient to Shop.

To facilitate the shopping experience, our stores are generally designed in a conventional format using lower profile shelving and higher visibility signage than is usually found in our larger warehouse home center competitors that are typified by warehouse racking and over-stacked aisles. Customers can generally view the majority of our store upon entering, helping them to easily and quickly locate items. Related departments are generally located adjacent to each other, and most merchandise is displayed according to centrally developed floor plans that are designed to optimize space utilization. Product labels and descriptive signage assist customers in easily identifying merchandise. In addition, we strive to select store sites that are easily accessible, conveniently located and have ample parking capacity. These features are intended to provide customers with a comfortable and convenient shopping environment.

We Strive to Deliver Outstanding Customer Service and Value Added Services.

We believe that our customers associate us with providing outstanding customer service and attractive value added services. We drive customer loyalty by striving to deliver outstanding customer service, a broad selection of products and high in-stock levels through friendly, experienced and knowledgeable sales people and store

2

managers. Many of our in-store personnel have repair experience and our associates pass written tests on store policies and products in their respective departments. In addition, we offer repair services on gas outdoor power products through our Eager Beaver Engine House, which we believe distinguishes us from many of our competitors. We also provide pickup and delivery services.

We Have an Experienced Management Team and Store Leadership.

We have recruited an experienced executive management team with the objective of increasing our profitability and stimulating our growth. Our executive management team has an average of over 18 years of retail related experience and an average of 8 years in the home improvement industry.

Our executive management is supported by what we believe is one of the more stable and experienced groups of store-level managers in the industry. The average tenure of an Orchard store manager is approximately 15 years. In addition, we believe that we have a pool of highly qualified assistant store managers who are experienced and ready to become store managers as we continue to expand. The average tenure for an assistant store manager with Orchard is approximately 10 years.

Our stores are generally open seven days per week. Depending on the size and sales volume of the store, the total number of personnel assigned to a particular store varies from about 35 to 105, approximately 10 to 35 of whom are full-time employees. Our stores are operated by store managers, who report to one of eight district managers. Our store managers are responsible for day-to-day store operations, subject to operating procedures established at our store support center. A typical store is staffed with a store manager, two assistant managers and seven department leads.

Our Capital Stock

At the time of the spin-off, Orchard’s outstanding capital stock will be composed of the following classes of capital stock: Class A Common Stock, Class B Common Stock, Class C Common Stock and Preferred Stock.

• Class A Common Stock. Class A Common Stock, all the outstanding shares of which will be held by Sears Holdings immediately prior to the spin-off, is being distributed in the spin-off and will represent approximately 80% of the general voting power of Orchard’s outstanding capital stock. Holders of Class A Common Stock will be entitled to one vote per share. With respect to the election of our directors, the holders of Class A Common Stock will vote as a separate class and be entitled to elect eight members of our ten member board of directors, subject to adjustment based on ACOF I LLC’s ownership of our capital stock as more fully described in the “Description of Our Capital Stock” section of this Prospectus. The Class A Common Stock is presently held by a subsidiary of Sears Holdings and by ACOF I LLC (“ACOF”); ACOF will exchange its shares of Class A Common Stock for shares of Class C Common Stock immediately prior to the spin-off, such that immediately following the spin-off, the Class A Common Stock will be 100% held by Sears Holdings shareholders.

• Class B Common Stock. Class B Common Stock is not being distributed in the spin-off and will represent less than 0.5% of the general voting power of Orchard’s outstanding capital stock. Holders of Class B Common Stock will be entitled to one-tenth of one vote per share. With respect to the election of our directors, the holders of Class B Common Stock will vote together with holders of Class C Common Stock as a single class and be entitled to elect two members of our ten member board of directors, subject to adjustment based on ACOF’s ownership of our capital stock as more fully described in the “Description of Our Capital Stock” section of this Prospectus. Our outstanding shares of Class B Common Stock are held by certain former employees of Orchard who acquired such shares of Class B Common Stock in connection with past equity investment programs of Orchard. Our Class B Common Stock is also the class of capital stock underlying options granted to certain employees prior to the date of the spin-off.

3

• Class C Common Stock. Class C Common Stock is not being distributed in the spin-off and will represent approximately 20% of the general voting power of Orchard’s outstanding capital stock. Holders of Class C Common Stock will be entitled to one vote per share. With respect to the election of our directors, the holders of Class C Common Stock will vote together with holders of Class B Common Stock as a single class and be entitled to elect two members of our ten member board of directors, subject to adjustment based on ACOF’s ownership of our capital stock as more fully described in the “Description of Our Capital Stock” section of this Prospectus. Immediately prior to the spin-off, we will authorize the creation of Class C Common Stock, and all of the Class A Common Stock then owned by ACOF will be exchanged for Class C Common Stock immediately prior to the spin-off, such that ACOF will own 100% of our outstanding Class C Common Stock.

• Preferred Stock. Preferred Stock, all the outstanding shares of which will be held by Sears Holdings immediately prior to the spin-off, is being distributed in the spin-off and will represent 100% of Orchard’s outstanding nonvoting capital stock. The terms of the Preferred Stock do not entitle the holders thereof to any dividends. The terms of the Preferred Stock will provide that dividends and other distributions may not be paid on any shares of our capital stock until all outstanding shares of the Preferred Stock have been repurchased or redeemed unless such dividend or distribution (i) has been unanimously approved by our board of directors, (ii) relates to a “poison pill” stockholder rights plan or (iii) is a distribution of cash in lieu of fractional shares made in connection with this Distribution.

Risk Factors

Our business is subject to various risks, such as those highlighted in the section entitled “Risk Factors” beginning on page 20 of this Prospectus, including:

• our ability to offer merchandise and services desirable to our customers and compete effectively in the highly competitive home improvement retail industry;

• the impact on our revenues of adverse worldwide and Californian economic conditions and, in particular, economic factors that negatively impact the home improvement industry;

• the adverse effect of extended cold or wet weather in California on our operating results;

• our ability to obtain suitable replacement financing upon the maturing of our existing financing arrangements;

• our substantial leveraging, which may place us at a competitive disadvantage in our industry; and

• our ability to generate the significant amount of cash necessary to service our debt and comply with the terms of our existing financing arrangements.

Our Relationship with Sears Holdings

We were originally formed as a purchasing cooperative by a group of farmers in California’s Santa Clara Valley. We opened for business in March 1931 with a single store in San Jose, California and we were incorporated in Delaware on March 31, 1989. In 1996, we were acquired by Sears, Roebuck and Co. (“Sears Roebuck”), a company that is now a wholly owned subsidiary of Sears Holdings. Sears Holdings is the company that was formed in connection with the merger of Sears Roebuck and Kmart Holding Corporation (“Kmart”) on March 24, 2005, and Sears Holdings is the parent company of Sears Roebuck and Kmart. Following the Distribution, we will be a publicly traded company independent from Sears Holdings, and Sears Holdings will not retain any ownership interest in us. However, we anticipate that immediately following the Distribution, ESL Investments, Inc. and affiliated entities (collectively, “ESL”), which currently owns approximately 61% of Sears Holdings common stock, will own approximately 61% of our outstanding Class A Common Stock, representing approximately 61% of Class A Common Stock voting power and approximately 49% of the general voting power

4

of our outstanding capital stock. Following the spin-off, ESL will also own approximately 61% of our outstanding Preferred Stock, which is our outstanding nonvoting capital stock. As a result of ESL holding more than 50% of our voting power for the election of eight of ten directors immediately after the consummation of the Distribution, we may qualify as a “controlled company” under the Nasdaq Marketplace rules, which would allow us to rely on exemptions from certain corporate governance requirements otherwise applicable to Nasdaq-listed companies. However, we do not currently intend to rely on such exemptions. Immediately following the Distribution, ACOF I LLC (“ACOF”), a wholly owned subsidiary of Ares Corporate Opportunities Fund, L.P. (“ACOF I”), an affiliate of Ares Management LLC (“Ares Management”), will own 100% of our Class C Common Stock, representing approximately 20% of the general voting power of our outstanding capital stock. See “Security Ownership by Certain Beneficial Owners and Management” in this Prospectus for a more detailed description of the beneficial ownership of our capital stock by certain shareholders following the Distribution.

Historically we have had agreements with Sears Holdings subsidiaries to sell certain Sears Holdings proprietary branded products and in preparation for the Distribution we will negotiate and enter into new agreements. In connection with the Distribution, we have entered into or will enter into various agreements with Sears Holdings or certain of its subsidiaries which, among other things, (i) govern the principal transactions relating to the Distribution and certain aspects of our relationship with Sears Holdings following the spin-off, (ii) establish terms under which Sears Holdings will provide us with certain transition services, (iii) establish terms pursuant to which we may sell certain appliances and related protection agreements supplied to us by Sears Holdings on a consignment basis and (iv) establish terms pursuant to which we may acquire and sell certain Sears Holdings proprietary branded merchandise. These agreements were made or will be made in the context of a parent-subsidiary relationship and were or will be negotiated in the overall context of our separation from Sears Holdings. The terms of these agreements may be more or less favorable than those we could have negotiated with unaffiliated third parties. However, these agreements generally incorporate arm’s length terms and conditions, including market-based pricing and term of duration. For more information regarding the agreements between us and Sears Holdings or certain of its subsidiaries, see “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings” in this Prospectus.

Trademarks and Service Marks

We have registered a number of trademarks and service marks in the United States including OSH^®, ORCHARD SUPPLY HARDWARE^®, BRIDGEWATER^®, OSH ORCHARD SUPPLY HARDWARE^®, WESTERN HAWK^® and PACIFIC BAY^®. We also use the following trademarks, some of which are pending registration as intend-to-use applications: ORCHARD SUPPLY HARDWARE EST. 1931^® and PACIFIC BAY^®. All other trademarks or service marks appearing in this Prospectus are the property of their respective owners.

Corporate Information

We conduct substantially all our operations through our direct, wholly owned subsidiary, Orchard Supply Hardware LLC. Our principal executive offices are located at 6450 Via Del Oro, San Jose, California 95119 and our telephone number is (408) 281-3500. Our website address is www.osh.com.

5

Summary of the Spin-Off

The following is a summary of the terms of the spin-off. See “The Spin-Off” in this Prospectus for a more detailed description of the matters described below.

Distributing company Sears Holdings Corporation (“Sears Holdings”) is the distributing company in the spin-off. Immediately following the Distribution, Sears Holdings will not own any capital stock of Orchard Supply Hardware Stores Corporation (“Orchard”).

Distributed company Orchard is the distributed company in the spin-off.

Primary purposes of the spin-off For the reasons more fully discussed in “Questions and Answers About the Company and The Spin-off—What are the reasons for the spin-off?”, the Sears Holdings board of directors believes that separating Orchard from Sears Holdings is in the best interests of both Sears Holdings and Orchard.

Distribution ratio Each holder of Sears Holdings common stock will receive          shares of Class A Common Stock and          shares of Preferred Stock for every          shares of Sears Holdings common stock held on                     , 2011, the record date for the Distribution. Cash will be distributed in lieu of any fractional shares of Class A Common Stock and Preferred Stock you are otherwise entitled to, as described below.

Securities to be distributed All of the shares of Class A Common Stock and Preferred Stock owned by Sears Holdings, which will be 100% of our Class A Common Stock and 100% of our Preferred Stock outstanding immediately prior to the Distribution. The Class A Common Stock will represent approximately 80% of the general voting power of Orchard’s outstanding capital stock (subject to the discussion under “Description of Our Capital Stock” regarding relative rights of our Class A Common Stock, Class B Common Stock and Class C Common Stock to vote for the election of directors) and the outstanding shares of Preferred Stock will represent 100% of Orchard’s outstanding nonvoting capital stock. Based on the approximately          shares of Sears Holdings common stock outstanding on                     , 2011, and applying the distribution ratio of          shares of Class A Common Stock and          shares of Preferred Stock for every          shares of Sears Holdings common stock, approximately          of our shares of Class A Common Stock and          of our shares of Preferred Stock will be distributed to Sears Holdings shareholders who hold Sears Holdings common stock as of the record date. The number of shares of Class A Common Stock and Preferred Stock that Sears Holdings will distribute to its shareholders will be reduced to the extent that cash payments are made in lieu of the issuance of fractional Class A Common Stock and Preferred Stock. In connection with the Distribution, each person who as of the record date holds outstanding unvested restricted stock issued pursuant to the Sears Holdings Corporation 2006 Stock Plan will receive a cash amount in lieu of any and all rights such holder may have to any shares of Class A Common Stock and Preferred Stock

6

distributed in the Distribution with respect to such unvested restricted stock. Such cash amount will represent the right to receive on the applicable vesting date a cash payment from Sears Holdings equal to the value of the Class A Common Stock, Preferred Stock and cash in lieu of fractional shares that would have been distributed in the Distribution to such holder had such holder’s unvested restricted stock been Sears Holdings common stock, calculated on the basis of the volume-weighted average price per share of Class A Common Stock and Preferred Stock, as the case may be, for the 10 trading-day period immediately following the distribution date.

Record date The record date for the Distribution is the close of business on                     , 2011.

Distribution date The distribution date will be                     , 2011.

The spin-off On the distribution date, Sears Holdings will release all of its shares of Class A Common Stock and Preferred Stock to the distribution agent to distribute to Sears Holdings shareholders. The Distribution will be made in book-entry form on the distribution date. It is expected that it will take the distribution agent up to ten business days following the distribution date to complete the mailing of Direct Registration Account Statements and/or checks for cash in lieu of fractional shares. You will not be required to make any payment, surrender or exchange your Sears Holdings common stock or take any other action to receive your shares of Class A Common Stock and Preferred Stock.

Class B and C Common Stock Immediately following the Distribution, Orchard will have              shares of Class B Common Stock outstanding that collectively represent less than 0.5% of the voting power of Orchard and              shares of Class C Common Stock outstanding that collectively represent approximately 20% of the general voting power of Orchard.

Post-Distribution ownership Based on the ownership of Sears Holdings common stock outstanding on                     , 2011, we anticipate that immediately following the Distribution, ESL will own approximately 61% of our outstanding Class A Common Stock, representing approximately 61% of the voting power of our outstanding Class A Common Stock and approximately 49% of the general voting power of our outstanding capital stock, and ESL will own approximately 61% of our outstanding Preferred Stock, which is our outstanding nonvoting capital stock. Immediately following the Distribution, ACOF will own 100% of our Class C Common Stock representing approximately 20% of the general voting power of our outstanding capital stock. See “Security Ownership by Certain Beneficial Owners and Management” in this Prospectus for a more detailed description of the beneficial ownership of our capital stock by certain shareholders following the Distribution.

No fractional shares No fractional shares of Class A Common Stock or Preferred Stock will be distributed. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open

7

market at prevailing market prices and distribute the aggregate net cash proceeds of the sales pro rata to each holder who otherwise would have been entitled to receive a fractional share in the Distribution. Accordingly, if you hold fewer than              shares of Sears Holdings common stock as of the record date, you will not receive any shares of our Class A Common Stock or Preferred Stock. Recipients of cash in lieu of fractional shares will not be entitled to any interest on payments made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient shareholders that are subject to U.S. federal income tax as described in “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off,” in this Prospectus.

Conditions to the spin-off The spin-off is subject to the satisfaction or waiver by Sears Holdings of the following conditions:

• the Sears Holdings board of directors shall have authorized and approved the Distribution and related transactions and not withdrawn such authorization and approval, and shall have declared the dividend of Class A Common Stock and Preferred Stock to Sears Holdings shareholders;

• each ancillary agreement contemplated by the distribution agreement between Orchard and Sears Holdings (the “Distribution Agreement”) shall have been executed by each party thereto;

• the Securities and Exchange Commission (the “SEC”) shall have declared effective our Registration Statement on Form S-1, of which this Prospectus is a part, under the Securities Act of 1933, as amended (the “Securities Act”), and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the SEC;

• our Class A Common Stock shall have been accepted for listing on the NASDAQ Capital Market or another national securities exchange or quotation system approved by Sears Holdings and our Preferred Stock shall have been accepted for quotation on the OTCQB, or the “Pink Sheets” or another OTC quotation system, subject to official notice of issuance in each case;

• Sears Holdings shall have received the written opinion of Simpson Thacher & Bartlett LLP as to the satisfaction of certain requirements necessary for the spin-off to receive tax-free treatment under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”), upon which the IRS will not rule;

• the Internal Transactions (as described in “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings—Distribution Agreement” in this Prospectus) shall have been completed;

8

• no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Distribution shall be in effect, and no other event outside the control of Sears Holdings shall have occurred or failed to occur that prevents the consummation of the Distribution;

• no other events or developments shall have occurred prior to the Distribution that, in the judgment of the board of directors of Sears Holdings, would result in the Distribution having a material adverse effect on Sears Holdings or the shareholders of Sears Holdings;

• Sears Holdings shall have received a certificate signed by our Chief Financial Officer, dated as of the distribution date, certifying that prior to the Distribution we have made capital and other expenditures, and have operated our cash management, accounts payable and receivables collection systems, in the ordinary course consistent with prior practice;

• prior to the distribution date, this Prospectus shall have been made available to the holders of Sears Holdings common stock as of the record date;

• the individuals listed as members of our post-Distribution board of directors in this Prospectus shall have been duly elected, and such individuals shall be the members of our board of directors immediately after the Distribution;

• prior to the Distribution, Sears Holdings shall deliver or cause to be delivered to Orchard resignations, effective as of immediately after the Distribution, of each individual who will be an officer or director of Sears Holdings after the Distribution and who is an officer or director of Orchard immediately prior to the Distribution;

• immediately prior to the Distribution, our amended and restated certificate of incorporation (“Amended and Restated Certificate of Incorporation”) and Amended and Restated Bylaws (“Amended and Restated Bylaws”), each in substantially the form filed as an exhibit to the Registration Statement on Form S-1 of which this Prospectus is a part, shall be in effect; and

• the private letter ruling from the Internal Revenue Service (the “IRS Ruling”) received by Sears Holdings shall not have been revoked or modified in any material respect.

The fulfillment of the foregoing conditions will not create any obligation on the part of Sears Holdings to effect the spin-off. We are not aware of any material federal or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations and the declaration of effectiveness of the Registration Statement by the SEC, in connection with the Distribution. Sears Holdings has the right not to complete the spin-off if, at any time, the board of directors of Sears Holdings determines, in its sole discretion, that the spin-off is

9

not in the best interests of Sears Holdings or its shareholders, or that market conditions are such that it is not advisable to effect the Distribution. In addition, Sears Holdings may at any time and from time to time until the Distribution decide to abandon the Distribution or modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution.

Trading market and symbol We intend to list our Class A Common Stock on the NASDAQ Capital Market under the ticker symbol “OSH” and quote our Preferred Stock on the OTCQB, the “Pink Sheets” or another OTC quotation system under the ticker symbol “OSHPA”. “When-issued” trading on the NASDAQ Capital Market is expected to be under the symbol “OSHS.V,” which is different from “OSH,” our “regular-way” trading symbol. We anticipate that, on or prior to the record date for the Distribution, trading of our Class A Common Stock and Preferred Stock will begin on a “when-issued” basis and will continue up to and including the distribution date. See “The Spin-Off—Trading Prior to the Distribution Date,” in this Prospectus.

Dividend policy We do not expect to pay dividends on our Class A Common Stock, Preferred Stock or any other shares of our capital stock for the foreseeable future. The terms of the Preferred Stock do not entitle the holders thereof to any dividends. The terms of the Preferred Stock will provide that dividends and other distributions may not be paid on any shares of our capital stock until all outstanding shares of the Preferred Stock have been repurchased or redeemed unless such dividend or distribution (i) has been unanimously approved by our board of directors, (ii) relates to a “poison pill” stockholder rights plan or (iii) is a distribution of cash in lieu of fractional shares made in connection with this Distribution. The loan documents relating to our Senior Secured Credit Facility (the “Senior Secured Credit Facility”), our Senior Secured Term Loan (the “Senior Secured Term Loan”), and our Real Estate Secured Term Loan (the “Real Estate Secured Term Loan”) also restrict our ability to make distributions with respect to and to repurchase our capital stock and the capital stock of certain of our subsidiaries. The loan documents contain customary exceptions, including the ability to make distributions with additional shares of capital stock and to repurchase stock in accordance with benefit plans for our management and employees.

Tax consequences to Sears Holdings shareholders Assuming that the spin-off qualifies as a tax-free transaction under Section 355 of the Code, Sears Holdings shareholders are not expected to recognize any gain or loss for U.S. federal income tax purposes solely as a result of the Distribution except to the extent of any cash received in lieu of fractional shares. See “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” in this Prospectus for a more detailed description of the U.S. federal income tax consequences of the Distribution.

10

Each shareholder is urged to consult his, her or its tax advisor as to the specific tax consequences of the Distribution to that shareholder, including the effect of any state, local or non-U.S. tax laws and of changes in applicable tax laws.

Relationship with Sears Holdings after the spin-off We will enter into the Distribution Agreement and other agreements with Sears Holdings and certain of its subsidiaries related to the spin-off. These agreements will govern the relationship between Orchard and Sears Holdings up to and subsequent to the completion of the Distribution. The Distribution Agreement, in particular, will provide for the principal steps to be taken in connection with the spin-off, the settlement or extinguishment of certain obligations between us and Sears Holdings and certain aspects of our relationship with Sears Holdings following the Distribution. We will enter into a transition services agreement with a subsidiary of Sears Holdings pursuant to which certain services will be provided on an interim basis following the Distribution (the “Transition Services Agreement”). Further, in 2005 we entered into an agreement with Sears Holdings regarding the sharing of tax liabilities (the “Tax Sharing Agreement”) in connection with our deconsolidation from Sears Holdings’ consolidated U.S. federal income tax group that governs certain indemnification rights with respect to tax matters. On October 26, 2011, the Company entered into an appliances agreement with a subsidiary of Sears Holdings relating to our sale of certain appliances and related protection agreements supplied to us by Sears Holdings on a consignment basis (the “Appliances Agreement”). We intend to enter into one or more brand license agreements (the “Brands Agreements”) with a subsidiary of Sears Holdings pursuant to which Sears Holdings will allow us to purchase a limited assortment of Sears Holdings’ proprietary-branded Craftsman products, Easy Living and Weatherbeater paints, Kenmore-branded water heaters and consumer household products directly from vendors. We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings” and describe some of the risks of these arrangements under “Risk Factors—Risks Relating to the Spin-Off.”

Transfer agent After the Distribution, the transfer agent for our Class A Common Stock and Preferred Stock will be Wells Fargo Bank, N.A., South St. Paul, Minnesota.

Distribution agent The distribution agent for the spin-off will be Wells Fargo Bank, N.A., South St. Paul, Minnesota.

Risk factors You should carefully consider the matters discussed under the section entitled “Risk Factors.”

11

QUESTIONS AND ANSWERS ABOUT THE COMPANY AND THE SPIN-OFF

Set forth below are commonly asked questions and answers about the spin-off and the transactions contemplated thereby. You should read the section entitled “The Spin-Off” beginning on page 44 of this Prospectus for a more detailed description of the matters described below.

All references in this Prospectus to “Sears Holdings” refer to Sears Holdings Corporation, a Delaware corporation; all references in this Prospectus to “Orchard,” “the Company,” “we,” “us,” or “our” refer to Orchard Supply Hardware Stores Corporation, a Delaware corporation, and its subsidiaries. Throughout this Prospectus, we refer to Sears Holdings’ common stock, $0.01 par value per share, as Sears Holdings common stock or Sears Holdings shares and the holders thereof as the Sears Holdings shareholders; Orchard class A common stock, $0.01 par value per share, as Class A Common Stock; Orchard class B common stock, $0.01 par value per share, as Class B Common Stock; Orchard class C common stock, $0.01 par value per share, as Class C Common Stock; Orchard Series A Preferred Stock, $0.01 par value per share, as Preferred Stock; the Class A Common Stock, Class B Common Stock and Class C Common Stock together as the common stock; and the Class A Common Stock, Class B Common Stock, Class C Common Stock and Preferred Stock together as the capital stock.

Q: What is the spin-off?

A: The spin-off is the overall transaction of separating Orchard from Sears Holdings, which will be accomplished through a series of transactions that will result in Sears Holdings shareholders owning all of the capital stock of Orchard that is owned by Sears Holdings immediately prior to the Distribution. Immediately prior to the spin-off, the capital stock owned by Sears Holdings will be composed of all of our outstanding Class A Common Stock and Preferred Stock. At the time of the spin-off, the Class A Common Stock will represent approximately 80% of the general voting power of Orchard’s outstanding capital stock and the outstanding shares of Preferred Stock will represent 100% of Orchard’s outstanding nonvoting capital stock. We will authorize the creation of Class C Common Stock, which will not be distributed in the spin-off and will represent approximately 20% of the general voting power of Orchard’s outstanding capital stock. Class A Common Stock owned by ACOF I LLC (“ACOF”) immediately prior to the spin-off will be exchanged for Class C Common Stock. The spin-off will be effected on the distribution date by the pro rata distribution of our Class A Common Stock and Preferred Stock by Sears Holdings to Sears Holdings shareholders, except that holders of unvested shares of restricted stock of Sears Holdings will receive cash in lieu of shares.

At the time of the spin-off, we will also have issued and outstanding shares of our Class B Common Stock, which will not be distributed in the spin-off. Our outstanding shares of Class B Common Stock are held by certain former employees of Orchard who acquired such shares of Class B Common Stock in connection with past equity investment programs of Orchard. Our Class B Common Stock is also the class of capital stock underlying options granted to certain employees prior to the date of the spin-off. At the time of the spin-off, the Class B Common Stock represents less than 0.5% of the voting power of Orchard. At the time of the spin-off, all of our Class C Common Stock will be held by ACOF, a wholly owned subsidiary of Ares Corporate Opportunities Fund, L.P., an affiliate of Ares Management LLC (“Ares Management”).

Q: What is Orchard?

A: We are a California specialty retailer primarily focused on the consumer segment of the home improvement market. Our stores are designed to appeal to convenience-oriented customers, whose purchase occasions are largely driven by their home repair, maintenance and improvement needs throughout the home, garden and outdoor living areas. As of July 30, 2011, we operated 89 full-service hardware stores in California. We opened four new stores in California within the past three years—one in 2010, two in 2009, and one in 2008. Our stores average approximately 43,600 square feet of enclosed space, plus approximately 8,300 square feet of nursery and garden area. Our stores carry a broad assortment of repair and maintenance, lawn and garden and in-home products.

12

We were originally formed as a purchasing cooperative by a group of farmers in California’s Santa Clara Valley. We opened for business on March 1, 1931 with a single store in San Jose, California and we were incorporated in Delaware on March 31, 1989. In 1996, we were acquired by Sears Roebuck, which is now a wholly owned subsidiary of Sears Holdings. We conduct substantially all our operations through Orchard Supply Hardware LLC, our direct wholly owned subsidiary. Our principal executive offices are located at 6450 Via Del Oro, San Jose, California 95119 and our telephone number is (408) 281-3500. Our website address is www.osh.com.

Following the Distribution, we will be a publicly traded company independent from Sears Holdings, and Sears Holdings will not retain any ownership interest in us. However, we anticipate that immediately following the Distribution, ESL, which currently owns approximately 61% of Sears Holdings common stock, will own approximately 61% of our outstanding Class A Common Stock, representing approximately 61% of Class A Common Stock voting power and approximately 49% of the general voting power of our outstanding capital stock. Following the spin-off, ESL will also own approximately 61% of our outstanding Preferred Stock, which is our outstanding nonvoting capital stock. As a result of ESL holding more than 50% of our voting power for the election of eight of ten directors immediately after the consummation of the Distribution, we may qualify as a “controlled company” under the Nasdaq Marketplace rules, which would allow us to rely on exemptions from certain corporate governance requirements otherwise applicable to Nasdaq-listed companies. However, we do not currently intend to rely on such exemptions.

In connection with the Distribution, we have entered into or will enter into various agreements with Sears Holdings which, among other things, (i) govern the principal transactions relating to the Distribution and certain aspects of our relationship with Sears Holdings following the spin-off, (ii) establish terms under which Sears Holdings will provide us with certain transition services, (iii) establish terms pursuant to which we may sell certain appliances and related protection agreements supplied to us by Sears Holdings on a consignment basis and (iv) establish terms pursuant to which we may acquire and sell certain Sears Holdings proprietary branded merchandise. These agreements were made or will be made in the context of a parent-subsidiary relationship and were or will be negotiated in the overall context of our separation from Sears Holdings. The terms of these agreements may be more or less favorable than those we could have negotiated with unaffiliated third parties. However, these agreements generally incorporate arm’s length terms and conditions, including market-based pricing and term of duration. For more information regarding the agreements between us and Sears Holdings or Sears Roebuck, as applicable, see “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings” in this Prospectus.

Q: What are the reasons for the spin-off?

A: Sears Holdings’ board of directors has determined that pursuing a disposition of Orchard through a spin-off is in the best interests of Sears Holdings and its shareholders, and that separating Orchard from Sears Holdings would provide, among other things, financial, operational and managerial benefits to both Orchard and Sears Holdings, including but not limited to the following expected benefits:

• Strategic Focus and Flexibility. Sears Holdings’ board of directors believes that following the spin-off, Orchard and Sears Holdings will each have more focused businesses and be better able to dedicate resources to pursue appropriate growth opportunities and execute strategic plans best suited to their respective businesses without regard for the other and in a more efficient manner.

• Focused Management. The spin-off will allow management of each company to devote its time and attention to the development and implementation of corporate strategies and policies that are based primarily on the specific business characteristics of the respective companies, and to design more tailored compensation structures that better reflect these strategies, policies, and business characteristics. In particular, in the case of Orchard, separate equity-based compensation arrangements should more closely align the interests of management with the interests of shareholders and more directly incentivize the employees of Orchard, which will allow Orchard to more efficiently recruit and retain such employees.

13

• Investor Choice. Sears Holdings’ board of directors believes that the spin-off is expected to increase investor understanding of Orchard and its market position within its industry, while also allowing for a more natural and interested investor base. Separating Orchard from Sears Holdings also allows investors to make independent decisions with respect to each of Sears Holdings and Orchard based on, among other factors, their different business models, strategies and industries. The spin-off will enable Sears Holdings to distribute its holdings of Orchard to its shareholders while allowing it to focus on its remaining business going forward.

Q: Why is the separation of Orchard structured as a spin-off?

A: Sears Holdings believes that a tax-free distribution of our Class A Common Stock and Preferred Stock for U.S. federal income tax purposes is the most efficient way to separate our business from Sears Holdings in a manner that will improve flexibility and benefit both Sears Holdings and us.

Q: What will I receive in the spin-off?

A: As a holder of Sears Holdings common stock, you will receive a distribution of              shares of our Class A Common Stock and              shares of our Preferred Stock for every              shares of Sears Holdings common stock held by you on the record date for the Distribution. Your proportionate ownership interest in Sears Holdings will not change as a result of the Distribution. For a more detailed description, see “The Spin-Off” in this Prospectus.

Q: What is being distributed in the spin-off?

A: Approximately              shares of our Class A Common Stock and              shares of our Preferred Stock will be distributed in the spin-off, based on the number of shares of Sears Holdings common stock outstanding as of the record date. The Class A Common Stock will represent approximately 80% of the general voting power of Orchard’s outstanding capital stock and the outstanding shares of Preferred Stock will represent 100% of Orchard’s outstanding nonvoting capital stock. For more information on the shares being distributed in the spin-off, see “Description of Our Capital Stock” in this Prospectus.

Q: What is the Preferred Stock?

A: Terms of the Preferred Stock include the following:

• Liquidation Preference. In the event of any liquidation, dissolution or winding up of Orchard, whether voluntary or involuntary, before any payment or distribution of Orchard’s assets is made to or set apart for the holders of Class A Common Stock, Class B Common Stock or Class C Common Stock, but after any payments or distributions are made on, or set apart for, any of Orchard’s indebtedness and to holders of any stock then outstanding that ranks senior to the Preferred Stock, holders of the Preferred Stock are entitled to receive an amount per share equal to $        , but shall not be entitled to any further payment or other participation in any distribution of the assets of Orchard.

• Dividends. The terms of the Preferred Stock do not entitle the holders thereof to any dividends, and we do not expect to pay any cash dividends on any shares of our capital stock, including the Preferred Stock. The terms of the Certificate of Designation of the Preferred Stock will provide that dividends and other distributions may not be paid on any shares of our capital stock until all outstanding shares of the Preferred Stock have been redeemed in accordance with the terms of the Certificate of Designation or otherwise repurchased unless such dividend or distribution (i) has been unanimously approved by our board of directors, (ii) relates to a “poison pill” stockholder rights plan or (iii) is a distribution of cash in lieu of fractional shares made in connection with this Distribution.

• Repurchase/Redemption. All, but not less than all, of the then-outstanding shares of Preferred Stock may be redeemed at a redemption price per share of Preferred Stock in cash equal to $         upon a date and time, or the happening of an event, determined by the affirmative vote of a majority of our board of

14

directors and, (i) for as long as holders of Class B Common Stock and Class C Common Stock shall elect at least one director, such vote must include the vote of at least one such director and, (ii) for as long as holders of Class B Common Stock and Class C Common Stock shall elect at least one director and ESL and its affiliates shall hold at least 5% of our outstanding common stock (calculated without reference to any shares of capital stock issued or issuable after the Distribution), such vote must also include the vote of at least one director elected by the holders of the Class A Common Stock who is not independent of us, ESL or ACOF. In addition, to the extent not prohibited by law, Orchard may, at any time and from time to time, repurchase in the open market, in privately negotiated transactions or through tender offers or other transactions any amount of the then outstanding shares of Preferred Stock that it desires to repurchase at such sums and on such conditions as shall be negotiated between or among Orchard and one or more holders of Preferred Stock. The terms of the Preferred Stock will provide that no shares of our capital stock, other than our Preferred Stock, may be redeemed, repurchased or otherwise acquired by us until all outstanding shares of the Preferred Stock have been redeemed or otherwise repurchased unless such redemption or repurchase (i) is made in connection with an employee incentive or benefit plan or other compensatory arrangement, (ii) has been unanimously approved by our board of directors, (iii) relates to a “poison pill” stockholder rights plan or (iv) is a distribution of cash in lieu of fractional shares made in connection with this Distribution.

• Conversion. The Preferred Stock will not be convertible into shares of Common Stock or any other security of Orchard.

• Voting. Except as required by law, the Preferred Stock does not entitle the holders thereof to vote on any matter submitted for shareholder action, and the consent of the holders thereof is not required for the taking of any corporate action, provided that the terms of the Certificate of Designation of the Preferred Stock shall not, by merger, consolidation or otherwise, be amended, waived, altered or repealed without the affirmative vote of the holders of a majority of the voting power of the Preferred Stock, voting as a separate class.

For more information on the Preferred Stock being distributed in the spin-off, see “Description of Our Capital Stock” in this Prospectus.

Q: What is the record date for the Distribution?

A: Record ownership will be determined as of the close of business on                     , 2011, which we refer to as the record date.

Q: When will the Distribution occur?

A: The distribution date of the spin-off is expected to be                     , 2011. We expect that it will take the distribution agent up to ten business days after the distribution date to fully distribute the shares of our Class A Common Stock and Preferred Stock to Sears Holdings shareholders.

Q: What do Sears Holdings shareholders need to do to participate in the Distribution?

A: Nothing, but we urge you to read this document carefully. Shareholders who hold Sears Holdings common stock as of the record date will not be required to take any action to receive our Class A Common Stock and Preferred Stock in the Distribution or a cash payment in respect to any fractional shares you are otherwise entitled to as a result of the Distribution. No shareholder approval of the Distribution is required or sought. You will not be required to make any payment, surrender or exchange any of your shares of Sears Holdings common stock or to take any other action to participate in the Distribution. For more information on the treatment of fractional shares see “Q: How will fractional shares be treated in the spin-off” below.

Q: What will happen to the listing of Sears Holdings shares?

A: Nothing. Sears Holdings shares will continue to be traded on the NASDAQ Global Select Market under the symbol “SHLD.”

15

Q: Will the spin-off affect the trading price of my Sears Holdings common stock?

A: The trading price of Sears Holdings common stock immediately following the Distribution may be lower than immediately prior to the Distribution because the trading price will no longer reflect the value of the Class A Common Stock and Preferred Stock of Orchard that is being spun-off in the Distribution. Furthermore, until the market has fully analyzed the value of Sears Holdings without Orchard, the price of Sears Holdings common stock may fluctuate.

In addition, it is also anticipated that, as early as two trading days prior to the record date and continuing up to and including the distribution date, there will be two markets in Sears Holdings common stock: a “regular-way” market and an “ex-distribution” market. Sears Holdings common stock that trades on the regular-way market will trade with an entitlement to shares of Orchard Class A Common Stock and Preferred Stock distributed pursuant to the Distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of Orchard Class A Common Stock and Preferred Stock distributed pursuant to the Distribution. See “The Spin Off—Trading Prior to the Distribution Date” in this Prospectus for more information.

Q: What if I want to sell my Sears Holdings common stock or my shares of Class A Common Stock and/or Preferred Stock?

A: You should consult with your financial advisors, such as your stockbroker, bank or tax advisor. Neither Sears Holdings nor Orchard makes any recommendations on the purchase, retention or sale of Sears Holdings common stock or the shares of Class A Common Stock and Preferred Stock to be distributed in the spin-off.

If you decide to sell any shares before the Distribution, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your Sears Holdings common stock or the shares of Class A Common Stock and Preferred Stock you will receive in the Distribution. If you sell your Sears Holdings common stock in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of Class A Common Stock and Preferred Stock in the Distribution. If you own Sears Holdings common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including the distribution date, you will still receive the shares of Class A Common Stock and Preferred Stock that you would be entitled to receive in respect of the Sears Holdings common stock you owned at the close of business on the record date. See “The Spin-Off—Trading Prior to the Distribution Date” in this Prospectus for more information.

Q: How will Sears Holdings distribute shares of our Class A Common Stock and Preferred Stock?

A: Holders of Sears Holdings common stock on the record date (except for holders of unvested shares of restricted stock of Sears Holdings, who will receive cash in lieu of shares) will receive shares of Class A Common Stock and Preferred Stock in book-entry form. See “The Spin-Off—Manner of Effecting the Spin-Off” in this Prospectus for a more detailed explanation.

Q: How will fractional shares be treated in the spin-off?

A: No fractional shares will be distributed to holders of Sears Holdings common stock in connection with the spin-off. Instead, the distribution agent will aggregate all fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices. The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to each Sears Holdings shareholder who would otherwise have been entitled to receive a fractional share in the Distribution. Accordingly, if you hold fewer than              shares of Sears Holdings common stock as of the record date, you will not receive any shares of our Class A Common Stock or Preferred Stock; however, you will receive a cash distribution from our distribution agent representing the proceeds from the sale of the fractional shares to which you are entitled, net of brokerage fees and other costs. See “The Spin-Off—Manner of

Effecting the Spin-Off” in this Prospectus for a more detailed explanation. The receipt of cash in lieu of

16

fractional shares generally will be taxable to the recipient shareholders that are subject to U.S. federal income tax as described in “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”

Q: What are the U.S. federal income tax consequences of the spin-off?

A: Sears Holdings has received an IRS Ruling substantially to the effect that, for U.S. federal income tax purposes, the Distribution, except for any cash received in lieu of a fractional share of our Class A Common Stock and Preferred Stock, will qualify as tax-free under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”). The IRS Ruling also provides that certain internal transactions undertaken in anticipation of the Distribution will qualify for favorable treatment under the Code. In addition to obtaining the IRS Ruling, Sears Holdings expects to receive an opinion from the law firm of Simpson Thacher & Bartlett LLP as to the satisfaction of certain requirements necessary for the spin-off to receive tax-free treatment under Section 355 of the Code upon which the Internal Revenue Service will not rule. The receipt by Sears Holdings of the opinion and the continued validity of the IRS Ruling are conditions to effecting the spin-off. The tax consequences of the Distribution are described in more detail below under “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”

Each Sears Holdings shareholder is urged to consult his, her or its tax advisor as to the specific tax consequences of the Distribution to that shareholder, including the effect of any state, local or non-U.S. tax laws and of changes in applicable tax laws.

Q: Does Orchard intend to pay cash dividends?

A: We do not expect to pay any cash dividends on the Class A Common Stock, Preferred Stock or any other shares of our capital stock for the foreseeable future. The terms of the Certificate of Designation of the Preferred Stock will provide that dividends and other distributions may not be paid on any shares of our capital stock until all outstanding shares of the Preferred Stock have been redeemed or repurchased unless such dividend or distribution (i) has been unanimously approved by our board of directors, (ii) relates to a “poison pill” stockholder rights plan or (iii) is a distribution of cash in lieu of fractional shares made in connection with this Distribution. In addition, the terms of the Preferred Stock do not entitle the holders thereof to any dividends. The loan documents relating to our Senior Secured Credit Facility, our Senior Secured Term Loan and our Real Estate Secured Term Loan also restrict our ability to make distributions with respect to and to repurchase our capital stock and the capital stock of certain of our subsidiaries. The loan documents contain customary exceptions, including the ability to make distributions with additional shares of capital stock and to repurchase stock in accordance with benefit plans for our management and employees.

Q: How will the Class A Common Stock and Preferred Stock trade?

A: Currently, there is no public market for our Class A Common Stock and Preferred Stock. We intend to list our Class A Common Stock on the NASDAQ Capital Market under the symbol “OSH” and quote our Preferred Stock on the OTCQB, or the “Pink Sheets” or another OTC quotation system under the symbol “OSHPA”. “When-issued” trading on the NASDAQ Capital Market is expected to be under the symbol “OSHS.V,” which is different from “OSH,” our “regular-way” trading symbol.

We anticipate that trading will commence on a “when-issued” basis on or shortly prior to the record date and before the distribution date. “When-issued” trading in the context of a spin-off refers to a transaction effected on or before the distribution date and made conditionally because the securities of the spun-off entity have not yet been distributed. “When-issued” trades generally settle within four trading days of the distribution date. On the first trading day following the distribution date, any “when-issued” trading in respect of our Class A Common Stock and Preferred Stock will end and “regular-way” trading will begin. Regular-way trading refers to trading after the security has been distributed and typically involves a trade that settles on the third full trading day following the date of the sale transaction. See “The Spin-Off—Trading Prior to the Distribution Date” in this Prospectus for more information. We cannot predict the

17

trading prices for our Class A Common Stock and Preferred Stock before or after the distribution date or whether an active trading market for either security will develop.

Q: What are the OTCQB, the “Pink Sheets” or other OTC quotation system?

A: We expect that the Preferred Stock will be quoted on the OTCQB, the “Pink Sheets” or another OTC quotation system. These are quotation services that display real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity securities. An OTC equity security generally is any equity that is not listed or traded on a national securities exchange such as NASDAQ.

The OTCQB and the “Pink Sheets” are only a quotation medium, not an issuer listing service, and should not be confused with The NASDAQ Stock Market. Market makers for OTCQB securities generally are required only to match up willing buyers and sellers. Generally, market makers are not required to purchase securities directly from willing sellers or sell securities directly to willing buyers. For this and other reasons, the trading markets for OTC equity securities are generally significantly less liquid than the trading markets for securities listed on a national securities exchange or authorized for quotation on The NASDAQ Stock Market and, therefore, there may be a substantial delay in execution of trades.

Q: Do I have appraisal rights?

A: No. Holders of Sears Holdings common stock are not entitled to appraisal rights in connection with the spin-off.

Q: How will the spin-off affect the Sears Holdings stock fund of the Orchard Supply Hardware Retirement Savings Plan?

A: Orchard employees were previously eligible to participate under the Sears Holdings 401(k) Savings Plan. Effective July 18, 2011, Orchard established the Orchard Supply Hardware Retirement Savings Plan (the “Orchard Savings Plan”). The account balances of our employees, including any shares of Sears Holdings common stock held in the Sears Holdings Stock Fund under the Sears Holdings 401(k) Savings Plan, were transferred by a trust to trust transfer from the Sears Holdings 401(k) Savings Plan to the Orchard Savings Plan on August 4, 2011, and under the Orchard Savings Plan this is a closed fund. Based on the record date for the Distribution, the trust of the Orchard Savings Plan will, on behalf of plan participants, receive on the distribution date              shares of our Class A Common Stock and              shares of our Preferred Stock for every              shares of Sears Holdings common stock held in the Sears Holdings Stock Fund under the Orchard Savings Plan. The Orchard Savings Plan fiduciary will determine whether it will direct the trustee of the trust of the plan to (a) take steps to liquidate the Orchard shares in an expeditious and prudent manner and then to allocate the proceeds in the same manner as a cash dividend under the Sears Holdings Stock Fund of the plan or (b) establish an Orchard stock fund under the plan. In either case, the affected participants of the Orchard Savings Plan will be notified which alternative will apply under the plan.

Participants of the Orchard Savings Plan are no longer permitted to make new purchases of Sears Holdings common stock through their plan accounts. As to those shares of the Sears Holdings common stock held by the Orchard Savings Plan at the time of the Distribution, participants may direct that the shares be exchanged for a different investment alternative in accordance with plan terms or may decide to remain invested in the shares until such time as the applicable plan fiduciary decides that the Orchard Savings Plan will no longer permit any investment in Sears Holdings common stock. At that time, the plan will dispose of all remaining Sears Holdings shares held in participant accounts and invest the proceeds in another investment alternative to be determined by the plan fiduciary. (This will not prohibit diversified, collectively managed investment alternatives available under the Orchard Savings Plan from holding Sears Holdings common stock or prohibit Orchard Savings Plan participants using self-directed accounts, if available, from investing these accounts in Sears Holdings common stock).

18

Q: How will the spin-off affect the Sears Holdings stock funds of the other employees in the company-sponsored savings plan sponsored within the Sears Holdings controlled group of corporations?

A: Current and former Sears Holdings employees hold Sears Holdings stock under the Sears Holdings Stock Fund in an account under the Sears Holdings 401(k) Savings Plan, the Sears Puerto Rico Savings Plan, the Kmart Retirement Savings Plan for Puerto Rico Employee or the Lands’ End, Inc. Retirement Plan (collectively, the “Savings Plans,” which excludes the Orchard Savings Plan). Based on the record date for the Distribution, the trust of each Savings Plan will, on behalf of such Savings Plan participant, receive on the distribution date              shares of our Class A Common Stock and              shares of our Preferred Stock in the Distribution for every              shares of Sears Holdings common stock held in the Sears Holdings Stock Fund under the applicable Savings Plan. The applicable Savings Plan fiduciary for each Savings Plan will determine whether it will direct the applicable trustee or custodian of the trust of such plan to (a) take steps to liquidate the Orchard shares in an expeditious and prudent manner and then to allocate the proceeds in the same manner as a cash dividend under the Sears Holdings Stock Fund of such plan or (b) establish a temporary Orchard stock fund under such plan. In either case, the affected participants of each Savings Plan will be notified which alternative will apply under his/her plan.

If a fiduciary decides to establish a temporary Orchard stock fund to hold Orchard shares received in the Distribution, participants will not be permitted to purchase additional shares of Orchard common stock through such fund. A participant may direct that the Orchard Class A Common Stock and Preferred Stock held in the participant’s account following the Distribution be exchanged for a different investment alternative in accordance with plan rules or decide to remain invested in Orchard shares until such time as the applicable Savings Plan fiduciary decides that the plan will no longer permit investment in Orchard stock. At that time, the plan will dispose of all remaining Orchard shares held in participant accounts and invest the proceeds in another investment alternative to be determined by the plan fiduciary. This will not prohibit diversified, collectively managed investment alternatives available under the Savings Plans from holding Orchard Class A Common Stock and Preferred Stock or prohibit employees who use self-directed accounts in the Savings Plans from investing these accounts in Orchard Class A Common Stock and Preferred Stock.

Q: Are there risks associated with owning the Class A Common Stock and Preferred Stock?

A: Our business is subject to both general and specific risks and uncertainties relating to our business. Our business is also subject to risks relating to the spin-off. Following the spin-off, we will also be subject to risks relating to being a publicly traded company independent from Sears Holdings. Accordingly, you should read carefully the information set forth in the section entitled “Risk Factors” beginning on page 20 of this Prospectus.

Q: Can Sears Holdings decide to cancel the Distribution or modify its terms even if all conditions to the Distribution have been met?

A: Yes. Although the Distribution is subject to the satisfaction or waiver of certain conditions, Sears Holdings has the right to terminate the Distribution at any time prior to the distribution date (even if all such conditions are satisfied). Also, Sears Holdings may modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution.

Q: Where can I get more information?

A: If you have any questions relating to the mechanics of the Distribution, you should contact the distribution agent at:

Wells Fargo Bank, N.A.

Shareowner Services

161 North Concord Exchange

South St. Paul, MN 55075-1139

Attn: Account Management

Fax: (651) 450-4078

19

RISK FACTORS

You should carefully consider the risks described below, together with all of the other information included in this Prospectus, in evaluating the Company and our Class A Common Stock and Preferred Stock. The following risk factors could adversely affect our business, results of operations, financial condition and stock price.

Risks Relating to Our Business

If we fail to offer merchandise and services that our customers want, our revenues may be limited, which would reduce our revenues and profits.

In order for our business to be successful, we must identify, obtain supplies of, and offer to our customers attractive, innovative and high-quality merchandise on a continuous basis. Our products and services must satisfy the desires of our customers, whose preferences may change in the future. If we misjudge either the demand for products and services we sell or our customers’ purchasing habits and tastes, we may be faced with excess inventories of some products and missed opportunities for products and services we chose not to offer. In addition, our revenues may decline or we may be required to sell the merchandise we have obtained at lower prices. This would have a negative effect on our business and results of operations.

The home improvement retail industry is highly competitive and we may be unable to compete effectively.

If we are unable to compete effectively in the highly competitive home improvement retail industry, our business and our results of operations could be materially adversely affected. The home improvement retail industry is highly competitive with few barriers to entry. We compete against a diverse group of retailers, both small and large, including warehouse home centers and local hardware stores. We consider The Home Depot, Lowe’s, Ace Hardware and True Value as our primary competitors. Based on publically available information, we believe that in California each of The Home Depot, Ace Hardware and True Value currently has between two to three times as many stores as we do and that Lowe’s has, by number of stores, over 20% more stores in the state than we do. Some of our competitors are actively engaged in new store expansion. Discount retailers such as Walmart, Target and Kmart, and multi-line retailers such as Sears Roebuck, also compete with us in certain product areas. In addition, our garden centers compete against smaller local nurseries. Online and catalog businesses, which handle similar lines of merchandise, also compete with us. Many of our competitors have a larger number of stores, more products available online, substantially greater financial, distribution and marketing resources, larger market shares and a more widespread, national presence. Such factors may provide our competitors with greater financial resources to expand, grow and allow for stronger relationships and aggressive pricing with vendors and third party suppliers. Furthermore, some of our competitors have been aggressively building new stores in locations with high concentrations of our stores and in locations we have targeted for expansion. We expect that as the home improvement retail industry market grows, new competitors will enter the market and competition from established companies will increase.

In addition to competition from Sears Roebuck’s full-line stores, Sears Holdings also owns, franchises and authorizes dealers to operate specialty retail stores, which have product lines that are similar to ours. Following the spin-off, Sears Holdings will not be restricted from competing with us or from opening new Sears Roebuck, Kmart or specialty stores in our markets or in locations we have targeted for expansion.

Our success depends on our ability to differentiate ourselves from our competitors and remain competitive with respect to shopping convenience, merchandise in-stock availability and customer service. The performance of our competitors, as well as changes in their pricing policies, marketing activities, new store openings and other business strategies, could have a material adverse effect on our business, financial condition and results of operations.

20

Our business has been and will continue to be affected by worldwide economic conditions and, in particular, California economic conditions; a failure of the economy to sustain its recovery, a renewed decline in consumer-spending levels and other conditions, including inflation, could lead to reduced revenues and gross margins, and negatively impact our liquidity.

Many economic and other factors are outside of our control, including consumer and commercial credit availability, consumer confidence and spending levels, inflation, employment levels, housing sales and remodels, consumer debt levels, fuel costs and other challenges currently affecting the global economy, the full impact of which on our business, results of operations and financial condition cannot be predicted with certainty. The California economy, in particular, has recently been susceptible to slowdowns and recessions. These economic conditions adversely affect the disposable income levels of, and the credit available to, our customers, which could lead to reduced demand for our merchandise. Also affected are our vendors, upon which we depend to provide us with financing on our purchases of inventory and services. Our vendors could seek to change either the availability of vendor credit to us or other terms under which they sell to us, or both, which could negatively impact our liquidity. In addition, the inability of vendors to access liquidity, or the insolvency of vendors, could lead to their failure to deliver inventory or other services. Certain of our vendors also are experiencing increases in the cost of various raw materials, such as copper, steel and resin, which could result in increases in the prices that we pay for merchandise, particularly in our plumbing, industrial and electrical categories.

In addition to credit terms from vendors, our liquidity needs are funded by our operating cash flows and, to the extent necessary, borrowings under our credit agreements. The availability of financing depends on numerous factors, including economic and market conditions, our credit ratings, and lenders’ assessments of our prospects and the prospects of the retail industry in general. The lenders under our credit facilities may not be able to meet their commitments if they experience shortages of capital and liquidity and there can be no assurance that our ability to otherwise access the credit markets will not be adversely affected by changes in the financial markets and the global economy.

Continued high rates of unemployment, depressed home prices, reduced access to credit and the domestic and international political situation also adversely affect consumer confidence. Low consumer confidence and the threat, outbreak, or escalation of terrorism, military conflicts or other hostilities may lead to reduced consumer spending, particularly by our customers on many of the discretionary items we sell that relate to home and garden improvement projects. These factors could cause us to increase inventory markdowns and promotional expenses, thereby reducing our gross margins and operating results.

If we do not successfully manage our inventory levels, our operating results will be adversely affected.

We must maintain sufficient inventory levels to operate our business successfully. However, we also must guard against accumulating excess inventory as we seek to minimize out-of-stock levels across all product categories and to maintain in-stock levels. We obtain a portion of our inventory from vendors located outside the United States. Some of these vendors often require lengthy advance notice of our requirements in order to be able to supply products in the quantities we request. This usually requires us to order merchandise, and enter into purchase orders for the purchase and manufacture of such merchandise, well in advance of the time these products will be offered for sale. As a result, we may experience difficulty in responding to a changing retail environment. If we do not accurately anticipate the future demand for a particular product or the time it will take to obtain new inventory, our inventory levels will not be appropriate and our results of operations may be negatively impacted.

Adverse changes in economic factors specific to the home improvement industry may negatively impact the rate of growth of our revenues and comparable store sales.

Sales of many of our product categories and services are driven by housing turnover and activity level of home and garden improvement projects. The expiration of government stimulus programs specific to the housing sector during the second half of fiscal 2010 may adversely affect the rate of housing turnover. Steep declines over recent years in home prices, the increasing number of households with negative equity, increasing mortgage

21

delinquency and foreclosure rates, reduction in the availability of mortgage financing, fluctuations in interest rates on variable rate mortgages, fewer housing starts and significantly lower housing turnover have limited and may continue to limit consumers’ discretionary spending and have diminished consumer confidence levels which in turn has adversely affected consumer spending on home and garden improvement projects. The impact of these economic factors specific to the home and garden improvement industry is exacerbated by what is expected to be a gradual and prolonged period of economic recovery with slow employment growth. We believe that these economic conditions were a contributing factor in our year-over-year decline in revenues of $21.7 million, $79.1 million and $73.3 million for fiscal 2010, 2009 and 2008, respectively.

Our revenues may fluctuate for a variety of reasons, which could adversely affect our results of operations.

Our business is sensitive to customers’ spending patterns, which in turn are subject to prevailing economic conditions. Our revenues and results of operations have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of other factors affect our revenues and financial performance, including:

• actions by our competitors, including opening of new stores in our existing markets or changes to the way these competitors go to market online;

• seasonal fluctuations due to weather conditions;

• timing and concentration of new store openings and related pre-opening and other start-up costs;

• changes in our merchandise strategy and mix;

• changes in population and other demographics; and

• timing and frequency of our promotional and discounting events.

Accordingly, our results for any one quarter are not necessarily indicative of the results to be expected for any other quarter, and comparable store sales for any particular future period may increase or decrease. For more information on our results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Prospectus.

Extended cold or wet weather in California, particularly in the spring, can have an adverse effect on our operating results.

The sale of a substantial portion of our merchandise depends upon our customers undertaking repair, maintenance and improvement projects in their home and garden. We believe that our customers are more likely to begin such projects during periods of warm and dry weather. Accordingly, we have historically realized a significant portion of our revenues and earnings for the year in the spring selling season, which includes March, April, May and June. In 2009 and 2010, we generated 29% and 30% of our revenues in the second fiscal quarter, respectively. Wet, windy and/or cold weather conditions can reduce foot traffic in our stores. Extended cold or wet weather conditions in California, particularly during the spring months, can significantly reduce our revenues and have a material adverse effect on our results of operations. For example, we believe unseasonably cold and wet weather in March of 2011 had an adverse impact on sales, particularly of our lawn and garden products. Furthermore, lower than anticipated revenues during the spring selling season may cause us to increase inventory markdowns and promotion expenses, thereby reducing our gross margins and operating results.

If we are unable to obtain suitable replacement financing upon the maturing of our existing financing arrangements, our business and results of operations could be adversely affected.

Our business and results of operations depend substantially on our ability to obtain financing for our operations. We currently have the following secured financing arrangements:

• a Senior Secured Credit Facility with a revolving availability up to $120 million, subject to a borrowing base, $20 million of which expires on December 21, 2011 with the remainder expiring on December 21, 2013;

22

• a $200 million Senior Secured Term Loan which matures on December 21, 2013; and

• a $50 million Real Estate Secured Term Loan which matures on December 21, 2013.

Current economic conditions have generally adversely impacted the availability, cost and terms of debt financing. There can be no assurance that we will be able to replace our existing financing upon the maturity of our Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan on commercially acceptable terms, or at all. If we are not able to renew or replace our existing financial arrangements when they become due, our costs for borrowings will likely increase and our revenues may decrease, or we could be precluded from continuing our operations at current levels. If we are unable to refinance our Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan prior to their respective maturity dates, we cannot guarantee that we will generate enough cash flow from operations or be able to obtain enough capital to repay our outstanding indebtedness on such dates. In such event, we may need to close or sell stores, sell assets, reduce the number and/or frequency of store openings and improvements, issue capital stock or securities convertible into capital stock or issue debt securities to repay our indebtedness. If implemented, these actions could negatively impact our business, operating results or dilute our capital stock.

If we are unable to comply with the terms of our Senior Secured Credit Facility, Senior Secured Term Loan or Real Estate Secured Term Loan, our business and financial condition would be negatively impacted.

As of October 29, 2011, we were in compliance with the financial covenants under our financing arrangements, and we currently believe that we will continue to be in compliance with these covenants through at least the end of the third quarter of fiscal 2012. However, the decline in our operating results for the first three quarters of fiscal 2011, coupled with continued economic weakness in the markets in which we operate, may adversely impact our prospective compliance with the financial covenants under the Senior Secured Term Loan and the Real Estate Secured Term Loan. During the three months ended October 29, 2011 (i) we entered into the Appliances Agreement with a subsidiary of Sears Holdings that we had planned to enter into at the Distribution and (ii) we entered into a sale and lease-back transaction with respect to our distribution center located in Tracy, California. These actions were not necessary for us to remain in compliance with our financial covenants as of the end of the third fiscal quarter, however, they reduce our leverage. For more information regarding our compliance with our financial covenants, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Analysis of Financial Condition” in this Prospectus. Notwithstanding these actions, the Company continues to examine a number of alternatives with respect to future compliance and liquidity, including asset sales and/or sale-leaseback transactions. In addition, if necessary or advisable, we may seek to renegotiate our financing arrangements in order to remain in compliance while continuing to follow our current business plan, which includes plans for store expansion. In such case, if such renegotiations were necessary but unsuccessful, we would expect to modify our business plan in a manner that would allow us to remain in compliance. Such a modification could result in slower growth, a delay of new store openings and the potential for a decline in sales. Notwithstanding our expectations, if our operating results were to continue to decline or if market conditions were to worsen, we may be unable to meet our financial covenants, and lenders could demand repayment of the amounts outstanding under our financing agreements. Under such circumstances, no assurances can be given that our financing arrangements could be renegotiated, or that alternative financing would be available on terms acceptable to us, if at all. In addition, any refinancing could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations.

We may not have sufficient cash to repay our debt obligations on the occurrence of an event of default resulting from a change in control trigger.

Our Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan contain an event of default resulting from a change of control default, which includes the following: (i) certain mergers, consolidations, sales or transfers of all or substantially all of the assets of OSH LLC and OSH LLC’s subsidiaries to persons other than ACOF, ESL and Sears Holdings; (ii) adoption of a plan of liquidation of OSH LLC; (iii) prior to an initial underwritten public offering of common stock of the Company, Sears Holdings, ESL and

23

ACOF ceasing to collectively hold directly or indirectly at least 50% of the total voting power of all shares of our and OSH LLC’s voting capital stock; (iv) following an initial underwritten public offering of common stock of the Company, a person or group, other than Sears Holdings, ESL and ACOF, collectively holding directly or indirectly at least 40% of the total voting power of all shares of our and OSH LLC’s voting capital stock and Sears Holdings, ESL and ACOF collectively holding less than such person or group; and (v) our board of directors not consisting of continuing directors (“Change in Control”).

Immediately following the Distribution:

• Sears Holdings will not own any capital stock of the Company;

• ESL will beneficially own approximately 61% of our outstanding shares of Class A Common Stock and approximately 49% of the general voting power of our capital stock; and

• ACOF will beneficially own 100% of our outstanding shares of Class C Common Stock and approximately 20% of the general voting power of our capital stock.

Neither ESL nor ACOF have agreed to maintain their shareholding in the Company following the Distribution. If, following the Distribution, one or both of ESL and ACOF dispose of all or part of their shareholding in the Company such that their combined total voting power drops below 50%, this may trigger a Change in Control event of default under the Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan. An event of default could trigger certain acceleration clauses and cause those and our other obligations to become immediately due and payable and we may not have sufficient cash funds available to repay our debt obligations upon such a Change in Control.

Increases in interest rates could adversely affect our operating results.

An increase in prevailing interest rates could adversely affect our operating results. At January 29, 2011, we had approximately $271.5 million aggregate principal amount of variable interest rate indebtedness under our Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan. The variable interest rates applicable to this indebtedness are based on several interest rate indexes that fluctuate on a regular basis, including the London Interbank Offered Rate (“LIBOR”) and the prime rate as publicly announced by certain of our lenders and the U.S. federal funds rate. If interest rates increase, our debt service obligations on this variable rate indebtedness would increase even though the amount borrowed would remain the same, and our net income would decrease. As a protection against rising interest rates, we have entered into an interest rate cap agreement with respect to our Real Estate Secured Term Loan with a notional amount of $25 million, capping LIBOR at 4%. The cap agreement does not eliminate interest rate volatility for the remainder of our variable rate indebtedness. In the future, we may enter into interest rate swaps or additional cap contracts to reduce interest rate volatility. The terms of our cap agreement with respect to our Real Estate Secured Term Loan or such additional agreements as we may enter to reduce interest rate volatility, may be unfavorable to us depending on rate movements and may not completely protect us from increased interest expense in particular situations.

Substantial Leverage—Our substantial leverage may place us at a competitive disadvantage in our industry.

We are substantially leveraged and have significant debt service obligations. At July 30, 2011, our outstanding debt (excluding capital leases) was approximately $254.3 million. Our significant debt and debt service requirements could adversely affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities. For example, our high level of debt presents the following risks:

• we are required to use a substantial portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements;

24

• our interest expense could increase if prevailing interest rates increase, because a substantial portion of our debt bears interest at floating rates;

• our substantial leverage increases our vulnerability to economic downturns and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged;

• our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and our industry and could limit our ability to pursue other business opportunities, borrow more money for operations or capital in the future and implement our business strategies;

• our level of debt may restrict us from raising additional financing on satisfactory terms to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances, and other general corporate requirements; and

• covenants in our debt instruments limit our ability to pay dividends or make other restricted payments and investments.

Significant Debt Service Requirements—Servicing our debt requires a significant amount of cash and our ability to generate cash may be affected by factors beyond our control.

We may be unable to generate sufficient cash flow from operations or to obtain future borrowings under our credit facilities or otherwise in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we do not have sufficient liquidity, we may need to refinance or restructure all or a portion of our debt on or before maturity, sell assets, or borrow more money, which we may not be able to do on terms satisfactory to us or at all. In addition, any refinancing could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations. We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of funding will be available to us in amounts sufficient to enable us to fund our liquidity needs. If we are unable to meet our obligations with respect to our debt, we could be forced to restructure or refinance our debt, seek equity financing or sell assets. A default on any of our debt obligations could trigger certain acceleration clauses and cause those and our other obligations to become immediately due and payable. Upon an acceleration of any of our debt, we may not be able to make payments under our other outstanding debt.

Credit rating downgrades could increase our financing costs and negatively affect our access to capital.

Our credit ratings affect our cost of financing and our ability to access financing sources. In June 2011, our credit ratings were downgraded by two nationally recognized statistical rating organizations. Rating agencies revise their ratings for the companies that they follow from time to time and our ratings may be revised or withdrawn in their entirety at any time. Any further credit rating downgrade could increase our financing costs and could limit our access to financing sources.

If our stores or distribution center experience catastrophic damage and loss due to natural disasters, our operations would be seriously harmed.

Each of our stores, our store support center and our distribution center are located in California in areas that are susceptible to earthquakes and other natural disasters, such as wildfires, floods and tsunamis. If any of our facilities, and in particular our distribution facility in Tracy, California, were to experience catastrophic damage and loss, it could disrupt our store operations, delay shipments of our merchandise, reduce our revenue and result in large expenses to repair or replace our facilities. The occurrence of any of these natural disasters could have a material adverse impact on our business, results of operations and financial condition.

25

We currently rely on a single distribution center. The loss or disruption of operations at our centralized distribution center or our failure in the future to expand or add additional distribution facilities could have an adverse effect on our business, operations and operating results.

A majority of our inventory is shipped directly from our suppliers to a single centralized distribution center that we lease in Tracy, California, where the inventory is then received, sorted and shipped to our stores. Our operating results depend on the orderly operation of our receiving and distribution processes, which in turn depend upon on our private fleet of leased tractors, leased and owned trailers, third-party common carriers and our effective management of our distribution facilities. We may not anticipate all the changing demands that our expanding operations will impose on our receiving and distribution system, and events beyond our control, such as disruptions in operations due to fire, earthquakes or other catastrophic events. In addition, shipping problems or labor disagreements may result in delays in the delivery of merchandise to our stores.

If we expand our retail store base, we may need to expand our distribution facilities, therefore we may need to acquire, construct or lease additional distribution facilities in other geographic locations to accommodate a planned expansion. An expansion of our distribution facilities will require significant capital investment, costs and time and could place increased demands on our financial, managerial and operational resources. We may also need to invest in additional information technology to achieve a unified receiving and distribution system.

While we maintain insurance, in the event our distribution center were to be shut down for any reason or if we were to incur higher costs and longer lead times in connection with a disruption at our distribution center, our insurance may not be sufficient, and insurance proceeds may not be timely paid to us.

We rely extensively on computer systems to process transactions, summarize results and manage our business. Disruptions in these systems could harm our ability to run our business.

Given the number of individual transactions we have each year, it is critical that we maintain uninterrupted operation of our computer and communications hardware and software systems. Our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, including breaches of our transaction processing or other systems that result in the compromise of confidential customer data, catastrophic events such as fires, tornadoes and hurricanes, and usage errors by our employees. If our systems are breached, damaged or cease to function properly, we may have to make a significant investment to fix or replace them, we may suffer interruptions in our operations in the interim, we may face costly litigation, and our reputation with our customers may be harmed. Our ability to maintain sufficient inventory levels in our stores is critical to our success and largely depends upon the efficient and uninterrupted operation of our computer and communications hardware and software systems. Any material interruption in our computer operations may have a material adverse effect on our business or results of operations.

We rely on third parties to provide us with services in connection with the administration of certain aspects of our business.

We have entered into agreements with third-party service providers (both domestic and international) to provide processing and administrative functions over a range of areas, and we may continue to do so in the future. These areas include credit card processing, e-commerce services, payroll following the spin-off and product returns. Services provided by third parties could be interrupted as a result of many factors, such as acts of God or contract disputes. Any failure by third parties to provide us with these services on a timely basis or within our service level expectations and performance standards could result in a disruption of our business and have an adverse effect on our business and operating results.

26

We could incur charges due to impairment of intangible and long-lived assets.

As of January 29, 2011 we had intangible asset balances of $145.5 million, which are subject to testing for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Our intangible assets consist of $107.6 million of our trade names and $37.9 million of favorable leasehold rights. Failure to achieve sufficient levels of cash flows could result in impairment charges for our trade names. If the decline in our revenues continues, this could have a material effect on our trade name valuation and could result in an impairment charge. Our long-lived assets, primarily building and fixtures at our stores and favorable leasehold rights, are also subject to testing for impairment. A significant amount of judgment is involved in our impairment assessment. Failure to achieve sufficient levels of cash flow could result in impairment charges for intangible assets or fixed assets, which could have a material adverse effect on our results of operations.

Our failure to retain our senior management team and to continue to attract qualified new personnel could adversely affect our results of operations.

We depend on the talents and continued efforts of our senior management team. We do not maintain key-man life insurance on any of our executives and do not have employment agreements with any of our executives. The loss of one or more of the members of our senior management may disrupt our business and materially adversely affect our results of operations. Furthermore, our ability to manage our further expansion will require us to continue to train, motivate and manage our employees and to attract, motivate and retain additional qualified managerial and store personnel. We believe that having store personnel who are knowledgeable and experienced in home repair matters has been an important factor in our historical success and we believe it will continue to be important to growing our business. Competition for these types of personnel is intense, and we may not be successful in attracting, assimilating and retaining the personnel required to grow and operate our business profitably.

Persons associated with members of our board of directors following the Distribution, whose interests may be different than your interests, will exert substantial influence over us.

Persons associated with ESL who are elected by the holders of our Class A Common Stock (the “ESL Directors”) following the Distribution, will, following the Distribution, beneficially own approximately 61% of our outstanding shares of Class A Common Stock and approximately 49% of the general voting power of our capital stock. Persons associated with directors elected by holders of our Class B Common Stock and Class C Common Stock (the “Class B/C Directors”) following the Distribution, will, following the Distribution, beneficially own 100% of our outstanding shares of Class C Common Stock and approximately 20% of the general voting power of our capital stock. Accordingly, such persons, and thus the Class B/C Directors and ESL Directors will have substantial influence over many, if not all, actions to be taken or approved by our shareholders, including any transactions involving a change of control. In addition, persons associated with the ESL Directors will have substantial influence over the election of our eight directors elected by the holders of Class A Common Stock and persons associated with the Class B/C Directors will have the power to direct the election of our two directors elected by the combined vote of the Class B Common Stock and the Class C Common Stock (the outstanding shares of our Class B Common Stock will, following the Distribution, collectively have less than 0.5% of the voting power of our capital stock).

The interests of such persons associated with the ESL Directors and the Class B/C Directors, which have investments in other companies that may compete with us, including Sears Holdings, may from time to time diverge from the interests of our other shareholders, particularly with regard to new investment opportunities. In addition, this substantial influence may have the effect of discouraging offers to acquire our Company because the consummation of any such acquisition would likely require the consent of such persons.

27

We may be subject to product liability claims if people or properties are harmed by the products we sell or the services we offer.

Some of the products we sell may expose us to product liability claims relating to personal injury, death, or property damage caused by such products, and may require us to take actions such as product recalls. We also provide various services, which could also give rise to such claims. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant periods, regardless of the ultimate outcome. Claims of this nature, as well product recalls, could also have a negative impact on customer confidence in the products we stock and in our reputation, our business and our operating results.

We may be subject to periodic litigation and other regulatory proceedings. These proceedings may be affected by changes in laws and government regulations or changes in the enforcement thereof.

From time to time, we may be involved in lawsuits and regulatory actions relating to our business or products we sell or have sold. These proceedings may be in jurisdictions with reputations for aggressive applications of laws and procedures against corporate defendants. We are impacted by trends in litigation, including class-action allegations brought under various consumer protection and employment laws, including wage and hour laws. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse impact on our business, financial condition and results of operations. In addition, regardless of the outcome of any litigation or regulatory proceedings, these proceedings could result in substantial costs and may require that we devote substantial resources to defend our Company and could affect the future premiums we would be required to pay on our insurance policies. Further, changes in governmental regulations could have adverse effects on our business and subject us to additional regulatory actions.

In the ordinary course of business, we are subject to product liability litigation as a result of the sale of certain products, including products that have included asbestos. On April 1, 2011, a judgment was entered against us in the case of the Save Mart Supermarkets v. Orchard Supply Hardware LLC, in California Superior Court in Fresno, California. Save Mart obtained a $5.1 million verdict on claims of breach of contract and breach of the implied covenant of good faith relating to the termination by Orchard Supply Hardware LLC of a contract for the lease of a store to be built by Save Mart. On August 24, 2011, the Company entered into a settlement agreement with Save Mart to satisfy the $5.1 million judgment, release the Company of all liabilities, and waive all rights of appeals by both parties. The settlement includes three parts: 1) a $0.5 million cash consideration paid to Save Mart, 2) the amendment and extension of an existing lease between Save Mart and the Company for a store unrelated to the one originally in dispute and 3) the lease of a new property to the Company. As of July 30, 2011, we had recorded a $5.1 million accrual for this matter. The Company estimates that this liability will be reduced by approximately $1.0 million to $2.0 million as a result of the settlement. For a description of certain current legal proceedings, see “Business–Legal Proceedings” in this Prospectus.

We intend to open new stores at an increased rate compared to recent years, which could strain our resources and have a material adverse effect on our business and financial performance.

Our future growth depends in part on our ability to successfully open and operate new stores profitably. As of July 30, 2011, we operated 89 full-service hardware stores in California. We opened four new stores in California within the past three years. We plan on opening one new store in 2011 and anticipate opening additional new stores in 2012. We intend initially to open these new stores within California; however, we may expand into locations outside of California. Expanding our store base will require us to invest significant financial resources and place increased demands on our management, operational and administrative infrastructure. In addition, our planned expansion will require us to increase continually the number of people we employ, as well as to expand and upgrade

28

our management information, inventory tracking and other systems. Successfully opening a new store is a significant operational and administrative challenge. It is possible that we may not foresee all of the problems that could arise during a store opening or realize the expected benefits of opening a particular store. An increased number of stores may also make it more difficult for us to maintain our customer service standards and develop and implement the financial controls and procedures and reporting systems that will be required of us as a public company. If we fail to meet these increased demands and operating complexities, it could have a material adverse effect on our business, financial condition and results of operations.

We are subject to regulations that impact our business and a failure to comply with such regulations could lead to lawsuits or regulatory actions against us.

Operating in California exposes us to a particularly challenging regulatory environment, with aggressive enforcement efforts by private litigators in several areas of law, including, without limitation, environmental laws, consumer protection laws, employment laws, anti-discrimination laws, and wage and hour regulations and laws. This strict regulatory and litigation environment requires the Company to maintain a heightened compliance effort and exposes us to defense costs, possible fines and penalties, and liability to private parties for monetary recoveries and attorneys’ fees, any of which could have an adverse effect on our business and results of operations.

California and federal employment and labor laws govern our relationship with our employees and affect our operating costs. These laws include minimum wage requirements, overtime pay, unemployment tax rates, workers’ compensation rates, citizenship requirements and sales taxes. We are currently, and from time to time in the past have been, the subject of lawsuits by certain of our employees alleging various violations of these regulations, including suits alleging that we wrongfully denied certain of our employees overtime wages or that we unlawfully deducted costs for workers compensation expenses. A determination that we do not comply with these laws or other related laws could harm our profitability or business reputation. Future government-imposed increases in minimum wages, overtime pay, paid leaves of absence or mandated health benefits could also materially and adversely affect us.

From time to time we are subject to claims of employment discrimination, unlawful employment practices and Americans with Disabilities Act claims.

If we do not maintain the security of our customer, associate or company information, we could damage our reputation, incur substantial additional costs and become subject to litigation.

Any significant compromise or breach of customer, associate or company data security either held and maintained by the Company or our third party providers could significantly damage our reputation and result in additional costs, lost sales, fines and lawsuits. The regulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs. There is no guarantee that the procedures that we have implemented to protect against unauthorized access to secured data are adequate to safeguard against all data security breaches. A data security breach could negatively impact our business and our results of operations.

If we are unable to renew or enter into new store leases on competitive terms our revenue or results of operations could be negatively impacted.

As of July 30, 2011, we leased 74 store locations under long-term agreements. If our cost of leasing existing stores increases, we may be unable to maintain our existing store locations as leases expire. Our profitability may decline if we fail to enter into new leases on competitive terms or at all, or we may not be able to locate suitable alternative stores or additional sites for our new store expansion in a timely manner. Furthermore, a small number of our leases will expire within the next ten years and some do not grant us any rights to renew the lease. A failure to renew or enter into new leases could reduce our revenue and negatively impact our results of operations.

29

We are required to comply with increasingly stringent federal, state and local environmental laws and regulations, the cost of which is likely to increase and may adversely affect our results of operations, cash flow or financial condition.

Our operations, properties and the products we sell are subject to various federal, state and local environmental laws and regulations. These laws and regulations not only govern our current operations, properties and the products we sell, but also impose potential liability on us for our past operations. We expect environmental laws and regulations to impose increasingly stringent requirements upon our industry and us in the future. Our costs to comply with these laws and regulations may increase as these requirements become more stringent in the future, and these increased costs may adversely affect our results of operations, cash flow or financial condition.

If we fail to timely and effectively obtain shipments of product from our vendors and deliver merchandise to our customers, our operating results will be adversely affected.

We cannot control all of the various factors that might affect our timely and effective procurement of supplies of product from our vendors and delivery of merchandise to our customers. A majority of the products that we purchase, domestically or overseas, must be shipped to our distribution center in Tracy, California. Our utilization of foreign imports also makes us vulnerable to risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or confiscation of products while in transit to our distribution center, work stoppages including as a result of events such as longshoremen strikes, transportation and other delays in shipments including as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions in the United States, lack of freight availability and freight cost increases. In addition, if we experience a shortage of a popular item, we may be required to arrange for additional quantities of the item, if available, to be delivered to us through airfreight, which is significantly more expensive than standard shipping by sea. As a result, we may not be able to obtain sufficient freight capacity on a timely basis or at favorable shipping rates and, therefore, we may not be able to timely receive merchandise from our vendors or deliver our products to our customers.

We rely upon proprietary and third-party land-based carriers for merchandise shipments to our facility in Tracy, California and from this facility to our stores. Accordingly, we are subject to the risks, including labor disputes, union organizing activity, inclement weather and increased transportation costs, associated with such carriers’ ability to provide delivery services to meet our inbound and outbound shipping needs. In addition, if the cost of fuel continues to rise or remains at current levels, the cost to deliver merchandise from the distribution center to our stores may rise which could have an adverse impact on our profitability. Failure to procure and deliver merchandise either to us or to our customers in a timely, effective and economically viable manner could damage our reputation and adversely affect our business. In addition, any increase in distribution costs and expenses could adversely affect our future financial performance.

We rely on foreign sources for merchandise, and our business may therefore be negatively affected by the risks associated with international trade.

A portion of our merchandise is purchased from foreign vendors, either directly by us or indirectly by our distributors who, in turn, sell this merchandise to us. We believe that in order to remain competitive we must maintain or increase the portion of merchandise purchased from such vendors. This reliance on foreign vendors results in our facing risks inherent in purchasing from foreign suppliers, including:

• economic and political instability in countries where these vendors are located;

• increases in shipping costs;

• transportation delays and interruptions;

• adverse fluctuations in currency exchange rates; and

• changes in U.S. and foreign laws affecting the importation and taxation of goods, including duties, tariffs and quotas, or changes in the enforcement of those laws.

30

Any increase in cost to us of merchandise purchased from foreign vendors or restriction on the merchandise made available to us by such vendors could have an adverse effect on our business and operating results.

If our relationships with our vendors were to be impaired, it could have a negative impact on our competitive position and our business and financial performance.

Most of our vendor arrangements are not long-term agreements, and, therefore, our success depends on maintaining good relations with our vendors. Our growth strategy depends to a significant extent on the willingness and ability of our vendors to supply us with sufficient inventory to stock our new stores. If we fail to strengthen our relations with our existing vendors or to enhance the quality of merchandise they supply us, or if we cannot maintain or acquire new vendors of favored brand name merchandise, our ability to obtain a sufficient amount and variety of merchandise at acceptable prices may be limited, which would have a negative impact on our competitive position. In addition, our inability to stock our stores with new and desired merchandise at attractive prices could result in lower revenues and decreased customer interest in our stores, which, in turn, would adversely affect our financial performance. In addition, we may not be able to develop relationships with new vendors, and products from alternative sources, if any, may be of a lesser quality and more expensive than those we currently purchase. During fiscal 2010, branded products acquired under license from Sears Holdings, including Kenmore and Craftsman products, accounted for approximately 6% of total purchases of all inventory from all vendors. Merchandise supplied to stores by our top ten suppliers accounted for approximately 24.4% of our total purchases. The loss of or a reduction in the amount of merchandise made available to us by Sears Holdings or by these other key vendors could have an adverse effect on our business and operating results.

Our ability to obtain commercial insurance at acceptable prices, or at all, may increase our costs and lower our operating results.

We believe that extensive commercial insurance coverage is prudent for risk management. Prior to the Distribution, we obtained our umbrella insurance policy and several other policies through policies obtained by Sears Holdings and we benefited from the lower insurance premiums that Sears Holdings was able to obtain. Upon our spin-off from Sears Holdings, we will no longer be covered under these Sears Holdings policies and we will be required to obtain independent insurance coverage for replacement of these policies. We may be unable to obtain adequate insurance coverage for such replacement policies at reasonable costs or at all and, in any event, anticipate that the cost of our insurance will increase significantly as compared to the amounts we were charged when our insurance was provided under Sears Holdings’ plans. In addition, for certain types or levels of risk, such as risks associated with earthquakes or terrorist attacks, we might determine that we cannot obtain commercial insurance at acceptable prices. Therefore, we might choose to forego or limit our purchase of relevant commercial insurance, choosing instead to self-insure one or more types or levels of risks. If we suffer a substantial loss that is not covered by commercial insurance, the loss and attendant expenses could have a material adverse effect on our operating results. Also, insurance may not be available in the future with the scope of coverage and in amounts of coverage adequate to insure against such risks and disturbances.

Risks Relating to our Relationship with and Separation from Sears Holdings

Following this Distribution, we will continue to depend on Sears Holdings to provide us with many key services for our business and we will be required to develop our own systems quickly and cost-effectively.

Prior to the Distribution, we have been operating as an indirect majority-owned subsidiary of Sears Holdings, and certain key services required by us for the operation of our business are currently provided by Sears Holdings. We have or will have, prior to the completion of the Distribution, entered into agreements with Sears Holdings or its subsidiaries related to the Distribution including, among others, the Distribution Agreement, Transition Services Agreement, Appliances Agreement and Brands Agreements.

Pursuant to the Transition Services Agreement, a subsidiary of Sears Holdings will provide us with accounting, human resources, certain employee benefits, logistical and supply chain, information technology, environmental and safety program, risk management and insurance and inventory support services. The Transition Services

31

Agreement will continue for a period not to exceed twelve months from the date of the Distribution. We will pay the fees, expenses and taxes incurred by Sears Holdings or its subsidiaries in connection with its provision of the services as set forth in the Transition Services Agreement. The Transition Services Agreement may be terminated (i) by mutual agreement of the parties, (ii) for cause by either party, (iii) for convenience by Orchard upon sixty days’ prior written notice to Sears Holdings or (iv) the sixtieth day following Orchard’s receipt of written notice from Sears Holdings terminating the agreement due to a change in control of Orchard.

We believe it is necessary for Sears Holdings to provide these services to us under the Transition Services Agreement to facilitate the efficient operation of our business as we transition to becoming a publicly traded company independent from Sears Holdings. We will, as a result, initially be dependent on our relationship with Sears Holdings for transitional services following the Distribution. Although Sears Holdings is contractually obligated to provide us with these services until at least the first anniversary of the distribution date, these services may not be provided at the same level as when we were part of Sears Holdings, and we may not be able to obtain the same benefits. When Sears Holdings is no longer obligated to provide these services to us, we may not be able to replace these transitional services on terms and conditions, including costs, as favorable as those we will receive from Sears Holdings. See “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings.”

As a publicly traded company independent from Sears Holdings, we may experience increased costs resulting from a decrease in the purchasing power we currently have as a result of being a subsidiary of Sears Holdings.

Prior to our separation from Sears Holdings, we were able to take advantage of Sears Holdings’ size and purchasing power in procuring services, including insurance, advertising, shipping and receiving, logistics, store maintenance contracts, employee benefit support, credit and debit card interchange fees and other services. As a result of our separation from Sears Holdings, we will be a smaller company than Sears Holdings and we will not have access to financial and other resources comparable to those available to us prior to the Distribution. As a company independent from Sears Holdings, we may be unable to obtain goods, technology and services at prices and on terms as favorable as those available to us prior to the Distribution, which could increase our costs and reduce our profitability.

We may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements with Sears Holdings.

The agreements related to our spin-off from Sears Holdings, including the Distribution Agreement, Transition Services Agreement, Appliances Agreement and Brands Agreements have been negotiated or will be negotiated in the context of our separation from Sears Holdings while we are still a majority owned indirect subsidiary of Sears Holdings. Accordingly, these agreements may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. The terms of the agreements being negotiated in the context of our spin-off are related to, among other things, the principal actions needed to be taken in connection with the spin-off, indemnification and other obligations among Sears Holdings and us and the nature of the commercial arrangements between us and Sears Holdings following the Distribution. We may have received better terms from third parties because third parties may have competed with each other to obtain the right to enter into certain of these agreements with us. However, these agreements generally incorporate arm’s length terms and conditions, including market-based pricing and term of duration. See “Certain Relationships and Related Party Transactions–Agreements with Sears Holdings” of this Prospectus for more detail.

Conflicts may arise between Sears Holdings and us in a number of areas relating to our past and ongoing relationships, including:

• business opportunities that may be attractive to both Sears Holdings and us;

• the nature, quality and pricing of transitional services Sears Holdings has agreed or will agree to provide to us;

32

• labor, tax, employee benefit, indemnification and other matters arising from our separation from Sears Holdings;

• major business combinations involving us;

• employee retention and recruiting; and

• intellectual property matters.

Currently, Sears Roebuck, Kmart stores, and certain specialty retail stores owned by Sears Holdings or that are operated by franchisees and dealers authorized by Sears Holdings have product lines that are similar to ours. Following the Distribution, Sears Holdings will be under no contractual obligation not to compete with us or from opening new Sears Roebuck, Kmart or specialty stores in locations we have targeted for expansion. In addition, our ability to sell merchandise under Sears Holdings’ proprietary brands, such as Craftsman, Easy Living, Kenmore and Weatherbeater, will be subject to the terms of the Appliances Agreement and Brands Agreements. The Appliances Agreement grants Sears Holdings control over the assortment of merchandise available to us and may therefore affect our use of floor space and the type of merchandise available to our customers.

Risks Relating to Our Class A Common Stock and Preferred Stock and the Distribution

Becoming a public company will increase our expenses and administrative burden, in particular to bring our Company into compliance with certain provisions of the Sarbanes Oxley Act of 2002 to which we are not currently subject.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. These increased costs and expenses may arise from various factors, including financial reporting, costs associated with complying with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002), tax administration, and legal and human resources related functions. In anticipation of becoming a public company, we will need to create or revise the roles and duties of our board committees, adopt additional internal controls and disclosure controls and procedures, retain a transfer agent and adopt an insider trading policy in compliance with our obligations under the securities laws.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, and related regulations implemented by the SEC and NASDAQ are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. We are currently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. The costs of compliance or our failure to comply with these laws, rules and regulations could adversely affect our reputation, financial condition, results of operations and the price of our Class A Common Stock and Preferred Stock.

We also expect that being a public company subject to these rules and regulations will make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified executive officers and qualified persons to serve on our board of directors, particularly to serve on our audit committee.

33

Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on our business and the market price of our Class A Common Stock and Preferred Stock.

As a public company, we will be required to document and test our internal control over financial reporting in order to satisfy the requirements of Section 404 of Sarbanes-Oxley, which will require annual management assessments of the effectiveness of our internal control over financial reporting and, beginning with our annual report on Form 10-K for the year ending February 2, 2013, a report by our independent registered public accounting firm that addresses the effectiveness of internal control over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal control can divert our management’s attention from other matters that are also important to the operation of our business. We also expect that the imposition of these regulations will increase our legal and financial compliance costs and make some activities more difficult, time consuming and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal control over financial reporting, then investors could lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our Class A Common Stock and Preferred Stock. In addition, if we do not maintain effective internal controls, we may not be able to accurately report our financial information on a timely basis, which could harm the trading price of our Class A Common Stock and Preferred Stock, impair our ability to raise additional capital, or jeopardize our continued listing on the NASDAQ Capital Market or any other stock exchange on which our Class A Common Stock and Preferred Stock may be listed.

We do not expect to pay dividends for the foreseeable future.

We do not expect to pay cash dividends on our Class A Common Stock or any other shares of our capital stock for the foreseeable future. In addition, the terms of the Preferred Stock do not entitle the holders thereof to any dividends. We currently intend to retain any future earnings for use in the business. Further, our current credit arrangements generally prohibit our paying of cash dividends. As a result, you may not receive any return on an investment in our capital stock in the form of dividends. The terms of the Preferred Stock will provide that dividends and other distributions may not be paid on any shares of our capital stock until all outstanding shares of the Preferred Stock have been redeemed or repurchased unless such dividend or distribution (i) has been unanimously approved by our board of directors, (ii) relates to a “poison pill” stockholder rights plan or (iii) is a distribution of cash in lieu of fractional shares made in connection with this Distribution.

Our Class A Common Stock and Preferred Stock may have a low trading volume and limited liquidity, resulting from a lack of analyst coverage and institutional interest.

Our Class A Common Stock and Preferred Stock may receive limited attention from market analysts. Lack of up-to-date analyst coverage may make it difficult for potential investors to fully understand our operations and business fundamentals, which may limit our trading volume. Such limited liquidity may impede the development of institutional interest in our Class A Common Stock and Preferred Stock, and could limit the value of our Class A Common Stock and Preferred Stock. Additionally, low trading volumes and lack of analyst coverage may limit your ability to resell your stock. Low trading volume may be particularly pronounced in the case of shares of our Preferred Stock because such shares will only be quoted on the OTCQB, the “Pink Sheets” or another OTC quotation system where there is generally less liquid trading and less participation by market makers.

34

Our principal shareholders will have substantial control over us following the Distribution and they could delay or prevent a change in corporate control and may have interests different than yours.

As of the Distribution, we will have four classes of capital stock:

• Class A Common Stock, which is entitled to one vote per share and which elects eight members of our board of directors;

• Class B Common Stock, which is entitled to one-tenth of a vote per share and which, together with our Class C Common Stock, elects two members of our board of directors;

• Class C Common Stock, which is entitled to one vote per share and which, together with our Class B Common Stock, elects two members of our board of directors; and

• Preferred stock, of which the Preferred Stock is a series and which does not have voting rights.

As of the Distribution, ESL will own approximately 61% of our outstanding Class A Common Stock, representing approximately 61% of Class A Common Stock voting power and approximately 49% of the general voting power of our outstanding capital stock, and will own approximately 61% of our outstanding Preferred Stock, which is our outstanding nonvoting capital stock. As of the Distribution, ACOF, will own 100% of our outstanding Class C Common Stock, representing approximately 99% of the collective voting power of our Class B Common Stock and Class C Common Stock voting together and approximately 20% of the voting power of our outstanding capital stock. Pursuant to our Amended and Restated Certificate of Incorporation that will be in effect at the Distribution, at any time that ACOF owns a number of shares of our Class B Common Stock and Class C Common Stock representing in the aggregate a percentage of our outstanding common stock that is less than 10% but equal to or greater than 5% (calculated without reference to any shares of capital stock issued or issuable after the Distribution), then the Class C Common Stock, voting together with the Class B Common Stock as a single class, shall have the right to elect only one director. If at any time ACOF owns a number of shares of our Class B Common Stock and Class C Common Stock representing in the aggregate a percentage of our outstanding common stock that is less than 5% (calculated without reference to any shares of capital stock issued or issuable after the Distribution), then there shall no longer be separate classes of directors and all classes of our capital stock entitled to vote for directors would vote together as a single class.

As a result of their respective capital stock ownership, as of the distribution date, ESL and ACOF acting together would have the ability to control the outcome of certain matters on which holders of all classes of our capital stock vote together as a single class, including, among other things, approving mergers or other business combinations and effecting certain amendments to our Amended and Restated Certificate of Incorporation. In addition, as of the distribution date, ESL will have the ability to control the election of those members of our board of directors elected by the Class A Common Stock shareholders and ACOF will have the power to control the election of the two members of our board of directors elected by the Class B Common Stock and Class C Common Stock shareholders (the outstanding shares of our Class B Common Stock will, following the Distribution, collectively have less than 0.5% of the voting power of our capital stock). This concentration of ownership might harm the market price of our Class A Common Stock and Preferred Stock by discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. In addition, the interests of ESL and ACOF may differ from or be opposed to the interests of our other shareholders. See “Security Ownership by Certain Beneficial Owners and Management” in this Prospectus for a more detailed description of the beneficial ownership of our capital stock by ESL and ACOF following the Distribution.

Our Class A Common Stock and Preferred Stock prices may decline if ESL or ACOF alter their strategy with respect to their ownership of our capital stock.

ESL and ACOF have advised us that they have not reached any decision regarding whether or for how long they will retain their stock ownership in us and what form, if any, the disposition or distribution of their stock in us will take. ESL and ACOF will, in their sole discretion, determine the timing and terms of any transactions with respect to their shares in us, taking into account business and market conditions and other factors that they

35

deem relevant. Neither ESL nor ACOF are subject to any contractual obligation to maintain their ownership position in us, although they may be subject to certain transfer restrictions imposed by securities laws and the Stockholders’ Agreement (as described in “Certain Relationships and Related Party Transactions—Other Related Party Transactions—Stockholders’ Agreement). Consequently, we cannot assure you that either ESL or ACOF will maintain their ownership of our capital stock. Any announcement by ESL or ACOF that they have reached a determination regarding what to do with their shares of our capital stock, or the perception by the investment community that ESL or ACOF has reached such a determination, could have an adverse impact on the price of our Class A Common Stock and Preferred Stock. For further description of transfer restrictions that may apply to our capital stock, see “Description of Our Capital Stock—Shares Eligible for Future Sale” in this Prospectus.

Risks Relating to the Spin-Off

If the Distribution or certain internal transactions undertaken in anticipation of the spin-off are determined to be taxable for U.S. federal income tax purposes, our shareholders could incur significant U.S. federal income tax liabilities.

Sears Holdings has received an IRS Ruling substantially to the effect that, for U.S. federal income tax purposes, the Distribution, except to the extent of any cash received in lieu of fractional shares of our Class A Common Stock and Preferred Stock, will qualify as tax-free under Section 355 of the Code. The IRS Ruling also provides that certain internal transactions undertaken in anticipation of the Distribution will qualify for nonrecognition tax treatment under the Code. The IRS Ruling is binding upon the Internal Revenue Service, but its continued validity is subject to factual representations that we and Sears Holdings made to the Internal Revenue Service concerning certain conditions that are necessary to obtain tax-free treatment under the Code have been satisfied. In addition, the Internal Revenue Service will not rule on whether a distribution satisfies certain requirements necessary to obtain tax-free treatment under Section 355 of the Code. Therefore, in addition to obtaining the IRS Ruling, Sears Holdings expects to receive an opinion from the law firm of Simpson Thacher & Bartlett LLP as to the satisfaction of these required qualifying conditions. An opinion of counsel is not binding on the Internal Revenue Service. Accordingly, the Internal Revenue Service may reach conclusions with respect to the spin-off that are different from the conclusions reached in the opinion. The opinion will be based on certain facts and assumptions, and certain representations and undertakings, which, if incomplete, incorrect or not satisfied, could alter counsel’s conclusions.

If the Distribution ultimately is determined to be taxable, the Distribution could be treated as a taxable dividend or capital gain to you for U.S. federal income tax purposes, and you could incur significant U.S. federal income tax liabilities. In addition, Sears Holdings would recognize a taxable gain to the extent that the fair market value of our Class A Common Stock and Preferred Stock exceeds Sears Holdings’ tax basis in such stock on the date of the Distribution. Sears Holdings would not expect tax on such gain, if any, to be substantial. For additional discussion on the possible tax consequences of the Distribution, see “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” in this Prospectus.

Dispositions or redemptions of our Preferred Stock received in the Distribution may have less favorable tax consequences than dispositions or redemptions of our Class A Common Stock received in the Distribution.

Any Preferred Stock received by a Sears Holdings shareholder in the Distribution will constitute “Section 306 stock” for U.S. federal income tax purposes. As a result, any cash received by a Sears Holdings shareholder in lieu of fractional shares of Preferred Stock generally will be treated as ordinary dividend income.

Furthermore, subsequent dispositions or redemptions of our Preferred Stock generally will also be treated as ordinary dividend income, even if such proceeds would otherwise have resulted in capital gain or do not exceed such shareholder’s basis in our Preferred Stock, unless our Preferred Stock is disposed or redeemed in a transaction that terminates the shareholder’s entire interest in us (including any of our Class A Common Stock and taking into account certain constructive ownership rules).

36

The rules relating to Section 306 stock are complicated and shareholders are urged to consult their own tax advisors regarding the application of those rules.

We might not be able to engage in desirable strategic transactions and equity issuances following the Distribution because of restrictions relating to U.S. federal income tax requirements for tax-free distributions.

Our ability to engage in significant equity transactions will be limited or restricted after the Distribution in order to preserve for U.S. federal income tax purposes the tax-free nature of the Distribution by Sears Holdings. Even if the Distribution otherwise qualifies for tax-free treatment under Section 355 of the Code, it may be taxable to Sears Holdings if 50% or more, by vote or value, of shares of our Class A Common Stock and Preferred Stock or Sears Holdings’ common stock are acquired or issued as part of a plan or series of related transactions that includes the Distribution. For this purpose, any acquisitions or issuances of Sears Holdings’ common stock within two years before the Distribution, and any acquisitions or issuances of our Class A Common Stock and Preferred Stock or Sears Holdings’ common stock within two years after the Distribution, generally are presumed to be part of such a plan, although we or Sears Holdings may be able to rebut that presumption. If an acquisition or issuance of shares of our Class A Common Stock and Preferred Stock or Sears Holdings’ common stock triggers the application of Section 355(e) of the Code, Sears Holdings would recognize a taxable gain to the extent the fair market value of our Class A Common Stock and Preferred Stock exceeds Sears Holdings’ tax basis in our Class A Common Stock and Preferred Stock. If the Distribution was subject to Section 355(e) of the Code, we would not expect tax on such gain, if any, to be substantial.

Under the Distribution Agreement, there will be restrictions on our ability to take actions that could cause the Distribution to fail to qualify for favorable treatment under the Code. These restrictions may prevent us from entering into transactions which might be advantageous to us or our shareholders. For a description of the Distribution Agreement, see “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings—Distribution Agreement.”

We may be unable to achieve some or all of the benefits that we expect to achieve from our spin-off from Sears Holdings.

As a publicly traded company independent from Sears Holdings, we believe that our business will benefit from, among other things, allowing us to better focus our financial and operational resources on our specific business, allowing our management to design and implement corporate strategies and policies that are based primarily on the business characteristics and strategic decisions of our business, allowing us to more effectively respond to industry dynamics and allowing the creation of effective incentives for our management and employees that are more closely tied to our business performance. However, we may not be able to achieve some or all of the benefits that we expect to achieve as a company independent from Sears Holdings in the time we expect, if at all.

We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as a company independent from Sears Holdings, and we may experience increased costs after the spin-off.

In the past three years we have operated largely independently of Sears Holdings’ corporate organization, although Sears Holdings has assisted us by providing certain corporate functions. Following the spin-off, Sears Holdings will have no obligation to provide assistance to us other than the interim services to be provided pursuant to the Transition Services Agreement as described in “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings” of this Prospectus. Because our business has previously operated with the assistance of Sears Holdings, we cannot assure you that we will be able to successfully implement the changes necessary to operate entirely independently or that we will not incur additional costs that could adversely affect our business and operating results.

37

Our historical consolidated financial information is not necessarily representative of the results we would have achieved as a publicly traded company independent from Sears Holdings and may not be a reliable indicator of our future results.

The historical financial information we have included in this Prospectus may not reflect what our results of operations, financial position and cash flows would have been had we been a publicly traded company independent from Sears Holdings, during the periods presented, or what our results of operations, financial position and cash flows will be in the future when we are independent from Sears Holdings. This is primarily because:

• our historical financial information reflects allocations for certain services and expenses historically provided to us by Sears Holdings that may not reflect the costs we will incur for similar services in the future as a company independent from Sears Holdings; and

• our historical financial information does not reflect changes that we expect to experience in the future as a result of our spin-off from Sears Holdings, including changes in the cost structure, personnel needs, financing and operations of our business.

Following the spin-off, we also will be responsible for the additional costs associated with being a publicly traded company independent from Sears Holdings, including costs related to corporate governance and public reporting. Accordingly, there can be no assurance that our historical financial information presented herein will be indicative of our future results.

For additional information about our past financial performance and the basis of presentation of our financial statements, see “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto included elsewhere in this Prospectus.

As a publicly traded company independent from Sears Holdings, we may not enjoy the same benefits that we did as a subsidiary of Sears Holdings.

There is a risk that, by separating from Sears Holdings, we may become more susceptible to market fluctuations and other adverse events than we would have been if we were still a part of the Sears Holdings organizational structure. As part of Sears Holdings, we have been able to enjoy certain benefits from Sears Holdings’ operating diversity, purchasing power, available capital for investments and opportunities to pursue integrated strategies with Sears Holdings’ other businesses. As a publicly traded company independent from Sears Holdings, we will not have similar diversity or integration opportunities and may not have similar purchasing power or access to capital markets.

Risks Relating to Our Class A Common Stock and Preferred Stock and the Securities Market

There currently exists no market for our Class A Common Stock and Preferred Stock. An active trading market may not develop for our Class A Common Stock and Preferred Stock. If our share price fluctuates after the Distribution, you could lose all or a significant part of your investment.

There is currently no public market for our Class A Common Stock and Preferred Stock. It is anticipated that before the distribution date for the spin-off, trading of shares of our Class A Common Stock and Preferred Stock will begin on a “when-issued” basis and such trading will continue up to and including the distribution date. However, there can be no assurance that an active and liquid trading market for our Class A Common Stock and Preferred Stock will develop as a result of the spin-off or be sustained in the future. The lack of an active market may make it more difficult for you to sell our shares and could lead to our share price being depressed or more volatile.

38

We cannot predict the prices at which our Class A Common Stock and Preferred Stock may trade after the spin-off. The market price of our Class A Common Stock and Preferred Stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:

• our business profile and market capitalization may not fit the investment objectives of some Sears Holdings shareholders and, as a result, these Sears Holdings shareholders may sell our shares after the Distribution;

• actual or anticipated fluctuations in our operating results due to factors related to our business;

• success or failure of our business strategy;

• actual or anticipated changes in the U.S. and California economies or the retailing environment;

• our quarterly or annual earnings, or those of other companies in our industry;

• our ability to obtain third-party financing as needed;

• announcements by us or our competitors of significant acquisitions or dispositions;

• the failure of securities analysts to cover our Class A Common Stock and Preferred Stock after the spin-off;

• changes in earnings estimates by securities analysts or our ability to meet those estimates;

• the operating and stock price performance of other comparable companies;

• overall market fluctuations;

• changes in laws and regulations affecting our business;

• actual or anticipated sales or distributions of our capital stock by our officers, directors or certain significant shareholders;

• terrorist acts or wars; and

• general economic conditions and other external factors.

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and industry factors may materially reduce the market price of the Class A Common Stock and Preferred Stock, regardless of our operating performance.

Substantial sales of Class A Common Stock and Preferred Stock may occur in connection with the spin-off, which could cause the price of our Class A Common Stock and Preferred Stock to decline.

Although we have no actual knowledge of any plan or intention on the part of any significant shareholder to sell our capital stock following the spin-off, it is likely that some shareholders, possibly including our significant shareholders, will sell shares of our capital stock if, for reasons such as our business profile or market capitalization as a company independent from Sears, we do not fit their investment objectives. In particular, Sears Holdings is a member of the S&P 500 Index, while we will not be and, accordingly, certain Sears Holdings shareholders may elect or be required to sell our shares following the spin-off due to such shareholders’ own investment guidelines or other reasons.

The Class A Common Stock and Preferred Stock held by ESL and our “affiliates,” the Class B Common Stock and the Class C Common Stock may be sold in the public market only if registered or if the holders thereof qualify for an exemption from registration under Rule 144 under the Securities Act which is summarized under “Description of Our Capital Stock—Shares Eligible for Future Sale.” Individuals who may be considered our affiliates after the spin-off include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. These individuals may include

39

some or all of our directors and executive officers. Individuals who are our affiliates will be permitted to sell their shares of Class A Common Stock and Preferred Stock only pursuant to an effective Registration Statement under the Securities Act, or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(1) of the Securities Act or Rule 144 thereunder. As described under “Description of Our Capital Stock—Registration Rights Agreements,” pursuant to the new stockholders agreement we will be entering into with ESL and ACOF, we expect to grant registration rights to ESL and ACOF.

Sales of a substantial number of shares of Class A Common Stock or Preferred Stock could adversely affect the market price of the Class A Common Stock and Preferred Stock and could impair our future ability to raise capital through an offering of our equity securities. In addition, our Class C Common Stock, which immediately following the Distribution will constitute approximately 20% of the voting power of our capital stock, automatically converts to an equal number of shares of Class A Common Stock in the event ACOF transfers such shares to any person or entity that is not affiliated with ACOF or if at any time ACOF owns a number of shares of our Class B Common Stock and Class C Common Stock representing in the aggregate a percentage of our outstanding common stock that is less than 5% (calculated without reference to any shares of capital stock issued or issuable after the Distribution). As a result, sales of a substantial number of shares of Class C Common Stock by ACOF to an unaffiliated third party could also adversely affect the market price of shares of the Class A Common Stock. Additionally, the Class C Common Stock may be converted into Class A Common Stock on the basis of one share of Class A Common Stock for each share of Class C Common Stock upon the approval of our board of directors and subsequent approval of (i) our shareholders voting as a separate class and (ii) the holders of a majority of the voting power of the Class C Common Stock voting as a separate class.

Your percentage ownership in us will be diluted in the future.

Your percentage ownership in Orchard will be diluted in the future because of additional equity awards that we expect will be granted to our directors, officers and employees in the future. We intend to establish equity incentive plans that will provide for the grant of common stock-based equity awards to our directors, officers and other employees. Further, shares of Class C Common Stock held by ACOF will automatically convert into an equal number of shares of Class A Common Stock in certain circumstances. In addition, we may issue equity in order to raise capital or in connection with future acquisitions and strategic investments, which would dilute your percentage ownership.

Provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and of Delaware law may prevent or delay an acquisition of the Company, which could decrease the trading price of our Class A Common Stock and Preferred Stock.

Our proposed Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings and the right of our board to issue preferred stock without shareholder approval.

We believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board and by providing our board with more time to assess any acquisition proposal. However, these provisions apply even if the offer may be considered beneficial by some shareholders and could delay or prevent an acquisition that our board determines is not in the best interests of our company and our shareholders. Accordingly, in the event that our board determines that a potential business combination transaction is not in the best interests of our Company and our shareholders but certain shareholders believe that such a transaction would be beneficial to the Company and its shareholders, such shareholders may elect to sell their shares in the Company and the trading price of our Class A Common Stock and Preferred Stock could decrease.

40

The combined post-Distribution value of our Class A Common Stock and Preferred Stock may not equal or exceed the pre-Distribution value of Sears Holdings common stock.

After the Distribution, Sears Holdings common stock will continue to be listed and traded on the NASDAQ Global Select Market. We will apply to list our Class A Common Stock on the NASDAQ Capital Market under the symbol “OSH” and quote our Preferred Stock on the OTCQB, or the “Pink Sheets” or another OTC quotation system under the symbol “OSHPA”. “When-issued” trading on the NASDAQ Capital Market is expected to be under the symbol “OSHS.V,” which is different from “OSH,” our “regular-way” trading symbol. We cannot assure you that the combined trading prices of Sears Holdings common stock and our Class A Common Stock and Preferred Stock after the Distribution, as adjusted for any changes in the combined capitalization of these companies, will be equal to or greater than the trading price of Sears Holdings common stock prior to the Distribution. Until the market has fully evaluated the business of Sears Holdings without our business, the price at which Sears Holdings common stock trade may fluctuate. Similarly, until the market has fully evaluated our business, the price at which shares of our Class A Common Stock and Preferred Stock trade may fluctuate significantly.

It is expected that our Preferred Stock will be quoted on the OTCQB rather than listed on a national securities exchange, there may be limited liquidity in our Preferred Stock and the quote of our Preferred Stock may be volatile, all of which could limit your ability to sell your Preferred Shares.

Although our Class A Stock will be listed on the NASDAQ Capital Market, it is expected that our Preferred Stock will be quoted on the OTCQB, or the “Pink Sheets” or another OTC quotation system and will not be listed on any national securities exchange, which may limit the trading volume of our Preferred Stock. There is a greater chance for market volatility for securities that are quoted on OTC quotation system as opposed to a national securities exchange. This volatility may be caused by a variety of factors, including the lack of readily available quotations, the absence of consistent administrative supervision of “bid” and “ask” quotations, and generally lower trading volume.

The OTC quotation system is a regulated quotation service that displays real-time quotes, last-sale prices and volume information for shares of stock that are not listed on a national securities exchange. Trades in OTC quotation system securities will be displayed only if the trade is processed by an institution acting as a market maker for those securities. Although there initially will be at least one institution acting as a market maker for our shares, that institution will not be obligated to continue making a market for any specific period of time. Thus, there can be no assurance that any institution will be acting as a market maker for our stock at any time. If there is no market maker for our shares and no trades in those shares are reported, it may be difficult for you to dispose of your Preferred Shares or even to obtain accurate quotations as to the market price of your shares.

Moreover, because the order handling rules adopted by the SEC that apply to shares listed on a national securities exchange do not apply to OTC quotation system shares, no market maker will be required to maintain an orderly market in our shares. Accordingly, an order to sell our shares placed with a market maker may not be processed until a buyer for the shares is readily available, if at all, which may further limit your ability to sell your shares at prevailing market prices.

41

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

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

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

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

• our ability to offer merchandise and services that our customers want, including our proprietary brand products;

• competitive conditions in the home improvement retail industry;

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

• our ability to successfully manage our inventory levels;

• adverse changes in economic factors specific to the home improvement industry;

• sales fluctuations for a variety of reasons, including changes in our merchandising and promotional strategies;

• extended cold or wet weather in California, particularly during our spring selling season;

• availability of replacement financing upon the maturing of our existing financing arrangements;

• increases in interest rates;

• significant inflation in the U.S. and/or California;

• our ability to comply with the terms of our existing financing arrangements;

• catastrophic damage to our stores or distribution center due to natural disaster;

• our reliance on a single distribution center;

• our extensive reliance on computer systems to process transactions, summarize results and manage our business;

• our reliance on third parties to provide us with services in connection with the administration of certain aspects of our business;

• impairment charges for intangible and long-lived assets;

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

• the influence of certain members of our board of directors and their affiliates who have substantial influence over us;

• the outcome of pending and/or future legal or regulatory proceedings, including product liability claims and environmental claims;

42

• our inability to execute our growth strategy;

• our inability to maintain the security of customer, associate or company information;

• our inability to maintain our leases or enter into new leases in a timely manner;

• the impact of complying with increasingly stringent environmental laws and regulations;

• failure to timely and effectively obtain shipments of products from our vendors;

• our reliance on sources outside the U.S. for merchandise;

• our ability to maintain good relationships with our vendors;

• our ability to acquire commercial insurance at acceptable prices;

• our inability to protect or preserve our intellectual property or to defend ourselves against assertions of intellectual property by others;

• the inability of our historical financial statements to be indicative of our future performance;

• our continuing dependence on Sears Holdings subsequent to the spin-off and our inability to quickly and cost-effectively develop independent systems;

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

• our agreements related to the spin-off and our continuing relationship with Sears Holdings were negotiated while we were a majority owned subsidiary of Sears Holdings and we may have received better terms from an unaffiliated third party;

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

• our inability to maintain effective internal controls as a public company;

• our inability to pay dividends;

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

• the ability of our principal shareholders to exert substantial control over us or prevent a change of control;

• the impact on our capital stock in the event our principal shareholders alter their strategy with respect to us;

• the costs to shareholders in the event the spin-off is determined to be taxable for U.S. federal income tax purposes;

• our inability to engage in desirable strategic transactions and equity issuances due to restrictions related to the tax-free nature of the Distribution;

• our failure to fully realize expected benefits from the spin-off; and

• difficulty in operating as a publicly traded company independent from Sears Holdings.

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

43

THE SPIN-OFF

General

Sears Holdings regularly reviews and evaluates the various businesses that Sears Holdings conducts and the fit that these businesses have within its overall business and growth strategies to help ensure that Sears Holdings’ resources are being put to use in a manner that is in the best interests of Sears Holdings and its shareholders.

Sears Holdings has announced its plan to spin-off Orchard as a publicly traded company independent from Sears Holdings, to be accomplished by means of a pro rata dividend to Sears Holdings’ shareholders.

On                     , 2011, the distribution date, each Sears Holdings shareholder will receive              shares of Class A Common Stock and              shares of Preferred Stock for every              shares of Sears Holdings common stock held as of the close of business on the record date. Immediately following the Distribution, Sears Holdings’ shareholders will own approximately 80% of the general voting power of Orchard. You will not be required to make any payment, surrender or exchange your common stock of Sears Holdings or take any other action to receive your shares of Orchard Class A Common Stock and Preferred Stock.

Following the Distribution, we will be a publicly traded company independent from Sears Holdings, and Sears Holdings will not retain any ownership interest in us. However, we anticipate that immediately following the Distribution, ESL Investments, Inc. and affiliated entities (“ESL”), which currently owns approximately 61% of Sears Holdings common stock, will own approximately 61% of our outstanding Class A Common Stock, representing approximately 61% of Class A Common Stock voting power and approximately 49% of the general voting power of our outstanding capital stock. Following the spin-off, ESL will also own approximately 61% of our outstanding Preferred Stock, which is our outstanding nonvoting capital stock. As a result of ESL holding more than 50% of our voting power for the election of eight of ten directors immediately after the consummation of the Distribution, we may qualify as a “controlled company” under the Nasdaq Marketplace rules, which would allow us to rely on exemptions from certain corporate governance requirements otherwise applicable to Nasdaq-listed companies. However, we do not currently intend to rely on such exemptions.

The distribution of shares of our Class A Common Stock and Preferred Stock as described in this Prospectus is subject to the satisfaction of certain conditions. For a more detailed description of these conditions, see “—Spin-Off Conditions” below.

Reasons for the Spin-Off

Sears Holdings’ board of directors has determined that pursuing a disposition of Orchard through a spin-off is in the best interests of Sears Holdings and its shareholders, and that separating Orchard from Sears Holdings would provide, among other things, financial, operational and managerial benefits to both Orchard and Sears Holdings, including but not limited to the following expected benefits:

• Strategic Focus and Flexibility. Sears Holdings’ board of directors believes that following the spin-off, Orchard and Sears Holdings will each have more focused businesses and be better able to dedicate resources to pursue appropriate growth opportunities and execute strategic plans best suited to their respective businesses without regard for the other and in a more efficient manner.

• Focused Management. The spin-off will allow management of each company to devote its time and attention to the development and implementation of corporate strategies and policies that are based primarily on the specific business characteristics of the respective companies, and to design more tailored compensation structures that better reflect these strategies, policies, and business characteristics. In particular, in the case of Orchard, separate equity-based compensation arrangements should more closely align the interests of management with the interests of shareholders and more directly incentivize the employees of Orchard, which will allow Orchard to more efficiently recruit and retain such employees.

44

• Investor Choice. Sears Holdings’ board of directors believes that the spin-off is expected to increase investor understanding of Orchard and its market position within its industry, while also allowing for a more natural and interested investor base. Separating Orchard from Sears Holdings also allows investors to make independent decisions with respect to each of Sears Holdings and Orchard based on, among other factors, their different business models, strategies and industries. The spin-off will enable Sears Holdings to distribute its holdings of Orchard to its shareholders while allowing it to focus on its remaining segments going forward.

In determining whether to effect the spin-off, the board of directors of Sears Holdings also considered the costs and risks associated with the transaction, including those associated with preparing Orchard to become a publicly traded company independent from Sears Holdings, the risk of volatility in our and Sears Holdings’ stock price that may occur immediately following the spin-off, including the potential impact on the price of our Class A Common Stock and Preferred Stock due to sales by our shareholders whose investment objectives may not be met by our Class A Common Stock and Preferred Stock and the time that it may take for us to attract our optimal shareholder base. Notwithstanding these costs and risks, however, Sears Holdings’ board of directors determined that a spin-off, in the form contemplated by the Distribution, and the combined but separate ownership of Sears Holdings common stock and Orchard Class A Common Stock and Preferred Stock is the best alternative to enhance long-term shareholder value relative to other strategic alternatives involving Orchard.

Manner of Effecting the Spin-Off

For every              shares of Sears Holdings common stock that you own as of the close of business on                     , 2011, the record date, you will receive              shares of our Class A Common Stock and              shares of our Preferred Stock on the distribution date. Fractional shares of Class A Common Stock or Preferred Stock will not be distributed to Sears Holdings’ shareholders. Instead, a distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds of the sales pro rata, based on the fractional share such holder would otherwise be entitled to receive, to each holder who otherwise would have been entitled to receive a fractional share in the Distribution. Accordingly, if you hold fewer than              shares of Sears Holdings common stock as of the record date, you will not receive any shares of our Class A Common Stock or Preferred Stock; however, you will receive a cash distribution from our distribution agent representing the proceeds from the sale of the fractional share to which you are otherwise entitled, net of brokerage fees and other costs. The distribution agent, in its sole discretion, without any influence by Sears Holdings or us, will determine when, how, through which broker-dealer and at what price to sell the whole shares. Any broker-dealer used by the distribution agent will not be an affiliate of either Sears Holdings or us.

The aggregate net cash proceeds of these sales generally will be taxable for U.S. federal income tax purposes. See “—Material U.S. Federal Income Tax Consequences of the Spin-Off” for an explanation of the tax consequences of the Distribution. If you physically hold certificates for Sears Holdings common stock and are the registered holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of the aggregate net cash proceeds of the sales. We estimate that it will take approximately ten business days from the distribution date for the distribution agent to complete the distributions of the aggregate net cash proceeds. If you hold your Sears Holdings common stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales and will electronically credit your account for your share of such proceeds. Shareholders should consult their bank or broker for further detail.

Sears Holdings will distribute shares of our Class A Common Stock and Preferred Stock on                     , 2011, the distribution date. Wells Fargo Bank, N.A. will serve as transfer agent and registrar for our Class A Common Stock and Preferred Stock.

If you own Sears Holdings common stock as of the close of business on the record date, the Class A Common Stock and Preferred Stock that you are otherwise entitled to receive in the Distribution will be issued

45

electronically, as of the distribution date, to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form. Registration in book-entry form refers to a method of recording share ownership when no physical share certificates are issued to shareholders, as is the case in this Distribution. If you sell Sears Holdings common stock in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of our Class A Common Stock and Preferred Stock in the Distribution.

Commencing on or shortly after the distribution date, if you hold physical share certificates that represent your common stock of Sears Holdings and you are the registered holder of the Sears Holdings shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of our Class A Common Stock and Preferred Stock that have been registered in book-entry form in your name.

Most Sears Holdings shareholders hold their common stock of Sears Holdings through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your Sears Holdings common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares of Class A Common Stock and Preferred Stock that you are entitled to receive in the Distribution. If you have any questions concerning the mechanics of having shares held in “street name,” we encourage you to contact your bank or brokerage firm.

Results of the Spin-Off

After our separation from Sears Holdings, we will be a publicly traded company independent from Sears Holdings. Immediately following the Distribution, we expect to have approximately              shareholders of record, based on the number of registered holders of Sears Holdings common stock on                     , 2011 and the number of registered holders of Class B Common Stock and Class C Common Stock that we expect to have immediately following the Distribution. Our outstanding capital stock immediately following the Distribution will consist of approximately              shares of Class A Common Stock, approximately              shares of Class B Common Stock, approximately              shares of Class C Common Stock and approximately              shares of Preferred Stock (excluding, in each case, the shares to be received by Sears Holdings in respect of Sears Holdings treasury shares that will contributed to us for cancellation immediately following the Distribution). The actual number of shares to be distributed will be determined on the record date and will reflect any issuance of new shares pursuant to Sears Holdings’ equity plans, and any shares repurchased by Sears Holdings under its common share repurchase program, in each case on or prior to the record date. The Distribution will not affect the number of outstanding shares of Sears Holdings common stock or any rights of Sears Holdings’ shareholders.

Before the Distribution, we will enter into the Distribution Agreement and other agreements with Sears Holdings to effect the Distribution and provide a framework for our relationship with Sears Holdings after the Distribution. These agreements will govern the relationship between Sears Holdings and us subsequent to the completion of the spin-off and provide for the principal steps to be taken in connection with the spin-off and other matters. For a detailed description of these agreements, see “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings” in this Prospectus.

Material U.S. Federal Income Tax Consequences of the Spin-Off

The following is a summary of the material U.S. federal income tax consequences to Sears Holdings and to the holders of Sears Holdings common stock in connection with the spin-off. This summary is based on the Code, the Treasury Regulations promulgated thereunder and judicial and administrative interpretations thereof, in each case as in effect and available as of the date of this Prospectus and all of which are subject to change at any time, possibly with retroactive effect. Any such change could affect the tax consequences described below.

46

This summary is limited to holders of Sears Holdings common stock that are U.S. Holders, as defined immediately below. A “U.S. Holder” is a beneficial owner of Sears Holdings common stock that is, for U.S. federal income tax purposes:

• an individual who is a citizen or a resident of the United States;

• a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof or the District of Columbia;

• an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

• a trust, if (i) a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable Treasury Regulations.

This summary also does not discuss all tax considerations that may be relevant to shareholders in light of their particular circumstances, nor does it address the consequences to shareholders subject to special treatment under the U.S. federal income tax laws, such as:

• dealers or traders in securities or currencies;

• tax-exempt entities;

• banks, financial institutions or insurance companies;

• persons who acquired Sears Holdings common stock pursuant to the exercise of employee stock options or otherwise as compensation;

• shareholders who own, or are deemed to own, at least 10% or more, by voting power or value, of Sears Holdings equity;

• holders owning Sears Holdings common stock as part of a position in a straddle or as part of a hedging, conversion or other risk reduction transaction for U.S. federal income tax purposes;

• certain former citizens or long-term residents of the United States;

• holders who are subject to the alternative minimum tax; or

• person that owns Sears Holdings common stock through partnerships or other pass-through entities.

This summary does not address the U.S. federal income tax consequences to Sears Holdings shareholders who do not hold Sears Holdings common stock as a capital asset. Moreover, this summary does not address any state, local or non-U.S. tax consequences or any estate, gift or other non-income tax consequences.

If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds Sears Holdings common stock, the tax treatment of a partner in that partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its own tax advisor as to its tax consequences.

YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE DISTRIBUTION. THIS SUMMARY IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR INVESTOR.

Sears Holdings has received an IRS Ruling substantially to the effect that, for U.S. federal income tax purposes, the Distribution will qualify as tax-free under Section 355 of the Code, except for any cash received in lieu of a fractional share of our Class A Common Stock and Preferred Stock. The IRS Ruling also provides that certain internal transactions undertaken in anticipation of the Distribution will qualify for nonrecognition

47

treatment under the Code. The IRS Ruling is binding upon the Internal Revenue Service, but its continued validity is subject to factual representations that we and Sears Holdings made to the Internal Revenue Service concerning certain conditions that are necessary to obtain tax-free treatment under the Code have been satisfied.

In addition to the IRS Ruling, Sears Holdings expects to receive an opinion from the law firm of Simpson Thacher & Bartlett LLP as to the satisfaction of certain requirements necessary for the spin-off to receive tax-free treatment under Section 355 of the Code upon which the Internal Revenue Service will not rule. The opinion will be based on, among other things, current tax law and assumptions and representations made by us and Sears Holdings, which if incorrect in certain material respects, would jeopardize the conclusions reached by Simpson Thacher & Bartlett LLP in its opinion. The opinion of counsel will not be binding on the Internal Revenue Service or the courts. For these reasons and the reasons discussed above in connection with the IRS Ruling, notwithstanding receipt by Sears Holdings of the IRS Ruling and the opinion of counsel, the Internal Revenue Service could assert successfully that the Distribution was taxable.

Subject to the limitations and qualifications described herein, and on the basis of the receipt of the IRS Ruling, the following is the opinion of Simpson Thacher & Bartlett LLP as to the material U.S. federal income tax consequences of the spin-off to U.S. Holders of Sears Holdings common stock:

• subject to the discussion below regarding Section 355(e), no gain or loss will be recognized by Sears Holdings as a result of the Distribution;

• no gain or loss will be recognized by, or be includible in the income of, a holder of Sears Holdings common stock, solely as a result of the receipt of our Class A Common Stock and Preferred Stock in the Distribution, except with respect to any cash received in lieu of fractional shares;

• the aggregate tax basis of the Sears Holdings common stock and shares of our Class A Common Stock and Preferred Stock in the hands of Sears Holdings’ shareholders immediately after the spin-off will be the same as the aggregate tax basis of the Sears Holdings common stock held by the holder immediately before the spin-off, allocated between the common stock of Sears Holdings and shares of our Class A Common Stock and Preferred Stock, including any fractional share interest for which cash is received, in proportion to their relative fair market values on the date of the spin-off;

• the holding period of shares of our Class A Common Stock and Preferred Stock received by Sears Holdings’ shareholders will include the holding period of their Sears Holdings common stock, provided that such Sears Holdings common stock is held as a capital asset on the date of the spin-off; and

• a Sears Holdings shareholder who receives cash in lieu of a fractional share of our Class A Common Stock in the Distribution will be treated as having sold such fractional share for the amount of cash received and generally will recognize capital gain or loss in an amount equal to the difference between the amount of such cash received and such shareholder’s adjusted tax basis in the fractional share. That gain or loss will be long-term capital gain or loss if the shareholder’s holding period for its Sears Holdings common stock exceeds one year.

Sears Holdings’ shareholders that have acquired different blocks of Sears Holdings common stock at different times or at different prices should consult their tax advisors regarding the allocation of their aggregate adjusted basis among, and their holding period of, shares of our Class A Common Stock and Preferred Stock distributed with respect to such blocks of Sears Holdings common stock.

Any Preferred Stock received by a Sears Holdings shareholder in the Distribution will constitute “Section 306 stock” for U.S. federal income tax purposes. As a result, any cash received in lieu of fractional shares of Preferred Stock by a Sears Holdings shareholder generally will be treated as ordinary dividend income. Furthermore, proceeds of a disposition of such Preferred Stock may be treated as ordinary dividend income even if such proceeds would otherwise have resulted in capital gain or do not exceed such shareholder’s basis in our Preferred Stock. Similarly, proceeds on redemption by us of such Preferred Stock generally would also be treated

48

as ordinary dividend income even if the proceeds would not otherwise have been so treated. Any such deemed ordinary dividend income will not be eligible for the dividends received deduction that might otherwise be applicable to corporate U.S. Holders. If a Sears Holdings shareholder disposes of our Preferred Stock in a transaction that terminates such shareholder’s entire interest in us (including any of our Class A Common Stock and taking into account certain constructive ownership rules), the special rules applicable to Section 306 stock will not apply. Subject to applicable limitations, non-corporate U.S. Holders generally will be eligible for reduced rates of taxation as “qualified dividend income” under the Code on any such disposition or redemption, including the amount of any cash received in lieu of fractional shares (in the event such amounts are treated as ordinary dividend income), in taxable years beginning before January 1, 2013. The rules relating to Section 306 stock are complicated and shareholders are urged to consult their own tax advisors regarding the application of those rules.

U.S. Treasury Regulations require certain shareholders that receive stock in a spin-off to attach to their respective U.S. federal income tax returns, for the year in which the spin-off occurs, a detailed statement setting forth certain information relating to the spin-off. Within a reasonable period of time after the distribution, Sears Holdings expects to make available to its shareholders information pertaining to compliance with this requirement.

If the Distribution were not to qualify as a tax-free spin-off for U.S. federal income tax purposes, each Sears Holdings shareholder that receives shares of our Class A Common Stock and Preferred Stock (which, in such event, would not be treated as “Section 306 stock” as described above) in the Distribution would be treated as receiving a taxable distribution in an amount equal to the fair market value of such shares, which generally would be treated in the following manner:

• first as a taxable dividend to the extent of such shareholder’s pro rata share of Sears Holdings’ current and accumulated earnings and profits;

• then as a non-taxable return of capital to the extent of such shareholder’s tax basis in its Sears Holdings common stock; and

• thereafter as capital gain with respect to any remaining value.

Additionally, each shareholder’s basis in the Class A Common Stock and Preferred Stock would be equal to its fair market value on the date of the Distribution. Furthermore, Sears Holdings would recognize a taxable gain to the extent the fair market value of our Class A Common Stock and Preferred Stock exceeds Sears Holdings’ tax basis in our Class A Common Stock and Preferred Stock prior to the spin-off.

Even if the Distribution otherwise qualifies for tax-free treatment under Section 355 of the Code, it may be taxable to Sears Holdings (but not Sears Holdings’ shareholders) under Section 355(e) if 50% or more, by vote or value, of shares of our Class A Common Stock and Preferred Stock or Sears Holdings’ common stock are acquired or issued as part of a plan or series of related transactions that includes the Distribution. For this purpose, any acquisitions or issuances of Sears Holdings’ common stock within two years before the Distribution, and any acquisitions or issuances of our Class A Common Stock and Preferred Stock or Sears Holdings’ common stock within two years after the Distribution, generally are presumed to be part of such a plan, although we or Sears Holdings may be able to rebut that presumption. Even if these rules were to apply to cause the spin-off to be taxable to Sears Holdings, it would remain tax-free to the Sears Holdings shareholders.

In connection with the Distribution, we and Sears Holdings will enter into the Distribution Agreement, whereby we will agree to be subject to certain restrictions to preserve the tax-free nature of the spin-off. For a description of the Distribution Agreement, see “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings—Distribution Agreement.”

Sears Holdings’ shareholders should consult their own tax advisors as to the specific tax consequences of the spin-off to them, including the application and effect of state, local or non-U.S. tax laws and of changes in applicable tax laws.

49

Listing and Trading of Class A Common Stock and Preferred Stock

As of the date of this Prospectus, we are a majority-owned subsidiary of Sears Holdings. Accordingly, there is currently no public market for our capital stock, although a “when-issued” market in our Class A Common Stock and Preferred Stock may develop prior to the Distribution. See “—Trading Prior to the Distribution Date” below for an explanation of a “when-issued” market. We intend to list our shares of Class A Common Stock on the NASDAQ Capital Market under the symbol “OSH” and quote our shares of Preferred Stock on the OTCQB, or the “Pink Sheets” or another OTC quotation system under the trading symbol “OSHPA”. “When-issued” trading on the NASDAQ Capital Market is expected to be under the symbol “OSHS.V,” which is different from “OSH,” our “regular-way” trading symbol.

Following the spin-off, Sears Holdings common stock will continue to trade on the NASDAQ Global Select Market under the symbol “SHLD”.

Neither we nor Sears Holdings can assure you as to the trading price of Sears Holdings common stock or our Class A Common Stock and Preferred Stock after the spin-off, or as to whether the combined trading prices of our Class A Common Stock and Preferred Stock and Sears Holdings common stock after the spin-off will be less than, equal to or greater than the trading prices of Sears Holdings common stock prior to the spin-off. The trading price of our Class A Common Stock and Preferred Stock may fluctuate significantly following the spin-off. See “Risk Factors—Risks Related to Our Class A Common Stock and Preferred Stock and the Securities Market” in this Prospectus for more detail.

The shares of Class A Common Stock and Preferred Stock distributed to Sears Holdings shareholders will be freely transferable, except for shares received by entities and individuals who are our affiliates. Entities and individuals who may be considered our affiliates after the spin-off include entities and individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. These entities and individuals may include some or all of our directors and executive officers. Individuals who are our affiliates will be permitted to sell their shares of Class A Common Stock and Preferred Stock only pursuant to an effective Registration Statement under the Securities Act of 1933, as amended (which we refer to in this Prospectus as the Securities Act), or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(1) of the Securities Act or Rule 144 thereunder.

Trading Prior to the Distribution Date

It is anticipated that, as early as two trading days prior to the record date and continuing up to and including the distribution date, there will be a “when-issued” market in our Class A Common Stock and Preferred Stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for our Class A Common Stock and Preferred Stock that will be distributed to Sears Holdings shareholders on the distribution date. If you own Sears Holdings common stock at the close of business on the record date, you will be entitled to shares of Class A Common Stock and Preferred Stock distributed pursuant to the spin-off or a cash payment for your fractional shares as described above in “—Manner of Effecting the Spin-Off” or both. You may trade this entitlement to shares of Class A Common Stock and Preferred Stock, without the Sears Holdings common stock you own, on the “when-issued” market. On the first trading day following the distribution date, we expect when-issued trading with respect to our Class A Common Stock and Preferred Stock will end and regular-way trading will begin.

Following the distribution date, we expect our Class A Common Stock to be listed on the NASDAQ Capital Market under the trading symbol “OSH” and our Preferred Stock to be quoted on the OTCQB, or the “Pink Sheets” or another OTC quotation system under the trading symbol “OSHPA”. “When-issued” trading on the NASDAQ Capital Market is expected to be under the symbol “OSHS.V,” which is different from “OSH,” our “regular-way” trading symbol.

50

It is also anticipated that, as early as two trading days prior to the record date and continuing up to and including the distribution date, there will be two markets in Sears Holdings common stock: a “regular-way” market and an “ex-distribution” market. Sears Holdings common stock that trades on the regular-way market will trade with an entitlement to shares of Class A Common Stock and Preferred Stock distributed pursuant to the Distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of Class A Common Stock and Preferred Stock distributed pursuant to the Distribution. Therefore, if you sell Sears Holdings common stock in the regular-way market up to and including the distribution date, you will be selling your right to receive shares of Class A Common Stock and Preferred Stock in the Distribution. However, if you own Sears Holdings common stock at the close of business on the record date and sell those shares on the ex-distribution market up to and including the distribution date, you will still receive the shares of Class A Common Stock and Preferred Stock that you would otherwise be entitled to receive pursuant to the Distribution.

Spin-Off Conditions

The spin-off is subject to the satisfaction or waiver by Sears Holdings of the following conditions:

• the Sears Holdings board of directors shall have authorized and approved the Distribution and related transactions and not withdrawn such authorization and approval, and shall have declared the dividend of Class A Common Stock and Preferred Stock to Sears Holdings shareholders;

• each ancillary agreement contemplated by the distribution agreement between Orchard and Sears Holdings (the “Distribution Agreement”) shall have been executed by each party thereto;

• the Securities and Exchange Commission (the “SEC”) shall have declared effective our Registration Statement on Form S-1, of which this Prospectus is a part, under the Securities Act of 1933, as amended (which we refer to in this Prospectus as the Securities Act), and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the SEC;

• our Class A Common Stock shall have been accepted for listing on the NASDAQ Capital Market or another national securities exchange or quotation system approved by Sears Holdings and our Preferred Stock shall have been accepted for quotation on the OTCQB, or the “Pink Sheets” or another OTC quotation system, subject to official notice of issuance in each case;

• Sears Holdings shall have received the written opinion of Simpson Thacher & Bartlett LLP as to the satisfaction of certain requirements necessary for the spin-off to receive tax-free treatment under Section 355 of the Code upon which the IRS will not rule;

• the Internal Transactions (as described in “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings—Distribution Agreement” in this Prospectus) shall have been completed;

• no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Distribution shall be in effect, and no other event outside the control of Sears Holdings shall have occurred or failed to occur that prevents the consummation of the Distribution;

• no other events or developments shall have occurred prior to the Distribution that, in the judgment of the board of directors of Sears Holdings, would result in the Distribution having a material adverse effect on Sears Holdings or the shareholders of Sears Holdings;

• Sears Holdings shall have received a certificate signed by our Chief Financial Officer, dated as of the distribution date, certifying that prior to the Distribution we have made capital and other expenditures, and have operated our cash management, accounts payable and receivables collection systems, in the ordinary course consistent with prior practice;

• prior to the distribution date, this Prospectus shall have been made available to the holders of Sears Holdings common stock as of the record date;

51

• our current directors shall have duly elected the individuals listed as members of our post-Distribution board of directors in this Prospectus, and such individuals shall be the members of our board of directors immediately after the Distribution;

• prior to the Distribution, Sears Holdings shall deliver or cause to be delivered to Orchard resignations, effective as of immediately after the Distribution, of each individual who will be an officer or director of Sears Holdings after the Distribution and who is an officer or director of Orchard immediately prior to the Distribution;

• immediately prior to the Distribution, our amended and restated certificate of incorporation (“Amended and Restated Certificate of Incorporation”) and Amended and Restated Bylaws (“Amended and Restated Bylaws”), each in substantially the form filed as an exhibit to the Registration Statement on Form S-1 of which this Prospectus is a part, shall be in effect; and

• the IRS Ruling received by Sears Holdings shall not have been revoked or modified in any material respect.

The fulfillment of the foregoing conditions will not create any obligation on the part of Sears Holdings to effect the spin-off. We are not aware of any material federal or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations and the declaration of effectiveness of the Registration Statement by the SEC, in connection with the Distribution. Sears Holdings has the right not to complete the spin-off if, at any time, the board of directors of Sears Holdings determines, in its sole discretion, that the spin-off is not in the best interests of Sears Holdings or its shareholders, or that market conditions are such that it is not advisable to effect the Distribution. In addition, Sears Holdings may at any time and from time to time until the Distribution decide to abandon the Distribution or modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution.

Treatment of 401(k) Plan Shares for Current and Former Employees

Orchard Employees Invested in the Sears Holdings Stock Fund of the Orchard Supply Hardware Retirement Savings Plan.

Orchard employees were previously eligible to participate under the Sears Holdings 401(k) Savings Plan. Effective July 18, 2011, Orchard established the Orchard Supply Hardware Retirement Savings Plan (the “Orchard Savings Plan”). The account balances of our employees, including any shares of Sears Holdings common stock held in the Sears Holdings Stock Fund under the Sears Holdings 401(k) Savings Plan, were transferred by a trust to trust transfer from the Sears Holdings 401(k) Savings Plan to the Orchard Savings Plan on August 4, 2011, and under the Orchard Savings Plan this is a closed fund. Based on the record date for the Distribution, the trust of the Orchard Savings Plan will, on behalf of plan participants, receive on the distribution date              shares of our Class A Common Stock and              shares of our Preferred Stock for every              shares of Sears Holdings common stock held in the Sears Holdings Stock Fund under the Orchard Savings Plan. The Orchard Savings Plan fiduciary will determine whether it will direct the trustee of the trust of the plan to (a) take steps to liquidate the Orchard shares in an expeditious and prudent manner and then to allocate the proceeds in the same manner as a cash dividend under the Sears Holdings Stock Fund of the plan or (b) establish an Orchard stock fund under the plan. In either case, the affected participants of the Orchard Savings Plan will be notified which alternative will apply under the plan.

Participants of the Orchard Savings Plan are no longer permitted to make new purchases of Sears Holdings common stock through their plan accounts. As to those shares of the Sears Holdings common stock held by the Orchard Savings Plan at the time of the Distribution, participants may direct that the shares be exchanged for a different investment alternative in accordance with plan terms or may decide to remain invested in the shares until such time as the applicable plan fiduciary decides that the Orchard Savings Plan will no longer permit any investment in Sears Holdings common stock. At that time, the plan will dispose of all remaining Sears Holdings

52

shares held in participant accounts and invest the proceeds in another investment alternative to be determined by the plan fiduciary. (This will not prohibit diversified, collectively managed investment alternatives available under the Orchard Savings Plan from holding Sears Holdings common stock or prohibit Orchard Savings Plan participants using self-directed accounts, if available, from investing these accounts in Sears Holdings common stock).

Sears Holdings Employees Invested in the Sears Holdings Stock Fund of another Company-Sponsored Savings Plan within the Sears Holdings Controlled Group of Corporations.

Current and former Sears Holdings employees hold Sears Holdings common stock under the Sears Holdings Stock Fund in an account under the Sears Holdings 401(k) Savings Plan, the Sears Puerto Rico Savings Plan, the Kmart Retirement Savings Plan for Puerto Rico Employee and the Lands’ End, Inc. Retirement Plan (collectively, the “Savings Plans,” which excludes the Orchard Savings Plan). Based on the record date for the Distribution, the trust of each Savings Plan will, on behalf of each Savings Plan participant, receive on the distribution date              shares of Orchard Class A Common Stock and Preferred Stock in the Distribution for every              shares of Sears Holdings common stock held in the Sears Holdings Stock Fund under the applicable Savings Plan. The applicable Savings Plan fiduciary for each Savings Plan will determine whether it will direct the applicable trustee or custodian of the trust of such plan to (a) take steps to liquidate the Orchard shares in an expeditious and prudent manner and then allocate the proceeds in the same manner as a cash dividend under the Sears Holdings Stock Fund of such plan or (b) establish a temporary Orchard stock fund under such plan. In either case, the affected participants of each Savings Plan will be notified which alternative will apply under his/her plan.

If a fiduciary decides to establish a temporary Orchard stock fund to hold Orchard shares received in the Distribution, participants will not be permitted to purchase additional shares of Orchard stock through such fund. A participant may direct that the Orchard Class A Common Stock and Preferred Stock held by the participant be exchanged for a different investment alternative in accordance with plan rules or may decide to remain invested in the Orchard shares until such time as the applicable Savings Plan fiduciary decides that the plan will no longer permit investment in Orchard shares. At that time, the plan shall dispose of all remaining Orchard shares held in participant accounts and invest the proceeds in another investment alternative to be determined by the plan fiduciary. This will not prohibit diversified, collectively managed investment alternatives available under the Savings Plans from holding Orchard Class A Common Stock and Preferred Stock or prohibit employees using self-directed accounts in the Savings Plans from investing these accounts in Orchard Class A Common Stock and Preferred Stock.

Reason for Furnishing this Prospectus

This Prospectus is being furnished solely to provide information to Sears Holdings shareholders who will receive shares of Class A Common Stock and Preferred Stock in the Distribution. It is not to be construed as an inducement or encouragement to buy or sell any of our securities or any securities of Sears Holdings, nor is it to be construed as a solicitation of proxies in respect of the proposed distribution or any other matter. We believe that the information contained in this Prospectus is accurate as of the date set forth on the cover. Changes to the information contained in this Prospectus may occur after that date, and neither we nor Sears Holdings undertakes any obligation to update the information except in the normal course of our respective public disclosure obligations and practices.

53

DIVIDEND POLICY

We do not expect to pay dividends on our Class A Common Stock, Preferred Stock or any other shares of our capital stock for the foreseeable future. The terms of the Preferred Stock will provide that dividends and other distributions may not be paid on any shares of our capital stock until all outstanding shares of the Preferred Stock have been redeemed or repurchased unless such dividend or distribution (i) has been unanimously approved by our board of directors, (ii) relates to a “poison pill” stockholder rights plan or (iii) is a distribution of cash in lieu of fractional shares made in connection with this Distribution. In addition, the terms of the Preferred Stock do not entitle the holders thereof to any dividends.

54

CAPITALIZATION

The following table presents our capitalization as of July 30, 2011 on (i) an actual unaudited historical basis and (ii) on an unaudited pro forma basis as adjusted to give effect to the Distribution and the transactions related to the Distribution, including:

• causing our Amended and Restated Certificate of Incorporation that authorizes our Class C Common Stock to become effective;

• the exchange by ACOF I LLC of its              shares of Class A Common Stock for              shares of Class C Common Stock;

• a             –for–             forward stock split of our Class A Common Stock, Class B Common Stock and Class C Common Stock that we intend to effect prior to the Distribution;

• causing our Preferred Stock to be issued to Sears Roebuck;

• the distribution by Sears Roebuck to Sears Holdings of all of the Class A Common Stock and Preferred Stock held by Sears Roebuck; and

• the effectuation of the Distribution.

	As of July 30, 2011
	(unaudited) (in thousands, except share numbers)
	Actual		Pro Forma
Debt Outstanding:
Current maturities of long-term debt, including due to Sears Holdings	$	13,407	$	13,407
Long-term debt, net, including due to Sears Holdings		310,532		310,532
Total debt	$	323,939	$	323,939
Shareholders’ Equity:
Class A Common Stock, par value $0.01 per share authorized [1,049,000] shares; issued and outstanding [1,000,000] shares; issued and outstanding [            ] shares pro forma		10		10
Class B Common Stock, par value $0.01 per share authorized [1,049,000] shares; issued and outstanding [1,440] shares; issued and outstanding [            ] shares pro forma		—		—
Class C Common Stock, par value $0.01 per share authorized [            ] shares; issued and outstanding [            ] shares; issued and outstanding [            ] shares pro forma		—		—
Preferred Stock, par value $0.01 per share authorized [            ] shares; issued and outstanding [            ] shares; issued and outstanding [            ] shares pro forma		—		—
Total Capitalization (debt plus shareholders’ equity)	$	323,949	$	323,949

This table should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the consolidated financial statements and accompanying notes and the “Unaudited Pro Forma Consolidated Financial Statements” and accompanying notes included elsewhere in this Prospectus.

55

The number of shares of capital stock shown as issued and outstanding in the above table excludes:

• options to purchase 34,488 shares of Class B Common Stock with a weighted average exercise price of $199.97 per share outstanding as of July 30, 2011, exercisable into an equal number of shares of Class B Common Stock, on a pro forma basis reflecting a             -to-             stock split that we intend to effect prior to the Distribution;

•              shares of Class A Common Stock reserved for future issuance under our 2011 Equity Incentive Plan, which will become effective in connection with the Distribution; and

• 76,859 shares of Class B Common Stock reserved for future issuance under our 2010 Stock Incentive Plan.

We have not yet finalized our post-Distribution capitalization. We intend to update this Prospectus to reflect our post-Distribution capitalization.

56

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table includes the historical selected consolidated financial and other financial data of Orchard. The consolidated statements of operations data set forth below for the fiscal years ended January 31, 2009, January 30, 2010, and January 29, 2011 and the consolidated balance sheet data as of January 30, 2010 and January 29, 2011 are derived from our audited consolidated financial statements included elsewhere in this Prospectus. The consolidated statements of operations data for the fiscal years ended February 3, 2007 and February 2, 2008 and the consolidated balance sheet data as of February 3, 2007, February 2, 2008, and January 31, 2009 are derived from consolidated financial statements that are not included in this Prospectus. The consolidated statements of operations data set forth below for the 13 weeks and 26 weeks ended July 31, 2010 and July 30, 2011 and the consolidated balance sheet data as of July 31, 2010 and July 30, 2011 are derived from our unaudited condensed consolidated financial statements included elsewhere in this Prospectus.

The selected historical consolidated financial and other financial data presented below should be read in conjunction with our consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Prospectus. Our consolidated financial information may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a publicly traded company independent from Sears Holdings during the periods presented, including changes that will occur in our operations and capitalization as a result of the Distribution and spin-off from Sears Holdings.

	Fiscal Year												13 Weeks Ended				26 Weeks Ended
	2006		2007			2008			2009		2010		July 31, 2010		July 30, 2011		July 31, 2010		July 30, 2011
	(in thousands, except per share)
Consolidated Statement of Operations Data(1):
Net sales	$	888,558	$	834,741		$	761,489		$	682,393	$	660,701	$	195,032	$	196,437	$	364,683	$	360,205
Net income (loss)(2)		25,944		14,389			(243,367	)		19,305		8,717		8,140		3,891		12,574		2,901
Basic and diluted incomes (loss) per share		25.89		(2.14	)		(242.88	)		19.27		8.70		8.12		3.88		12.55		2.90
Basic and diluted weighted average common shares outstanding		1,002		1,002			1,002			1,002		1,002		1,002		1,002		1,002		1,002
Consolidated Balance Sheet Data:
Total assets	$	947,467	$	914,348		$	636,166		$	621,546	$	629,992	$	632,767	$	613,031	$	632,767	$	613,031
Long-term debt and capital lease obligations(3)		416,179		382,167			357,903			238,261		318,928		236,846		310,532		236,846		310,532
Other long-term liabilities		6,402		10,830			14,881			15,797		16,338		15,162		18,029		15,162		18,029
Other Financial Data:
Adjusted EBITDA(4)	$	112,128	$	93,593		$	84,831		$	80,746	$	69,392	$	24,919	$	19,660	$	44,734	$	30,826

(1) Our fiscal year end is the Saturday closest to January 31 each year. Accordingly, our fiscal 2006 results contain a 53-week period, whereas fiscal years 2010, 2009, 2008, and 2007 contained 52 fiscal week periods. Our fiscal first quarter end is the Saturday closest to April 30 each year.

(2) We recorded a goodwill impairment charge of $262.8 million in fiscal 2008.

(3) Excludes current portion. At the end of fiscal 2009 and May 1, 2010, $120.0 million of debt under the commercial mortgage-backed securities loan was classified as short-term, matured in December 2010.

(4) Adjusted EBITDA is calculated as described below.

In addition to our net income (loss) determined in accordance with GAAP, for purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”). In addition, it is adjusted to exclude certain significant items as set forth below. Our

57

management uses Adjusted EBITDA to evaluate the operating performance of our business, as well as executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. The Adjusted EBITDA should not be considered as a substitute for GAAP measurements.

We believe Adjusted EBITDA is used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:

• EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired; and

• investors commonly use Adjusted EBITDA and Adjusted Net Income to eliminate the effect of restructuring and stock-based compensation expenses, which vary widely from company to company and prevent comparability.

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

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

• management considers gain/(loss) on the sale of assets and impairments to result from investing decisions rather than ongoing operations; and

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

Adjusted EBITDA was determined as follows:

(in thousands)	Fiscal Year												13 Weeks Ended				26 Weeks Ended
	2006		2007			2008			2009		2010		July 31, 2010		July 30, 2011		July 31, 2010		July 30, 2011
Net income (loss)	$	25,944	$	14,389		$	(243,367	)	$	19,305	$	8,717	$	8,140	$	3,891	$	12,574	$	2,901
Interest expense, net		37,684		30,135			22,875			16,770		17,392		4,236		5,517		8,458		11,071
Income tax expense (benefit)		16,758		12,491			10,304			12,749		5,573		5,150		2,672		8,039		2,073
Depreciation and amortization		31,127		35,324			31,410			29,870		31,187		7,247		7,504		15,316		14,667
Goodwill impairment							262,763
(Gain) loss on disposal, sale and impairment of assets				(484	)					275		633		11		12		145		97
Stock-based compensation		615		325			125			495		329		135		64		202		210
Other significant items				1,413			721			1,282		5,561								(193	)
Adjusted EBITDA	$	112,128	$	93,593		$	84,831		$	80,746	$	69,392	$	24,919	$	19,660	$	44,734	$	30,826

The Adjusted EBITDA is not the same as the EBITDA as defined in our Senior Secured Term Loan.

Other significant items include certain reserves and charges not in the normal course of our operations periodically affecting the comparability of our results. In fiscal 2007, the Company settled two class action wage and hour lawsuits that alleged certain violations of the California Labor Code. We accrued $5.0 million in fiscal 2007 for these two lawsuits and subsequently received $3.6 million from Sears Holdings pursuant to the Sears indemnification. We have recorded a $0.7 million and $1.3 million in severance charges in fiscal 2008 and 2009, respectively, in connection with our cost cutting initiatives. In fiscal 2010, we recorded a $5.6 million legal settlement reserve pursuant to the Save Mart case. In the first quarter of fiscal 2011, we reversed $0.5 million of the Save Mart accrual as we no longer expected to pay that amount. We have also recorded a $0.3 million severance charge in the first quarter of fiscal 2011 due to changes in our management structure.

58

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma financial statements are derived from the historical consolidated financial statements of Orchard, which are included elsewhere in this Prospectus. The pro forma adjustments give effect to the spin-off and the related transactions, as described in the notes to the unaudited pro forma financial statements. The unaudited pro forma financial data for fiscal 2010, the second quarter of fiscal 2011 and the first half of fiscal 2011 give effect to the spin-off as if it has occurred on January 31, 2010, the first day of fiscal 2010. The unaudited pro forma statements include adjustments to reflect the following transactions:

• the new terms under the Appliances Agreement with a subsidiary of Sears Holdings, and

• the new terms under the Brands Agreements with a subsidiary of Sears Holdings.

The assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma consolidated financial information. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information, and we believe such assumptions are reasonable under the circumstances.

The following unaudited pro forma financial statements should be read in conjunction with the historical consolidated financial statements for Orchard and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Prospectus.

The unaudited pro forma information has been presented for informational purposes only. The pro forma information is not necessarily indicative of our results of operations or financial condition had the spin-off and the related transactions been completed on the dates assumed. Also, they may not reflect the results of operations or financial condition which would have resulted had we been operating as a publicly traded company independent from Sears Holdings during such periods. In addition, they are not necessarily indicative of our future results of operations or financial condition.

59

Orchard Supply Hardware Stores Corporation

Unaudited Pro Forma Consolidated Statement of Operations

Fiscal Year Ended January 29, 2011

(in millions, except per share data)

			Pro Forma Adjustments
	Historical		Appliances Agreement			Brands Agreements			Pro Forma
NET SALES	$	660.7	$	(12.7	)				$	648.0
COST OF SALES AND EXPENSES:
Cost of sales (excluding depreciation and amortization)		431.8		(10.7	)	$	0.5			421.6
Selling and administrative		166.0								166.0
Depreciation and amortization		31.2								31.2
Total cost of sales and expenses		629.0								618.8
OPERATING INCOME		31.7								29.2
INTEREST EXPENSE, NET		17.4								17.4
INCOME BEFORE INCOME TAXES		14.3								11.8
INCOME TAX EXPENSE (BENEFIT)		5.6		(0.8	)		(0.2	)		4.6
NET INCOME	$	8.7							$	7.2
INCOME PER COMMON SHARE:
Basic and diluted income per common share	$	8.70							$	7.20
Basic and diluted weighted average common shares outstanding		1.0								1.0

60

Orchard Supply Hardware Stores Corporation

Unaudited Pro Forma Consolidated Statements of Operations

For the 13 Weeks and 26 Weeks Ended July 30, 2011

(in millions, except per share data)

	13 Weeks Ended July 30, 2011
	Pro Forma Adjustments
	Historical		Appliances Agreement			Brands Agreements			Pro Forma
NET SALES	$	196.4	$	(4.6	)				$	191.8
COST OF SALES AND EXPENSES:
Cost of sales (excluding depreciation and amortization)		130.6		(4.1	)	$	0.2			126.7
Selling and administrative		46.2								46.2
Depreciation and amortization		7.5								7.5
Total cost of sales and expenses		184.3								180.4
OPERATING INCOME		12.1								11.4
INTEREST EXPENSE, NET		5.5								5.5
INCOME BEFORE INCOME TAXES		6.6								5.9
INCOME TAX EXPENSE (BENEFIT)		2.7		(0.2	)		(0.1	)		2.4
NET INCOME	$	3.9							$	3.5
INCOME PER COMMON SHARE
Basic and diluted income per common share	$	3.88							$	3.50
Basic and diluted weighted average common shares outstanding		1.0								1.0
	26 Weeks Ended July 30, 2011
	Pro Forma Adjustments
	Historical		Appliances Agreement			Brands Agreements			Pro Forma
NET SALES	$	360.2	$	(8.8	)				$	351.4
COST OF SALES AND EXPENSES:
Cost of sales (excluding depreciation and amortization)		239.2		(7.7	)	$	0.3			231.8
Selling and administrative		90.3								90.3
Depreciation and amortization		14.7								14.7
Total cost of sales and expenses		344.2								336.8
OPERATING INCOME		16.0								14.6
INTEREST EXPENSE, NET		11.0								11.0
INCOME BEFORE INCOME TAXES		5.0								3.6
INCOME TAX EXPENSE (BENEFIT)		2.1		(0.4	)		(0.1	)		1.6
NET INCOME	$	2.9							$	2.0
INCOME PER COMMON SHARE
Basic and diluted income per common share	$	2.90							$	2.00
Basic and diluted weighted average common shares outstanding		1.0								1.0

61

Orchard Supply Hardware Stores Corporation

Notes to Unaudited Pro Forma Consolidated Financial Statements

1. THE APPLIANCES AGREEMENT

On October 26, 2011 the Company entered into an appliances agreement (the “Appliances Agreement”) with a subsidiary of Sears Holdings pursuant to which Sears Holdings authorizes us to sell certain appliances and related protection agreements on a consignment basis through our designated retail locations. The Appliances Agreement requires that Sears Holdings pay us commissions on the sales of these consigned products and protection agreements sold at our retail locations. The appliances covered by the Appliances Agreement include specified categories of Kenmore, Bosch, Electrolux, GE, LG, Samsung and Whirlpool branded appliances. The agreement generally incorporates arm’s length terms and conditions, including market-based pricing and term of duration.

Under the Appliances Agreement, we transferred to Sears Holdings our entire inventory of major appliances purchased from Sears Holdings for $1.9 million in cash, which represented our cost of the purchased appliances, subject to adjustments based on, among other things, the results of a physical inventory of the purchased appliances and the cost of certain clearance markdowns realized by Sears Holdings during the 60-day period following the effective date of the Appliances Agreement.

The Company entered into an appliances sales agreement with Sears Holdings on November 23, 2005, as amended (the “Appliances Sales Agreement”), which was terminated on October 26, 2011. All appliances purchased and sold as of that date were made under the Appliance Sales Agreement. If the terms of the Appliances Agreement with certain Sears Holdings subsidiaries were effective on January 31, 2010, the first day of fiscal 2010, all Sears Holdings proprietary branded appliance sales of $14.5 million, $5.3 million and $10.0 million would have been removed from net sales of fiscal 2010, the second quarter of fiscal 2011 and the first half of fiscal 2011, respectively. Replacing these amounts would be approximately $1.8 million, $0.7 million and $1.2 million in commission income for sales of such appliances in fiscal 2010, the second quarter of fiscal 2011, and the first half of fiscal 2011, respectively. The net effect on net sales would be a reduction of approximately $12.7 million, $4.6 million and $8.8 million in fiscal 2010, the second quarter of fiscal 2011 and the first half of fiscal 2011, respectively. The pro-forma commission income figures were derived based on an expected blended commission rate based on our product mix applied on the total actual sales. Accordingly, any associated cost of sales would be eliminated under the Appliances Agreement. The pro-forma cost of sales eliminated were derived based on the product costs of appliances sold during the respective periods. The Company also estimates that there will be incremental savings in selling and administrative costs with respect to credit card processing fees, marketing, and payroll costs. These savings are estimated to range from $1.0 million to $2.0 million annually. These selling and administrative cost savings estimates are not included in the pro forma tables above.

2. THE BRANDS AGREEMENTS

The Company intends to enter into one or more brands license agreements (the “Brands Agreements”) with a subsidiary of Sears Holdings effective at the Distribution pursuant to which Sears Holdings will allow us to purchase a limited assortment of Craftsman products, Easy Living and Weatherbeater paints, Kenmore-branded water heaters and consumer household products directly from vendors. Under the Brands Agreements, we will pay specified license fees to Sears Holdings. The agreements generally will incorporate arm’s length terms and conditions, including market-based pricing and term of duration. The agreements have a three year term and may be extended subject to the mutual agreement of the parties.

The Company entered into a brands sales agreement with Sears Holdings on November 23, 2005, as amended (the “Brands Sales Agreement”), which will be terminated as of the Distribution. All Sears Holdings proprietary branded products purchased and sold to date were made under the Brands Sales Agreement. If the terms of the Brands Agreements with certain Sears Holdings subsidiaries were effective on January 31, 2010, the first day of fiscal 2010, the Company estimates that they would have recorded incremental costs of $0.5 million,

62

$0.2 million and $0.3 million in fiscal 2010, the second quarter of fiscal 2011 and the first half of fiscal 2011, respectively. The pro-forma incremental costs figures were derived based on the specific products sold during the respective periods and the new pricing and additional vendor subsidies specified under each of the Brands Agreements.

3. INCREMENTAL SPIN-OFF COSTS

We are currently a majority owned indirect subsidiary of Sears Holdings. After the spin-off, we will operate as a publicly traded company independent from Sears Holdings, which will have a range of impacts on our operations:

General Administrative and Separation Agreement Costs. We will incur increased costs as a result of becoming a publicly traded company independent from Sears Holdings, primarily from higher charges than in the past from Sears Holdings for transition services and from establishing or expanding the corporate support for our businesses, including information technology, human resources, treasury, tax, risk management, accounting and financial reporting, investor relations, legal, procurement and other services. These additional annual operating charges are estimated to be approximately $3.0 million to $4.0 million annually.

Increased Costs for Goods and Services. We expect an impact on prices for goods and services purchased from third parties as a result of the loss of Sears Holdings’ buying volume and processes. We estimate these cost increases to be approximately $2.0 million to $4.0 million annually.

These estimates are not included in the pro forma tables above.

63

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and notes contained elsewhere in this Prospectus. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Prospectus, particularly in “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements.”

EXECUTIVE OVERVIEW

We are a California specialty retailer primarily focused on the consumer segment of the home improvement market. As of July 30, 2011 we operated 89 stores that are designed to appeal to convenience-oriented customers, whose purchase occasions are largely driven by their repair, maintenance and improvement needs throughout the home, garden and outdoor living areas. We also serve the small professional customer whose purchases are largely motivated by a need for incremental supplies and tools to complete construction projects.

Our stores average approximately 43,600 square feet of enclosed space plus approximately 8,300 square feet of nursery and garden area. Our stores carry a broad assortment of repair and maintenance, lawn and garden and in-home products. We operate in one reportable segment and provide a merchandise mix which consists of various product categories. Our repair and maintenance category consists of plumbing, electrical, paint, tools, hardware, and industrial products. Our lawn and garden category consists of nursery, garden, outdoor power and seasonal products. Our in-home category consists mainly of our housewares and appliances products.

We believe that our market is significantly driven by our customers’ desire for an enjoyable home with wonderful amenities. Since 2008 however, households in the U.S. have been borrowing less and saving more as they have struggled to cope with the effects of the worst national recession in decades. The external pressures facing the home improvement retail industry over the past several years continued in 2010, as the effects of rising unemployment, declining home values, tighter consumer credit, modest growth in personal disposable income and low housing turnover and general economic uncertainty led to a reduction and hesitancy among consumers to spend on discretionary projects for their homes.

In California, unemployment continues to be higher than the national average, ending 2010 at 12.5%, foreclosure rates remain amongst the highest in the nation, and home prices continued to decline, though at a slower pace than during 2008 and 2009. As a result, consumers have reordered their priorities and have become more deliberate in their spending decisions, as evidenced by the significant decline in the rate of consumer spending, and the increase in the national personal savings rate above levels seen from 2000 through 2008. Household spending increased modestly in 2010 over the prior year, but in many cases, consumers have delayed or reduced the scope of their home improvement projects, or are trading down, focusing on mini projects and small enhancements versus major renovations as they develop strategies to address the current macroeconomic climate. As consumers’ priorities have shifted and the home improvement retail industry market has tightened, we have adjusted our marketing efforts to address these changes by taking a number of actions, including, in particular, by significantly increasing our pricing promotions and discounts.

The home improvement industry in California is highly competitive and we are positioned between large warehouse home center competitors and smaller independent hardware stores. We consider The Home Depot, Lowe’s, Ace Hardware and True Value as our primary competitors. Based on publically available information, we believe that in California each of The Home Depot, Ace Hardware and True Value currently has between two to three times as many stores as we do and that Lowe’s has, by number of stores, over 20% more stores in the state than we do. In response to the increased competitive environment, we have increased our pricing promotions in the past years. Historically, we have been adversely impacted by competitors opening new store

64

locations within our markets. These openings have slowed in recent years as a result of the downturn in the economy as well as the market saturation that has occurred as a result of their earlier rapid expansions.

We do not expect to see a significant change in the immediate future in our number of stores relative to our primary competitors, our use of pricing promotions in response to competitive pressures or the pace at which our competitors will open new stores in California.

Fiscal Year

Our fiscal year end is the Saturday closest to January 31 each year. Fiscal years 2010, 2009 and 2008 all consisted of 52 weeks. Unless otherwise stated, references to years in this report relate to fiscal years rather than to calendar years. The following fiscal periods are presented in this report.

Fiscal year	Ended	Weeks
2008	January 31, 2009	52
2009	January 30, 2010	52
2010	January 29, 2011	52

Our results of operations are discussed using several key metrics:

1. Comparable store sales. Measured by the increase or decrease in net sales year over year, excluding new and closed stores and E-commerce.

2. Comparable transaction volume. Derived from the increase or decrease in the number of transactions year over year, excluding new and closed stores and E-commerce.

3. Average ticket comparables. Derived using net sales divided by the number of transactions year over year.

A store is included in the calculation of comparable metrics above if it has been opened for at least 12 months, including relocated and remodeled stores. The key metrics discussed above are intended only as supplemental information and are not a substitute for information presented in accordance with generally accepted accounting principles.

We experience seasonal fluctuations in our revenues and operating results and we have historically realized a significant portion of our net sales and earnings for the year in the spring selling season, including March, April, May and June. For example, we generated 29% and 30% of our net sales in the second fiscal quarter of 2009 and 2010, respectively. We believe that our customers are more likely to begin the home improvement projects for which they shop with us during periods of warm and dry weather. By contrast, wet, windy and/or cold weather conditions can reduce foot traffic in our stores. Extended cold or wet weather conditions in California, particularly during the spring months, can significantly reduce our revenues and have a disproportionately adverse effect on our results of operations for the first and second quarter and have an adverse impact on our annual operating results. Furthermore, lower than anticipated net sales during the spring selling season may cause us to increase inventory markdowns and promotion expenses, thereby reducing our gross margins and operating results.

The following represent some of our key strategic initiatives for developing our business in 2011, which will require financing on an ongoing basis:

Improve Gross Margin Performance through Enhanced Marketing and Merchandising Initiatives. We are focused on developing new marketing initiatives to increase the number of customers and frequency of customer visits in our stores as well as increase the average amount of time they spend in our stores. Our marketing initiatives include development of a new campaign to improve our brand awareness, which involves beginning to standardize the look and feel of our stores as well as how we communicate our “Orchard Supply Hardware” brand, and continuing to more efficiently utilize our advertising expenditures to better communicate our value proposition to our target customers.

65

We are continually focusing on various merchandising initiatives intended to improve our gross margin performance, including accelerated line reviews, increasing our private label offerings and expanding the sourcing of merchandise from overseas. Our line reviews are focused on enhancing the overall quality and value proposition of our merchandise through targeted negotiation with our vendors. We continually identify product lines for review and work with our vendors to strive for the best possible quality, pricing and terms for a particular product category. In keeping with the industry trend, our private label products typically generate higher gross margins compared to similar national brands. We believe our private label merchandise provides our customers with high quality products at excellent values and therefore allows us to compete effectively in the market. For fiscal 2010, private label sales accounted for approximately 6% of our total net sales.

Provide Multiple Sales Channels. In today’s competitive environment it is essential that we offer our customers the convenience of shopping for our products through multiple channels. The retail industry is rapidly evolving as retail is increasingly impacted by new technologies and social media. We believe that this evolution will provide us with growth opportunities if we are able to leverage our existing store network with emerging technologies and a much wider range of products enabled by an E-commerce merchandising operation. As such, we launched our E-commerce website with approximately 7,000 products in late 2010. Although ecommerce sales to date have been insignificant, our goal is to continue to expand the number of products offered on the E-commerce site in order to increase future revenues. Distribution of products for our website is handled through our existing distribution center and has not involved a material capital investment. Establishing the E-commerce website required capital expenditures of $0.7 million and we expect to spend $0.4 million in fiscal 2011 for our E-commerce website, which we expect to fund from cash flows from operations.

Store Expansion. New store growth has been limited in recent years due to economic conditions and Company’s performance. However, assuming market conditions improve in future years, we plan to increase the expansion of our store base within California. We have also developed a new store prototype in both our Clayton and Santa Rosa stores that we believe will provide an enhanced and more enjoyable shopping experience for our customers, which we expect to integrate into future store openings and existing stores. Our capital investment budget for fiscal 2011 for store expansion and prototypes is $3.8 million, which we expect to fund from cash flows from operations.

Offer Competitive Pricing. We employ a value driven pricing strategy. We continually review our pricing strategy through routine competitor price checks. Everyday prices are complemented by periodic off price item promotions and storewide discount events which form a key part of our marketing strategy such as “We Pay the Sales Tax” weekends. “Dollar Days” events featuring low priced products are used to underscore our value pricing and to reassure our customers that they cannot overpay at Orchard stores. Also, to compete with low price competitors, we have a “Match Any Price” policy.

IMPACTS FROM THE SPIN-OFF

We are currently a majority owned indirect subsidiary of Sears Holdings. Sears Holdings has determined to spin-off the Company by distributing all of our Class A Common Stock and Preferred Stock to the shareholders of Sears Holdings as a dividend. Immediately following completion of the spin-off, Sears Holdings shareholders will own 100% of the outstanding shares of our Class A Common Stock and Preferred Stock. ESL Investments, Inc. and affiliated entities (“ESL”) will own approximately 61% of our outstanding Class A Common Stock, representing approximately 61% of Class A Common Stock voting power and 49% of the voting power of our outstanding capital stock, and ESL will own approximately 61% of our outstanding Preferred Stock, which is our outstanding nonvoting capital stock. After the spin-off, we will operate as a publicly traded company independent from Sears Holdings, which will have a range of impacts on our operations:

General Administrative and Separation Agreement Costs. Historically, we have used the corporate functions of Sears Holdings for a variety of services including treasury, accounting, tax, legal, and shared services, which include the costs of payroll, employee benefits and other payroll related costs. Sears Holdings also contributes to other corporate functions such as the members of our board of directors and centrally

66

managed employee benefit arrangements. We allocated $0.5 million in fiscal 2010, $0.4 million in fiscal 2009 and $0.6 million in fiscal 2008 of shared services costs incurred by Sears Holdings. We believe that the assumptions and methodologies underlying the allocation of these expenses from Sears Holdings are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been or will be incurred by us when we operate as a publicly traded company independent from Sears Holdings. We expect to enter into agreements with Sears Holdings for continuation of certain of these services, but the terms and prices on which such services are rendered may be different than the terms and prices in effect prior to the spin-off.

We will also incur increased costs as a result of becoming a publicly traded company independent from Sears Holdings, primarily from higher charges than in the past from Sears Holdings for transition services and from establishing or expanding the corporate support for our business, including information technology, human resources, treasury, tax, risk management, accounting and financial reporting, investor relations, legal, procurement and other services. These additional annual operating charges are estimated to be approximately $3.0 million to $4.0 million. We believe cash flows from operations will be sufficient to fund these additional corporate expenses.

We also expect to incur a one-time, non-recurring expenditures between approximately $1.0 million and $2.0 million primarily relating to costs for setting up certain stand-alone functions and information technology systems. A portion of these expenditures may be capitalized and amortized over their useful lives and others will be expensed as incurred, depending on their nature.

Spin-Off Transaction Costs. One-time, non–recurring transaction related costs related to the consummation of the spin-off will be the responsibility of Sears Holdings. These costs are expected to consist of, among other things: accounting, financial, legal, tax and other advisory fees.

Increased Costs for Goods and Services. We expect an impact on prices for goods and services purchased from third parties as a result of the loss of Sears Holdings’ buying volume and processes. We estimate these cost increases to range from approximately $2.0 million to $4.0 million annually.

Sears Holdings Merchandising. We have historically procured appliances and other merchandise from Sears Holdings suppliers pursuant to the Appliances Sales Agreement and the Brands Sales Agreement. We will continue to procure merchandise from Sears Holdings, but will sell certain appliances and related protection agreements supplied to us by Sears Holdings on a consignment basis pursuant to the Appliances Agreement, entered into on October 26, 2011, which we expect will result in a reduction of net sales ranging from $14.0 million to $17.0 million on a going forward annual basis due to transitioning to commission-based sales. We expect the impact to net income to range from $1.0 million to $2.0 million annually under the new Appliance Agreement and Brands Agreement.

RESULTS OF OPERATIONS

Our results of operations are presented using key accounting policies that are further described in Note 1 of the Notes to the Consolidated Financial Statements. Key definitions include:

Revenue Recognition—The Company recognizes revenues from merchandise sales at the later of point of sale or delivery of goods to customers. Merchandise sales are reported net of estimated returns and allowances, customer rebates excluding sales taxes. The reserve for returns and allowances is calculated as a percentage of sales based on historical return percentages. Net sales are presented net of any taxes collected from customers and remitted to governmental authorities. The Company also records deferred revenue for the sale of gift cards and recognizes this revenue upon the redemption of the gift cards.

Cost of Sales—Cost of sales includes the cost of merchandise, distribution, warehousing and delivery costs and store occupancy costs, offset by vendor allowances and rebates received by the Company.

Selling and Administrative Expenses—Selling and administrative expenses primarily include selling and support payroll, advertising and other administrative expenses.

67

Depreciation and Amortization—The Company’s buildings, furniture, fixtures and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the original term of the lease or the useful life of the improvement, whichever is shorter. The Company’s property and equipment is depreciated using the following estimated useful lives:

Asset type	Life
Buildings and leasehold improvements		15 – 40 years
Furniture, fixtures and equipment		3 – 10 years

Income Taxes—The tax balances and income tax expense recognized by the Company are based on management’s interpretation of the tax laws of multiple jurisdictions. Income tax expense also reflects the Company’s best estimates and assumptions regarding, among other things, the level of future taxable income, interpretation of the tax laws and tax planning. Future changes in tax laws, changes in projected levels of taxable income and tax planning could affect the effective tax rate and tax balances recorded by the Company. The Company provides deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws.

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

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

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

• Management considers gain/(loss) on the sale of assets and impairment to result from investing decisions rather than ongoing operations; and

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

Adjusted EBITDA was determined as follows:

(in thousands)	Fiscal Year							13 Weeks Ended				26 Weeks Ended
	2008			2009		2010		July 31, 2010		July 30, 2011		July 31, 2010		July 30, 2011
Net (loss) income	$	(243,367	)	$	19,305	$	8,717	$	8,140	$	3,891	$	12,574	$	2,901
Interest expense, net		22,875			16,770		17,392		4,236		5,517		8,458		11,071
Income tax expense		10,304			12,749		5,573		5,150		2,672		8,039		2,073
Depreciation and amortization		31,410			29,870		31,187		7,247		7,504		15,316		14,667
Goodwill impairment		262,763
Loss on sale and impairment of assets					275		633		11		12		145		97
Stock-based compensation		125			495		329		135		64		202		210
Other significant items		721			1,282		5,561								(193	)
Adjusted EBITDA	$	84,831		$	80,746	$	69,392	$	24,919	$	19,660	$	44,734	$	30,826

68

The Adjusted EBITDA is not the same as the EBITDA as defined in our Senior Secured Term Loan.

Other significant items include certain reserves and charges not in the normal course of our operations periodically affecting the comparability of our results. In fiscal 2007, the Company settled two class action wage and hour lawsuits that alleged certain violations of the California Labor Code. We accrued $5.0 million in fiscal 2007 for these two lawsuits and subsequently received $3.6 million from Sears Holdings pursuant to the Sears indemnification. We have recorded a $0.7 million and $1.3 million in severance charges in fiscal 2008 and 2009, respectively, in connection with our cost cutting initiatives. In fiscal 2010, we recorded a $5.6 million legal settlement reserve pursuant to the Save Mart case. In the first quarter of fiscal 2011, we reversed $0.5 million of the Save Mart accrual as we no longer expected to pay that amount. We have also recorded a $0.3 million severance charge in the first quarter of fiscal 2011 due to changes in our management structure.

The following table sets forth items derived from our consolidated results of operations for fiscal 2008, 2009, 2010 and the 13 weeks and 26 weeks ended July 31, 2010 and July 30, 2011:

	FISCAL YEAR																13 Weeks Ended										26 Weeks Ended
	2008			% of Net Sales			2009		% of Net Sales			2010		% of Net Sales			July 31, 2010		% of Net Sales			July 30, 2011		% of Net Sales			July 31, 2010		% of Net Sales			July 30, 2011		% of Net Sales
NET SALES	$	761,489			100.0	%	$	682,393		100.0	%	$	660,701		100.0	%	$	195,032		100.0	%	$	196,437		100.0	%	$	364,683		100.0	%	$	360,205		100.0	%
COST OF SALES AND EXPENSES:
Cost of sales (excluding depreciation and amortization)		486,222			63.9			438,060		64.2			431,839		65.4			127,056		65.1			130,596		66.5			235,221		64.5			239,237		66.4
Gross Margin	$	275,267			36.1		$	244,333		35.8		$	228,862		34.6		$	67,976		34.9		$	65,840		33.5		$	129,462		35.5			120,968		33.6
Selling and administrative		191,282			25.1			165,639		24.3			165,993		25.1			43,203		22.2			46,257		23.5			85,075		23.3			90,256		25.1
Depreciation and amortization		31,410			4.1			29,870		4.4			31,187		4.7			7,247		3.7			7,504		3.8			15,316		4.2			14,667		4.1
Goodwill impairment		262,763			34.5
Total cost of sales and expenses		971,677			127.6			633,569		92.9			629,019		95.2			177,506		91.0			184,357		93.9			335,612		92.0			344,160		95.5
OPERATING (LOSS) INCOME		(210,188	)		(27.6	)		48,824		7.1			31,682		4.8			17,526		9.0			12,080		6.1			29,071		8.0			16,045		4.5
INTEREST EXPENSE, NET		22,875			3.0			16,770		2.5			17,392		2.6			4,236		2.2			5,517		2.8			8,458		2.3			11,071		3.1
(LOSS) INCOME BEFORE INCOME TAXES		(233,063	)		(30.6	)		32,054		4.6			14,290		2.2			13,290		6.8			6,563		3.3			20,613		5.7			4,974		1.4
INCOME TAX EXPENSE (BENEFIT)		10,304			1.4			12,749		1.9			5,573		0.8			5,150		2.6			2,672		1.4			8,039		2.2			2,073		0.6
NET (LOSS) INCOME	$	(243,367	)		(32.0	)%	$	19,305		2.7	%	$	8,717		1.4	%	$	8,140		4.2	%	$	3,891		1.9	%	$	12,574		3.5	%	$	2,901		0.8	%
(LOSS) INCOME PER COMMON SHARE
Basic and diluted (loss) income per common share	$	(242.88	)				$	19.27				$	8.70				$	8.12				$	3.88				$	12.55				$	2.90
Basic and diluted weighted average common shares outstanding		1,002						1,002					1,002					1,002					1,002					1,002					1,002
OTHER FINANCIAL DATA ADJUSTED EBITDA	$	84,831			11.1	%	$	80,746		11.8	%	$	69,392		10.5	%	$	24,919		12.8	%	$	19,660		10.0	%	$	44,734		12.3	%	$	30,826		8.6	%

The following table presents the Company’s sales by product categories for fiscal 2008, 2009, 2010 and the 13 weeks ended and 26 weeks ended July 31, 2010 and July 30, 2011 (in thousands):

	Fiscal Year						13 Weeks Ended				26 Weeks Ended
	2008		2009		2010		July 31, 2010		July 30, 2011		July 31, 2010		July 30, 2011
Repair and maintenance	$	401,180	$	349,237	$	328,685	$	88,884	$	87,861	$	168,953	$	165,447
Lawn and garden		269,323		252,902		252,578		85,999		86,946		156,454		153,066
In-home		90,986		80,254		79,438		20,149		21,630		39,276		41,692
Total	$	761,489	$	682,393	$	660,701	$	195,032	$	196,437	$	364,683	$	360,205

69

13 Weeks Period Ended July 30, 2011 Compared to the 13 Weeks Period Ended July 31, 2010

Net sales

For the quarter ended July 30, 2011, net sales increased $1.4 million, or 0.7%, to $196.4 million as compared to net sales of $195.0 million for the quarter ended July 31, 2010. The increase in net sales was primarily due to a $1.5 million increase in our in-home category and a $1.0 million increase in our lawn and garden categories due to favorable weather conditions in the months of May and July 2011. Offsetting these increases was a decrease of $1.0 million of net sales in our repair and maintenance category, which was primarily driven by lower paint and plumbing sales.

Our comparable store sales declined by 0.8%, which was driven by a decline in comparable transaction volume of 5.2%, offset by an increase of 4.4% in average ticket comparables for the quarter ended July 30, 2011, as compared to the quarter ended July 31, 2010. We believe the decline in transaction volume was primarily due to unfavorable weather conditions in the early part of June 2011 as well as continued weakness in consumer demand from volatility in the capital markets and uncertainty around the macro-economic and political environments. Our average ticket benefited from the sale of bigger ticket items, such as appliances, barbeques, and furniture.

Gross margin

Gross margin was $65.8 million, or 33.5% of net sales, for the quarter ended July 30, 2011, as compared to $68.0 million, or 34.9% of net sales, for the quarter ended July 31, 2010. The decrease of 134 basis points in gross margin was primarily due to an increase in markdowns of approximately 56 basis points and inventory shrink of 55 basis points. The increase in markdowns was due to increased clearance and promotional activities as a result of management’s efforts to manage inventory levels, clear slow moving inventory, and increase sales.

Selling and administrative

Selling and administrative expenses increased $3.1 million for the quarter ended July 30, 2011 to $46.3 million, or 23.5% of net sales, from $43.2 million, or 22.2% of net sales, for the quarter ended July 31, 2010. The increase in selling and administrative expenses was primarily due to an increase in consulting, legal, insurance, payroll, and other administrative costs. Consulting costs increased by $0.8 million primarily due to consultations on our strategic initiatives such as e-commerce and merchandise pricing analysis. Insurance costs increased by $0.6 million as a result of increases in claim reserves. Payroll costs increased by $0.6 million as we increased labor hours at our stores to improve customer service levels.

Depreciation and amortization

Depreciation and amortization expense was $7.5 million, or 3.8% of net sales, for the quarter ended July 30, 2011 as compared to $7.2 million, or 3.7% of net sales, for the quarter ended July 31, 2010. The increase of $0.3 million of depreciation and amortization expense was primarily due to depreciation of new assets placed in service.

Interest expense, net

Interest expense increased for the quarter ended July 30, 2011 by $1.3 million to $5.5 million, or 2.8% of net sales, as compared to $4.2 million, or 2.2% of net sales, for the quarter ended July 31, 2010. The increase in interest expense was primarily due to the increase in our applicable interest rate spreads as a result of the amendment of both our Senior Secured Term Loan and the new Real Estate Secured Term Loan.

Income taxes

Income tax expense of $2.7 million and $5.2 million were recorded for the quarter ended July 30, 2011 and July 31, 2010, respectively. The effective tax rate was 40.7% in quarter ended July 30, 2011 and 38.8% in the

70

quarter ended July 31, 2010. The change in our effective tax rate was primarily due to differences in tax credits applicable year over year.

Net income

We recorded net income of $3.9 million for the quarter ended July 30, 2011 as compared to net income of $8.1 million for the quarter ended July 31, 2010. The decrease in net income was primarily attributable to the factors discussed above.

Adjusted EBITDA

Adjusted EBITDA was $19.7 million, or 10.0% of net sales for the quarter ended July 30, 2011 as compared to $24.9 million, or 12.8% of net sales for the quarter ended July 31, 2010. The decrease in Adjusted EBITDA of $5.2 million was primarily due to an increase of $3.1 million in selling and administrative costs.

26 Weeks Period Ended July 30, 2011 Compared to the 26 Weeks Period Ended July 31, 2010

Net sales

For the first half of fiscal 2011, net sales decreased $4.5 million, or 1.2%, to $360.2 million as compared to net sales of $364.7 million for the first half of fiscal 2010. The decline in net sales was primarily due to a $3.4 million decline in our lawn and garden category and a $3.5 million decline in our repair and maintenance category, both of which were impacted by unfavorable weather during the months of March and June 2011. Partially offsetting these declines was an increase of approximately $2.4 million of net sales in our in-home category, which was primarily driven by appliances. The number of our stores that sell appliances increased from 19 in the first half of fiscal 2010 to 34 in the first half of fiscal 2011.

Our comparable store sales declined by 2.6%, which was driven by a decline in comparable transaction volume of 5.9% and partially offset by an increase of 3.3% in average ticket comparables for the first half of fiscal 2011, as compared to the first half of fiscal 2010. We believe the decline in transaction volume was primarily due to unfavorable weather during the months of March and June 2011 as well as continued weakness in consumer demand resulting from volatility in the capital markets and uncertainty around the macro-economic and political environments. Our average ticket benefited from the sale of bigger ticket items, such as appliances, barbeques and furniture.

Gross margin

Gross margin was $121.0 million, or 33.6% of net sales, for the first half of fiscal 2011, as compared to $129.5 million, or 35.5% of net sales, for the first half of fiscal 2010. The decrease of 192 basis points in gross margin was primarily due to increases of 109 basis points in markdowns, 58 basis points in occupancy costs, and inventory shrink of 30 basis points. The increase in markdowns was due to increased clearance and promotional activities as a result of management’s efforts to manage inventory levels, clear slow moving inventory, and increase sales. Occupancy costs for the first half of fiscal 2011 were higher as compared to the first half of fiscal 2010 due to a favorable deferred rent adjustment in the first half of fiscal 2010.

Selling and administrative

Selling and administrative expenses increased $5.2 million for the first half of fiscal 2011 to $90.3 million, or 25.1% of net sales, from $85.1 million, or 23.3% of net sales, for the first half of fiscal 2010. The increase in selling and administrative expenses was primarily due to an increase in consulting, insurance, maintenance, and legal costs. Consulting costs increased by $1.6 million primarily due to consulting spending on our strategic initiatives. Insurance costs increased by approximately $1.0 million as a result of increases in claim reserves. Maintenance costs increased by approximately $0.5 million primarily due to equipment lease conversion in the first half of fiscal 2010. In addition, an increase in legal costs of $0.4 million was due to the Save Mart Supermarket v. Orchard Supply Hardware, LLC case.

71

Depreciation and amortization

Depreciation and amortization expense was $14.7 million, or 4.1% of net sales, for the first half of fiscal 2011 as compared to $15.3 million, or 4.2% of net sales, for the first half of fiscal 2010. The decrease of $0.6 million of depreciation and amortization expense was primarily due to a capital lease conversion in the first half of fiscal 2010.

Interest expense, net

Interest expense increased for the first half of fiscal 2011 by $2.6 million to $11.1 million, or 3.1% of net sales, as compared to $8.5 million, or 2.3% of net sales, for the first half of fiscal 2010. The increase in interest expense was primarily due to a $2.0 million increase in interest expense as a result of higher interest rate spreads from the amendment of both the Senior Secured Term Loan and the new Real Estate Secured Term Loan. In addition, amortization of deferred financing costs increased by $0.6 million due to increased financing costs from the amendments.

Income taxes

Income tax expense of $2.1 million and $8.0 million were recorded for the first half of fiscal 2011 and the first half of fiscal 2010, respectively. The effective tax rate was 41.7% in the first half of fiscal 2011 and 39.0% in the first half of fiscal 2010. The change in our effective tax rate was primarily due to differences in tax credits applicable year over year.

Net income

We recorded net income of $2.9 million for the first half of fiscal 2011 as compared to net income of $12.6 million for the first half of fiscal 2010. The decrease in net income was primarily attributable to the factors discussed above.

Adjusted EBITDA

Adjusted EBITDA was $30.8 million, or 8.6% of net sales for the first half of fiscal 2011 as compared to $44.7 million, or 12.3% of net sales for the first half of fiscal 2010. The decrease in Adjusted EBITDA of $13.9 million was primarily due to a $4.5 million decline in net sales and a $5.2 million increase in selling and administrative costs.

Fiscal 2010 Compared to Fiscal 2009

Net sales

For fiscal 2010 net sales decreased $21.7 million, or 3.2%, to $660.7 million as compared to net sales of $682.4 million for fiscal 2009. The decrease of $21.7 million in total net sales was primarily due to a decline of $20.6 million in our repair and maintenance category, which was primarily driven by declines in sales of plumbing, industrial, paint, and electrical products. In addition, net sales in our in-home category decreased by $0.8 million, which was primarily driven by reduced demand for housewares, offset by the improvement in appliance sales. Appliance sales benefited from U.S. government energy/green consumer subsidies. Additionally, from fiscal 2009 to fiscal 2010, we also increased the number of stores offering appliances from 19 to 34 stores.

Our comparable store sales for fiscal 2010 declined by approximately 4.4%, which was driven by a decline in comparable transaction volume of 4.8% and offset by an increase of 0.4% in average ticket comparables. We believe that the decline in comparable transaction volume was primarily due to reduced consumer spending as California continues to be impacted by macro-economic factors including high unemployment, reduced consumer credit, and a difficult housing market.

72

Gross margin

Gross margin was $228.9 million, or 34.6% of net sales, for fiscal 2010, as compared to $244.3 million, or 35.8% of net sales, for fiscal 2009. The decrease of 117 basis points in gross margin was primarily due to an increase of 104 basis points in markdowns. The increase in markdowns was due to increased clearance and promotional activities as a result of management efforts to manage inventory levels, clear slow moving inventory, and increase sales.

Selling and administrative

Selling and administrative expenses increased $0.4 million in fiscal 2010 to $166.0 million, or 25.1% of net sales, from $165.6 million, or 24.3% of net sales, in fiscal 2009. The increase in selling and administrative expenses was primarily due to an increase in legal and administrative costs offset by a decrease in payroll costs. Legal costs increased by $7.3 million, primarily due to a $5.1 million accrual in respect of the Save Mart Supermarkets v. Orchard Supply Hardware LLC case (see the “Business—Legal Proceedings” section of this Prospectus) and increases in legal fees to prepare for the trial. Administrative costs increased by $0.7 million primarily due to higher advertising costs. Payroll costs declined $7.7 million driven primarily by reduced store payroll costs as a part of management’s efforts to respond to the decline in sales and economic conditions.

Depreciation and amortization

Depreciation and amortization expense was $31.2 million, or 4.7% of net sales, for fiscal 2010, as compared to $29.9 million, 4.4% of net sales, for fiscal 2009. Depreciation expense as a percentage of net sales increased primarily due to the decline in net sales.

Interest expense, net

Interest expense increased in fiscal 2010 by $0.6 million to $17.4 million, or 2.6% of net sales, as compared to $16.8 million, or 2.5% of net sales, for fiscal 2009. The increase in interest expense was primarily due to an increase in commitment fees of $0.4 million on the Senior Secured Credit Facility and the increased interest rate associated with our new Real Estate Secured Term Loan.

Income taxes

Income tax expense of $5.6 million and $12.7 million was recorded in fiscal 2010 and fiscal 2009, respectively. The effective tax rate was 39.0% in fiscal 2010 and 39.8% in fiscal 2009. The change in our effective tax rate is primarily due to differences in tax credits applicable year over year.

Net income

We recorded net income of $8.7 million for fiscal 2010 as compared to $19.3 million for fiscal 2009. The decrease in net income was primarily attributable to the factors discussed above.

Adjusted EBITDA

Adjusted EBITDA was $69.4 million, or 10.5% of net sales for fiscal 2010 as compared to $80.7 million, or 11.8% of net sales for fiscal 2009. The decrease in Adjusted EBITDA was primarily due to the $21.7 million decline in net sales.

Fiscal 2009 Compared to Fiscal 2008

Net sales

For fiscal 2009, net sales decreased $79.1 million, or 10.4%, to $682.4 million as compared to net sales of $761.5 million for fiscal 2008. Net sales decreased in all three of our categories. The most significant decline came from our repair and maintenance category, which declined by $51.9 million as a result of declines in sales

73

of tools, plumbing, industrial, electrical, hardware, and paint. The decline in net sales in our lawn and garden category of $16.4 million was primarily driven by a decline in sales of seasonal, nursery, and outdoor power tools products, offset slightly by an increase in sales of garden products. The decline in net sales in our in-home category was $10.7 million, primarily driven by reduced demand for housewares and appliances.

Our comparable store sales for fiscal 2009 declined by 11.1%, which was driven by a decline in comparable transaction volume of 5.6% and a decrease of 5.5% in average ticket comparables. The decrease in our net sales was primarily due to reduced customer spending and significant retail pricing pressures through increased promotional activity and discounts. We believe these declines reflect the challenges resulting from the macro-economic environment, wherein we saw the consumer reduce their purchasing frequency as well as migrate away from certain bigger ticket purchases such as appliances.

Gross margin

Gross margin was $244.3 million, or 35.8% of net sales, for fiscal 2009, as compared to $275.3 million, or 36.1% of net sales, for fiscal 2008. The decrease of 34 basis points in gross margin was due to a 87 basis points increase in occupancy costs as a result of lower net sales, partially offset by a 56 basis points favorability in vendor subsidies.

Selling and administrative

Selling and administrative expenses decreased $25.7 million, or 13.4%, in fiscal 2009 to $165.6 million, or 24.3% of net sales, from $191.3 million, or 25.1% of net sales, in fiscal 2008. The decrease in selling and administrative expenses was primarily due to cost management initiatives to mitigate the impact of reduced net sales. For fiscal 2009, payroll, advertising, and administrative costs declined $16.6 million, $7.6 million and $1.5 million, respectively.

Depreciation and amortization

Depreciation and amortization expense was $29.9 million, or 4.4% of net sales, for fiscal 2009 as compared to $31.4 million, or 4.1% of net sales, for fiscal 2008. The percentage increase was primarily due to the decline in net sales.

Goodwill impairment

We recorded a $262.8 million goodwill impairment charge in fiscal 2008 as a result of the decline in our net sales and projected future cash flows.

Interest expense, net

In fiscal 2009, interest expense decreased $6.1 million to $16.8 million, or 2.5% of net sales, as compared to $22.9 million, or 3.0% of net sales, for fiscal 2008. The decrease in interest expense was due to lower outstanding debt of $295.5 million versus $309.0 million in fiscal 2008 and a decline in the London Interbank Offered Rate (“LIBOR”) of approximately 250 basis points.

Income taxes

Income tax expenses of $12.7 million and $10.3 million were recorded for fiscal 2009 and fiscal 2008, respectively. The effective tax rate was 39.8% in fiscal 2009 and 4.4% in fiscal 2008. The difference in the effective tax in fiscal 2009 versus fiscal 2008 was primarily due to a nondeductible goodwill impairment charge of $262.8 million in fiscal 2008.

Net income

We recorded net income of $19.3 million for fiscal 2009 as compared to net loss of $243.4 million for fiscal 2008. The decrease in net income was primarily attributable to the factors discussed above.

74

Adjusted EBITDA

Adjusted EBITDA was $80.7 million, or 11.8% of net sales for fiscal 2009 as compared to $84.8 million, or 11.1% of net sales for fiscal 2008. The decrease in adjusted EBITDA was primarily due to the $79.1 million decline in net sales.

ANALYSIS OF FINANCIAL CONDITION

Liquidity and Capital Resources

	Fiscal Year									26 Weeks Ended
	2008			2009			2010			July 31, 2010			July 30, 2011
	(in thousands)
Consolidated Statements of Cash Flows Data:
Cash flows provided by operating activities	$	43,208		$	25,892		$	52,548		$	39,646		$	21,319
Cash flows used in investing activities		(7,234	)		(11,462	)		(12,042	)		(4,809	)		(6,058	)
Cash flows used in financing activities		(30,080	)		(18,248	)		(33,863	)		(4,497	)		(20,269	)

For fiscal 2010 and 26 weeks ended July 31, 2010 and July 30, 2011, we primarily financed our operations and investments with cash generated from operations. Our primary need for liquidity is to fund inventory purchases and capital expenditures and for general corporate purposes, including debt repayment. At January 29, 2011 and July 30, 2011, our cash and cash equivalents totaled $15.6 million and $10.6 million, respectively. At January 29, 2011 and July 30, 2011, $44.4 million and $74.1 million, respectively, was available under our Senior Secured Credit Facility.

We believe that our existing cash and cash equivalents, cash flows from our operating activities and available borrowings under our financing arrangements will be sufficient to meet our anticipated liquidity needs for at least the next 12 months. Our liquidity is dependent upon the continued availability of borrowings under our current financing arrangements and certain transactions that we have entered into or may enter into in the future to increase liquidity. The adequacy of our available funds will depend on many factors, including the macroeconomic environment, the operating performance of our Company stores and continued compliance with our financing arrangements.

As discussed below under “Financing Arrangements,” the Senior Secured Term Loan and Real Estate Secured Term Loan are subject to a maximum adjusted leverage ratio covenant (the “Leverage Covenant”). The Leverage Covenant is calculated on the last day of each fiscal quarter as (a) consolidated total funded debt on such date (as defined in the Senior Secured Term Loan) to (b) trailing four fiscal quarters adjusted EBITDA (as defined in the Senior Secured Term Loan), which includes debt under our financing arrangements and capital leases. As of October 29, 2011, we were in compliance with the Leverage Covenant under our financing arrangements, and we currently believe that we will continue to be in compliance with this covenant (and other covenants under our financing arrangements) through at least the end of the third quarter of fiscal 2012. However, the decline in our operating results through the third quarter of fiscal 2011, coupled with continued economic weakness in the markets in which we operate, may adversely impact our prospective compliance with the financial covenants under the Senior Secured Term Loan and the Real Estate Secured Term Loan. On October 24, 2011 we entered into a sale and lease-back transaction with respect to our distribution center located in Tracy, California and received proceeds of $21.3 million, and on October 26, 2011 we entered into the Appliances Agreement with a subsidiary of Sears Holdings that we had planned to enter into at the Distribution, pursuant to which we transferred Sears appliance inventory purchased from Sears Holdings to a subsidiary of Sears Holdings for $1.9 million in cash. Although these actions were not necessary for us to remain in compliance with our financial covenants as of the end of the third fiscal quarter, they reduced our leverage. The Company seeks to remain in compliance with its financing arrangements and generate sufficient liquidity by executing its sales growth strategy by, among other things, making improvements to its stores and store operations and upgrading and differentiating its product assortment. Notwithstanding the foregoing, the Company continues to examine a number of alternatives with respect to future compliance and liquidity,

75

including asset sales and/or sale-leaseback transactions. In addition, if necessary or advisable, we may seek to renegotiate our financing arrangements in order to remain in compliance while continuing to follow our current business plan, which includes plans for store expansion. In such case, if such renegotiations were necessary but unsuccessful, we would expect to take certain actions that would allow us to remain in compliance. Such actions could include, among others, a reduction of capital expenditures by delaying or reducing new store openings and store remodels, a reduction in payroll and benefit costs, deferring certain maintenance and other expenditures, as well as generating additional cash through sale or sale leaseback of certain real estate assets in order to reduce leverage. However, the implementation of these actions could result in slower growth and could potentially reduce future sales. Notwithstanding our expectations, if our operating results were to continue to decline or if market conditions were to worsen, we may be unable to meet our financial covenants, and lenders could demand repayment of the amounts outstanding under our financing agreements. Under such circumstances, no assurances can be given that our financing arrangements could be renegotiated, or that alternative financing would be available on terms acceptable to us, if at all. In addition, any refinancing could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations.

Our debt and capital lease obligations as of January 30, 2010, January 29, 2011, July 31, 2010, and July 30, 2011 are as follows (in millions):

	January 30, 2010		January 29, 2011		July 31, 2010		July 30, 2011
Senior Secured Credit Facility	$	—	$	48.0	$	—	$	32.0
Real Estate Secured Term Loan		—		50.0		—		49.7
Senior Secured Term Loan		175.5		173.5		174.5		172.5
Commercial Mortgage-backed Loan		120.0		—		120.0		—
Capital Lease Obligations		69.4		66.7		69.2		68.0
Total Debt and Capital Lease Obligations	$	364.9	$	338.2	$	363.7	$	322.2

Financing Arrangements

Our lending arrangements on January 29, 2011 and as of July 30, 2011 are as follows:

Senior Secured Credit Facility—In December 2006, we entered into an amended and restated five-year, $130.0 million senior secured revolving credit facility (the “Senior Secured Credit Facility”) with a syndicate of lenders. On January 29, 2010, we amended and extended the Senior Secured Credit Facility, reducing the revolving commitment to $120.0 million (subject to borrowing base limits). The amendment bifurcated the facility into a $20.0 million tranche maturing December 2011 with lenders who elected not to extend and a $100.0 million tranche maturing December 2013 with lenders who elected to extend. As of January 29, 2011, $48.0 million was borrowed under the facility, with approximately $8.0 million due in December 2011 and approximately $40.0 million due in December 2013. As of July 30, 2011, $32.0 million was borrowed under the facility, with approximately $5.3 million due in December 2011 and approximately $26.7 million due in December 2013. The Senior Secured Credit Facility permits us to obtain letters of credit, provided that our obligations with respect to letters of credit issued under our Senior Secured Credit Facility cannot exceed $25.0 million. As of January 29, 2011 and July 30, 2011 we had $7.3 million and $8.2 million, respectively, of outstanding letters of credit.

The Senior Secured Credit Facility is available for our general corporate purposes. The borrower under the Senior Secured Credit Facility is Orchard Supply Hardware LLC, a wholly owned subsidiary through which we conduct substantially all our operations (“OSH LLC”). The Senior Secured Credit Facility is guaranteed by Orchard Supply Hardware Stores Corporation, and our wholly owned subsidiary, OSH Finance Corporation (together, the “Guarantors”). Borrowings under the Senior Secured Credit Facility are collateralized by a first lien on substantially all of the assets of OSH LLC and the Guarantors, other than the Term Loan Collateral (as defined below), and a second lien on the Term Loan Collateral.

76

Borrowings under the Senior Secured Credit Facility are either base rate (“BR”) loans or Eurodollar loans, at our discretion. BR loans owing to non-extending lenders bear interest at the greater of (a) the prime rate as publicly announced by Wells Fargo Bank, N.A., or (b) the federal funds rate plus 0.5%, plus the “BR applicable rate”, with the “BR applicable rate” ranging between 0% to 0.75%. BR loans owing to each extending lender bear interest at the greater of (a) the prime rate as publicly announced by Wells Fargo Bank, N.A., (b) the federal funds rate plus 0.5%, or (c) one month London Inter-Bank Offered Rate (“LIBOR”) plus 1.0%, plus the “BR extended term applicable rate”, with the “BR extended term applicable rate” ranging between 1.50% and 2.25%. Eurodollar loans owing to each non-extending lender bear interest at LIBOR, plus the “Eurodollar applicable rate,” with the “Eurodollar applicable rate” ranging between 1.0% and 1.75%. Eurodollar loans owing to each extending lender bear interest at LIBOR plus the “Eurodollar extended term applicable rate,” with the “Eurodollar extended term applicable rate” ranging between 2.50% and 3.25%. The interest rate spreads applicable to our borrowings fluctuate based upon the performance of OSH LLC and the Guarantors as measured by their leverage ratio. In addition, we are required to pay unused commitment fees, based on OSH LLC’s and the Guarantors leverage ratio; such fees were 0.25% and 0.75% at January 29, 2011 and July 30, 2011 for non-extending lenders and for extending lenders, respectively.

Availability under the Senior Secured Credit Facility is determined pursuant to a borrowing base formula based on inventory and accounts and credit card receivables, subject to certain limitations. The Senior Secured Credit Facility subjects us to certain restrictive covenants, including a fixed charge coverage ratio that is triggered when availability under the Senior Secured Credit Facility reaches a minimum threshold of 10% of the total availability for three consecutive days. The fixed charge coverage ratio requires OSH LLC and the Guarantors to maintain a minimum ratio of 1.1 to 1.0 EBITDAR (EBITDA plus rent expense) to certain fixed charges.

Our Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan impose operating and financial restrictions on us, including, among other things, limitations on our ability to:

• incur or guarantee additional indebtedness;

• pay dividends or redeem, repurchase, retire or make distributions in respect of our capital stock;

• make certain loans, acquisitions, capital expenditures or investments;

• sell certain assets, including stock of our subsidiaries;

• enter into sale and leaseback transactions;

• create or incur liens;

• consolidate, merge, sell, transfer or otherwise dispose of all or substantially all of our assets;

• enter into certain transactions with our affiliates;

• undergo a change in control;

• enter into certain swap agreements;

• engage in a different type of business, including in the case of the Company, holding assets or liabilities other than holding the stock of OSH LLC;

• make payments on certain types of debt;

• enter into agreements that limit the ability of a subsidiary to pay dividends or distributions or make or repay loans or advances or to transfer assets to OSH LLC or guarantee debt of OSH LLC;

• enter into agreements that limit the ability of OSH LLC and the Guarantors to incur liens on their property;

• amend certain material documents;

• make changes to accounting treatment and reporting practices;

77

• change the fiscal year; and

• use proceeds of credit extensions to purchase or carry margin stock.

Senior Secured Term Loan—In December 2006, we entered into a $200 million senior secured term loan agreement (the “Senior Secured Term Loan”), which requires quarterly principal payments of $0.5 million and matures in December 2013. On January 28, 2011, we amended the Senior Secured Term Loan to change the maximum adjusted leverage ratio covenant, applicable interest rates, definition of EBITDA and excess cash flow prepayment percentage rate. In addition to the quarterly principal payments discussed above, in the event we have excess cash flows at the end of a fiscal year, we are required to apply between 25% and 75% of such excess cash flows (reduced by previous voluntary prepayments) to repay outstanding loans. The annual excess cash flow prepayment percentage rate is a percentage of our excess cash flows determined by Orchard’s leverage ratio. We did not pay any excess cash flow prepayments in fiscal 2010 and do not anticipate making any prepayments in fiscal 2011.

The borrower under the Senior Secured Term Loan is OSH LLC and the loan is guaranteed by the Guarantors. Borrowings under the Senior Secured Credit Facility are collateralized by a first lien on OSH LLC’s and the Guarantors’ subsidiary stock, equipment, real property, intangibles relating to such stock, proceeds and products of the foregoing (the “Term Loan Collateral”) and a second lien on substantially all of OSH LLC’s and the Guarantors’ other assets.

Borrowings under the Senior Secured Term Loan are either alternate base rate (“ABR”) loans or Eurodollar loans, at our discretion. ABR loans bear interest at the greater of (a) the prime rate as publicly announced by JPMorgan Chase Bank, and (b) the federal funds rate, plus 0.5%, plus the “ABR applicable rate”, with the “ABR applicable rate” ranging between 3.50% and 3.75%. Eurodollar loans bear interest at LIBOR, plus the “Eurodollar applicable rate”, with the “Eurodollar applicable rate” ranging between 4.50% and 4.75%. The interest rate spreads applicable to our borrowings fluctuate based upon the performance of Orchard as measured by its leverage ratio.

The Senior Secured Term Loan subjects us to certain restrictions, including a maximum adjusted leverage ratio covenant. In addition, the Senior Secured Term Loan requires us to make certain mandatory repayments in connection with the transfer of or damage to property securing the loan or in the event we incur certain types of debt.

The maximum adjusted leverage ratio covenant (as defined in the Senior Secured Term Loan) is calculated on the last day of each fiscal quarter as (a) consolidated total funded debt on such date (as defined in the Senior Secured Term Loan) to (b) trailing four fiscal quarters adjusted EBITDA (as defined in the Senior Secured Term Loan). The following table provides our maximum leverage ratio during the remaining term of the Senior Secured Term Loan.

For the trailing four fiscal quarters ending	Maximum Leverage Ratio
January 29, 2011 through and including May 5, 2012	5.50 to 1.00
August 4, 2012 through and including February 2, 2013	5.25 to 1.00
May 4, 2013 through and including February 1, 2014	4.75 to 1.00

We believe that we were in compliance with the Senior Secured Term Loan covenants, including the maximum leverage ratio, which, at January 29, 2011, July 30, 2011, and October 29, 2011 were 4.89 to 1.00, 5.44 to 1.00, and 5.02 to 1.00, respectively. At January 29, 2011, July 30, 2011, and October 29, 2011 assuming our current level of consolidated total funded debt remains constant, we estimate that a 11.0%, 1.1%, and 8.8% or greater decline in our trailing four fiscal quarters adjusted EBITDA, respectively, would cause us to exceed our maximum leverage ratio covenant for that period.

Real Estate Secured Term Loan—On October 27, 2010, we entered into a $50 million real estate secured term loan (the “Real Estate Secured Term Loan”) that requires quarterly payments of $0.1 million and matures in December 2013. The proceeds from the Real Estate Secured Term Loan, together with $33.0 million of available cash and a $37.0 million borrowing on our Senior Secured Credit Facility, were used to

78

repay our then existing $120.0 million commercial mortgage-backed securities loan in full on October 27, 2010. The Real Estate Secured Term Loan requires us to meet the leverage covenant set forth in our Senior Secured Term Loan, subject to certain maximum thresholds. On February 17, 2011, we amended the Real Estate Secured Term Loan to raise the maximum thresholds on the loan’s leverage covenant for certain periods and change the definition of EBITDA.

Interest on the Real Estate Secured Term Loan is based on LIBOR plus 4.25% per annum (4.511% and 4.436% at January 29, 2011 and July 30, 2011, respectively), and is payable in monthly installments. In connection with the Real Estate Secured Term Loan, we entered into an interest rate cap agreement, which establishes a maximum interest rate on the Real Estate Secured Term Loan for LIBOR at 4% with a $25 million notional amount.

The Real Estate Secured Term Loan is secured by a first lien mortgage on 19 properties, which includes 15 properties owned and 4 properties on ground leases, each owned or leased by our wholly owned subsidiary, OSH Properties LLC. The loan is subject to a lapsing prepayment premium and breakage costs in the event we elect to repay all or a portion of the loan early.

On October 24, 2011, a subsidiary of the Company entered into a Purchase and Sale Agreement pursuant to which a subsidiary of the Company sold for $21.3 million, all of its interest in its distribution center located in Tracy, California, which is comprised of a building containing approximately 458,360 square feet and the underlying land. In connection with the closing of the sale of the distribution center, a subsidiary of the Company entered into a lease agreement with respect to the distribution center. The commencement date of the lease was October 28, 2011. The lease is a 20-year lease and provides for three five-year extension options. The initial base rent under the lease is $1.7 million per year with 10% increases every five years. The Company will record a loss in the amount of approximately $14 million on the sale of the distribution center in the third quarter of fiscal 2011. In connection with the transaction, the Company repaid $7.6 million of the Real Estate Secured Term Loan and removed the distribution center from the loan collateral. The Company paid $0.1 million in fees, penalties, and interest.

Each of the Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan required the payment of upfront and arrangement fees of between 1.0% and 2.25%.

Our Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan contain an event of default resulting from a change of control default, which includes the following: (i) certain mergers, consolidations, sales or transfers of all or substantially all of the assets of OSH LLC and OSH LLC’s subsidiaries to persons other than ACOF, ESL and Sears Holdings; (ii) adoption of a plan of liquidation of OSH LLC; (iii) prior to an initial underwritten public offering of common stock of the Company, Sears Holdings, ESL and ACOF ceasing to collectively hold directly or indirectly at least 50% of the total voting power of all shares of our and OSH LLC’s voting capital stock; (iv) following an initial underwritten public offering of common stock of the Company, a person or group, other than Sears Holdings, ESL and ACOF, collectively holding directly or indirectly at least 40% of the total voting power of all shares of our and OSH LLC’s voting capital stock and Sears Holdings, ESL and ACOF collectively holding less than such person or group; and (v) our board of directors not consisting of continuing directors (“Change in Control”).

Immediately following the Distribution:

• Sears Holdings will not own any capital stock of the Company;

• ESL will beneficially own approximately 61% of our outstanding shares of Class A Common Stock and approximately 49% of the general voting power of our capital stock; and

• ACOF will beneficially own 100% of our outstanding shares of Class C Common Stock and approximately 20% of the general voting power of our capital stock.

79

Neither ESL nor ACOF have agreed to maintain their shareholding in the Company following the Distribution. If, following the Distribution, one or both of ESL and ACOF dispose of all or part of their shareholding in the Company such that their combined total voting power drops below 50%, this may trigger a Change in Control event of default under the Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan. An event of default could trigger certain acceleration clauses and cause those and our other obligations to become immediately due and payable and we may not have sufficient cash funds available to repay our debt obligations upon such a Change in Control.

Cash Flows from Operating Activities

For the first half of fiscal 2011, we primarily financed our operations and investments with cash generated from operations. Cash provided by operating activities was $21.3 million in the first half of fiscal 2011 as compared to $39.6 million in the first half of fiscal 2010. The $18.3 million decrease in cash provided by operating activities was primarily due to a decrease of $9.7 million in net income due to lower net sales as a result of unfavorable weather conditions in the months of March and June 2011. The decrease of $4.4 million in cash provided by merchandise inventories was due to the Company’s efforts to reduce its in-stock levels in 2011. In addition, a decrease of $6.5 million was due to the timing of our payable to Sears.

Cash provided by operating activities was $52.5 million for fiscal 2010 as compared to $25.9 million for fiscal 2009. The increase in cash provided by operating activities was primarily due to the timing of our intercompany payments to Sears Holdings for goods and services received as well as the timing of payments for our merchandise payables. Cash provided by the change in merchandise payables improved year over year as we were less aggressive in pursuing early payment discounts from vendors in fiscal 2010. The increase is partially offset by the ramping up of our merchandise inventories for purposes of improving our in-stock merchandise.

Cash provided by operating activities was $25.9 million for fiscal 2009 as compared to $43.2 million for fiscal 2008. The decrease in cash provided by operating activities was primarily due to the timing of merchandise payables, inventory and accruals. The timing of merchandise payables was due to a more aggressive strategy to pursue early payment discounts from vendors in the last quarter of fiscal 2009 as compared to the last quarter of fiscal 2008.

Cash used in Investing Activities

Cash used in investing activities was $6.1 million for the first half of fiscal 2011 as compared to $4.8 million for the first half of fiscal 2010. The increase in cash used in investing activities is primarily due to new store spending. In fiscal 2011, we spent $6.2 million on capital expenditures, allocated as follows: 47% for new stores, 33% for maintenance, 13% for core technology, and 7% for merchandising.

Cash used in investing activities was $12.0 million for fiscal 2010 as compared to $11.5 million for fiscal 2009. In fiscal 2010 we spent $11.5 million on capital expenditures, allocated as follows: 34% for new stores, 21% for maintenance, 17% for core technology, 9% for merchandising and 19% for other initiatives. In fiscal 2010, we added one new store. We also set aside $0.6 million in restricted cash for property improvements in accordance with our new $50 million Real Estate Secured Term Loan.

Cash used in investing activities was $11.5 million for fiscal 2009 as compared to $7.2 million for fiscal 2008. In fiscal 2008, we released $3.3 million of restricted cash to pay for a legal settlement based on a court order issued in September 2007.

Cash Flows from Financing Activities

Cash used in financing activities was $20.3 million for the first half of fiscal 2011 and $4.5 million for the first half of fiscal 2010. The increase of $15.8 million in cash used in financing activities was primarily due to $16.0 million of net repayments under the Senior Secured Credit Facility.

80

Cash used in financing activities was $33.9 million for fiscal 2010 and $18.2 million for fiscal 2009. Cash used in financing activities for fiscal 2010 increased due to the repayment of $120.0 million commercial mortgage-backed securities loan, a $50.0 million borrowing on the Real Estate Secured Term Loan, and a $48.0 million net borrowing on our Senior Secured Credit Facility.

Cash used in financing activities was $18.2 million and $30.1 million for fiscal 2009 and 2008, respectively. The decrease in cash used in financing activities was primarily due to no net pay down on the Senior Secured Credit Facility during fiscal 2009 as compared to a $17.0 million net pay down during fiscal 2008. In accordance with our Senior Secured Term Loan, during fiscal 2009 we made an $11.0 million prepayment for excess cash flows generated by the Company, as compared to a $7.0 million prepayment for excess cash flows made during fiscal 2008.

Contractual Obligations and Off-Balance Sheet Arrangements

For fiscal 2010 and fiscal 2009, the Company had non-cancelable commitments of $0.2 million and $1.5 million, respectively, related to merchandise purchase contracts and capital projects. Other than in connection with executing operating leases and purchase commitments, we do not have any other off-balance sheet financing that has, or is reasonably likely to have, a material current or future effect on our financial condition, cash flows, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

The following table summarizes our contractual obligations as of January 29, 2011.

(in millions)	Total		Less than 1 Year		2-3 Years		4-5 Years		After 5 Years
Long-Term Debt	$	271.5	$	13.5	$	258.0	$	—	$	—
Capital Lease Obligations (includes interest)		123.6		12.0		24.4		24.1		63.1
Operating Leases		165.3		28.8		52.9		40.7		42.9
Purchase Obligations		0.2		0.2		—		—		—
Total Contractual Obligations	$	560.6	$	54.5	$	335.3	$	64.8	$	106.0

Certain reserves and contractual obligations were excluded from the table above due to the uncertainty in timing or amounts of such payments. These include $1.7 million of reserves for uncertain tax positions, $5.9 million of casualty insurance reserves, and variable interest on our long-term debts. If both interest rates and debt remain constant, the Company expects interest obligations to be $11.7 million within the next 12 months. A 25 bps change in interest rates, assuming consistent borrowings, could result in a $0.6 million change in interest obligations annually. A $1.0 million change in debt, assuming consistent interest rates, could result in a $0.1 million change in interest obligations annually. In the past 12 months, we have experienced a 19 bps change in interest rate and $40.3 million change in debt. If we were to experience the same fluctuation in the following 12 months, it could potentially change our interest obligations by approximately $2.2 million or approximately 20% of the $11.7 million in expected interest obligations.

There are no significant changes to our contractual obligations and off balance sheet arrangements during the first half of fiscal 2011, with the exception of when we are planning to repay our long-term debt. We have reclassified $3.0 million of our Senior Secured Credit Facility debt from long-term to short-term. In addition, we paid down $14.7 million of our debt in the second quarter of fiscal 2011. We do not foresee paying down on our Senior Secured Credit Facility during the next 12 months, through the second quarter of fiscal 2012.

On October 24, 2011, a subsidiary of the Company entered into a Purchase and Sale Agreement pursuant to which a subsidiary of the Company sold for $21.3 million in cash, all of its interest in its distribution center located in Tracy, California, which is comprised of a building containing approximately 458,360 square feet and

81

the underlying land. In connection with the closing of the sale of the distribution center, a subsidiary of the Company entered into a lease agreement with respect to the distribution center. The commencement date of the lease was October 28, 2011. The lease is a 20-year lease and provides for three five-year extension options. The initial base rent under the lease is $1.7 million per year with 10% increases every five years. The Company will record a loss in the amount of approximately $14 million on the sale of the distribution center in the third quarter of fiscal 2011. In connection with the transaction, the Company repaid $7.6 million of the Real Estate Senior Secured Term Loan and removed the distribution center from the loan collateral. The Company paid $0.1 million in fees, penalties, and interest.

Critical Accounting Policies and Estimates

In preparing the financial statements, certain accounting policies require considerable judgment to select the appropriate assumptions to calculate financial estimates. These estimates are complex and subject to an inherent degree of uncertainty. We base our estimates on historical experience, terms of existing contracts, evaluation of trends and other assumptions that we believe to be reasonable under the circumstances. We continually evaluate the information used to make these estimates as our business and the economic environment change. Although the use of estimates is pervasive throughout the financial statements, we consider an accounting estimate to be critical if:

• it requires assumptions to be made about matters that were highly uncertain at the time the estimate was made, and

• changes in the estimate that are reasonably likely to occur from period to period or different estimates that could have been selected would have a material effect on our financial condition, cash flows or results of operations.

We believe that the current assumptions and other considerations used to estimate amounts reflected in the financial statements are appropriate. However, if actual experience differs from the assumptions and the considerations used in estimating amounts, the resulting changes could have a material adverse effect on our consolidated results of operations, and in certain situations, could have a material adverse effect on our financial condition.

The following is a summary of our most critical policies and estimates. See Note 1 of the Notes to the Consolidated Financial Statements for a listing of our other significant accounting policies.

Merchandise Inventories

Our inventory is valued at the lower of cost or market determined primarily using the retail inventory method (“RIM”). RIM is an averaging method that is commonly used in the retail industry. To determine inventory cost under RIM, inventory at its retail selling value is segregated into groupings of merchandise having similar characteristics, which are then converted to a cost basis by applying specific average cost factors for each grouping of merchandise. Cost factors represent the average cost-to-retail ratio for each merchandise group based upon the year’s purchasing activity for each store location. Accordingly, a significant assumption under the retail method is that inventory in each group is similar in terms of its cost-to-retail relationship and has similar turnover rates. We monitor the content of merchandise in these groupings to prevent distortions that would have a material effect on inventory valuation.

RIM inherently requires management judgment and certain estimates that may significantly affect the ending inventory valuation, as well as gross margin. The methodologies utilized by the Company in its application of the RIM are consistent for all periods presented. Such methodologies include the development of the cost-to-retail ratios, the groupings of homogenous classes of merchandise, the development of shrinkage and obsolescence reserves, and the accounting for retail price changes. We believe that the Company’s RIM provides an inventory valuation that reasonably approximates cost. Among others, two significant estimates used in inventory valuation are the level and timing of permanent markdowns (clearance markdowns used to clear unproductive or slow-moving inventory) and shrinkage. Amounts are charged to cost of sales at the time the retail value of inventory is reduced through the use of permanent markdowns.

82

Factors considered in the determination of permanent markdowns include current and anticipated demand, customer preferences, age of the merchandise, fashion and design trends and weather conditions. In addition, inventory is also evaluated against corporate pre-determined historical markdown cadences. When a decision is made to permanently markdown merchandise, the resulting gross margin reduction is recognized in the period the markdown is recorded. The timing of the decision, particularly surrounding the balance sheet date, can have a significant effect on the results of operations.

Vendor Rebates and Allowances

The Company receives various vendor-funded rebates and allowances through a variety of programs and arrangements intended to offset the Company’s costs of promoting and selling certain vendor products. These vendor payments are recorded as a reduction to the cost of merchandise inventories when earned and, thereafter, as a reduction of cost of sales, as the merchandise is sold. Up-front consideration received from vendors linked to purchases or other commitments is deferred until performance of the specified activity is deemed to be complete. The Company received $30.3 million, $29.2 million and $28.3 million in vendor rebates and allowances in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. For the 13 and 26 weeks ended July 30, 2011, the Company received vendor rebates and allowances of $7.8 million and $15.1 million, respectively. For the 13 and 26 weeks ended July 31, 2010, the Company received vendor rebates and allowances of $7.0 million and $14 million, respectively.

Goodwill and Intangible Assets Impairment

Goodwill

The Company does not amortize goodwill, but tests it for potential impairment on an annual basis in December of each year or whenever events or changes in circumstances indicate that its value may not be recoverable. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others, a significant decline in the Company’s expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition and slower growth rates.

The Company’s goodwill resided in one reporting unit. The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its carrying value. Potential impairment exists if the carrying amount of net assets, including goodwill, is greater than the fair value of net assets, which is based on the income approach using a calculation of discounted estimated future cash flows. The projection uses management’s best estimates of economic and market conditions over the projected period including growth rates in net sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment loss. The amount of impairment is determined by comparing the implied fair value of reporting unit goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination.

During fiscal 2008, the Company recorded a goodwill impairment charge of $262.8 million and since then has no remaining goodwill.

Trade Name Asset Impairment

We review indefinite-lived trade name assets for impairment by comparing the carrying amount of the assets to the sum of undiscounted cash flows expected to be generated by the assets. Potential impairment exists if the carrying amount of trade names is greater than their fair value, which is determined using the relief from royalty method. We did not record any intangible asset impairment charges in any period presented in this Prospectus.

83

The use of different assumptions, estimates or judgments in our trade name asset impairment testing process, such as the estimated future cash flows of the asset and the discount rate used to discount such cash flows, could significantly increase or decrease the estimated fair value of the assets, and therefore, impact the related impairment charge. At the 2010 annual impairment test date, the above-noted conclusion that no indication of intangible asset impairment existed at the test date would not have changed had the test been conducted assuming: (1) a 100 basis points increase in the discount rate used to discount the aggregate estimated cash flows of our assets to their net present value in determining their estimated fair values (without any change in the aggregate estimated cash flows of our reporting unit), (2) a 100 basis points decrease in the terminal period growth rate without a change in the discount rate of the reporting unit, or (3) a 10 basis points decrease in the royalty rate applied to the forecasted net sales stream of our assets. If the decline in our net sales continues, this could have a material effect on our trade names valuation and could result in an impairment change.

The Company’s trade name assets, OSH and Orchard Supply Hardware, are not subject to amortization, as management expects the trade names to generate cash flows indefinitely.

The impairment analysis for trade names is performed as of the last day of the Company’s November accounting period each year.

Impairment of Long-Lived Assets

Long-lived assets, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying value of the asset exceeds the expected future cash flows expected to result from the use of the asset, on an undiscounted basis, an impairment loss is recognized. The impairment loss recognized is the excess of the carrying value of the asset over its fair value. The fair market value of these assets is determined using the income approach and Level 3 inputs, which require management to make estimates about future cash flows. We estimate the amount and timing of future cash flows based on historical experience and knowledge of the retail market in which each store operates. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate impairment losses of long-lived assets. The Company’s recorded asset impairment charges have not been and are not expected to be material. However, if actual results are not consistent with our estimates and assumptions used in the calculations, we may be exposed to losses that could be material.

Casualty Insurance Reserves

The Company has historically participated in Sears Holdings’ insurance programs, which has provided the Company with comprehensive insurance coverage. On February 25, 2008, the Company entered into its own insurance contracts for exposures incurred after that date with third-party insurance companies for a number of risks including workers’ compensation and general liability claims. The Company records insurance reserves based on the expected ultimate settlement value of claims filed and claims incurred but not yet reported. The Company’s estimated claim amounts are discounted using a risk-free rate based on the duration that approximates the expected period to settle such claims. The discount rate used was 4% in each of fiscal years 2010, 2009 and 2008. A 25 basis point change in the risk-free rate would change our reserve by less than $0.1 million. In estimating this liability, the Company utilized loss trend factors based on Company-specific data to project the future loss rate. Loss estimates are adjusted based upon actual claims settlements and reported claims. These projections are subject to a high degree of variability based upon future inflation rates, litigation trends, legal interpretations, benefit level changes, and claim settlement patterns.

Although the Company does not expect the amounts ultimately paid to differ significantly from its estimates, insurance reserves could be affected if future claim experience differs significantly from the historical trends and the actuarial assumptions.

84

Quantitative and Qualitative Disclosures about Market Risk

We face market risk exposure in the form of interest rate risk. These market risks arise from our debt obligations. We have no international operations. Our exposure to foreign currency fluctuations is not significant to our financial condition or results of operations.

Interest Rate Risk

All interest-rate derivative instruments are considered non-trading. At January 29, 2011, 80.3% of our total debt portfolio, including capital leases, was variable rate. Based on the size of this variable rate debt portfolio at January 29, 2011, which totaled approximately $271.5 million, an immediate 100 basis points change in interest rates would have affected annual pretax funding costs by $2.7 million.

85

BUSINESS

Our Business

We are a California specialty retailer primarily focused on the consumer segment of the home improvement market. Our stores are designed to appeal to convenience-oriented customers, whose purchase occasions are largely driven by their home repair, maintenance and improvement needs throughout the home, garden and outdoor living areas. As of July 30, 2011, we operated 89 full-service hardware stores in California. We opened four new stores in California within the past three years—one in 2010, two in 2009, and one in 2008. Our stores average approximately 43,600 square feet of enclosed space, plus approximately 8,300 square feet of nursery and garden area. Our stores carry a broad assortment of repair and maintenance, lawn and garden and in-home products.

We strive to provide our customers with best-in-class customer service by staffing our stores with knowledgeable managers and employees. We design our stores to be easy to shop, using lower profile shelving than is typically found in our larger warehouse home center competitors, and high visibility signage for ease of navigation.

We operate in one reportable segment and provide a merchandise mix which consists of various product categories. Our repair and maintenance category consists of plumbing, electrical, paint, tools, hardware, and industrial products. Our lawn and garden category consists of nursery, garden, outdoor power and seasonal products. Our in-home category consists mainly of our housewares and appliances products.

We also focus on the convenience-oriented purchases of the small professional customer. The professional customer’s convenience-oriented purchases are largely motivated by a need for incremental supplies and tools to complete construction projects.

Industry

The U.S. home improvement industry is an estimated $266 billion market consisting of the consumer and professional segments. We compete primarily in the $194 billion consumer segment where, according to the Home Improvement Research Institute, sales have grown during 2010 at a 3.4% average growth rate. The consumer segment of the U.S. home improvement industry is also expected to grow at a 5.6% compound annual growth rate from 2011 through 2015.

Competition

The home improvement industry in California is highly competitive and we are positioned between larger warehouse home center competitors and smaller independent hardware stores. We consider The Home Depot, Lowe’s, Ace Hardware and True Value as our primary competitors. Based on publically available information, we believe that in California each of The Home Depot, Ace Hardware and True Value currently has between two to three times as many stores as we do and that Lowe’s has, by number of stores, over 20% more stores in the state than we do. In addition, discount retailers such as Walmart, Target and Kmart, and multi-line retailers such as Sears Roebuck, compete with us in certain product areas. In addition, our garden centers compete against smaller local nurseries and Armstrong Garden Center in Southern California. Online and catalog businesses, which handle similar lines of merchandise, also compete with us.

Many of our competitors have a larger number of stores, substantially greater financial, distribution and marketing resources, larger market shares and a more widespread, national presence. Such factors may provide our competitors with greater financial resources to expand, grow and allow for stronger relationships and aggressive pricing with vendors and third party suppliers; however, we do have vendors for whom we are a large customer and we continue to leverage these relationships to improve our competitive advantage. We compete against the larger warehouse home centers and the discount and multi-line retailers on the basis of the convenient shopping experience we provide and by striving to provide better customer service than our competitors. We compete against the smaller independent hardware stores based on the breadth of our product offerings and on the basis of price.

86

Our Competitive Strengths

Our success depends on our ability to remain competitive with respect to our stores’ shopping convenience, the in-stock availability merchandise and superior customer service by knowledgeable sales professionals. The performance of our competitors, as well as a change in their pricing policies, marketing activities, new store openings and other business strategies, could have a material adverse effect on our business, financial condition and results of operations. We believe our competitive strengths are the following:

Our Stores Carry a Wide Variety of Merchandise.

We offer our customers a broad selection of products, including well-known consumer brand names, and we strive to offer high in-stock levels. A typical Orchard store offers a selection of repair and maintenance products comparable to larger warehouse competitors and carries more products than the typical smaller independent hardware store.

Each of our stores offers a wide selection of well known consumer brand names, such as 3M, Ames/Tru-Temper Tools, Black & Decker, Craftsman, DeWalt, Dickies, Dutch Boy, General Electric, Leviton, Makita, Milwaukee, Miracle-Gro, Moen, Quikrete, RainBird, Rubbermaid, Scotts, Stanley, Toro and Weber. Our private label brands typically generate higher gross profit margins than third-party brands and include Aqua Vista, Bridgewater, Orchard, OSH, Pacific Bay and Western Hawk; these private label brands also add to the distinctive nature of our product selection.

In addition, we believe our year-round lawn and garden categories are key in drawing customers to our stores and will provide a platform for our growth. While we believe participating in these categories better positions us to successfully compete against the larger warehouse home centers, it also acts as a competitive advantage over smaller independent retailers that typically do not carry the same breadth of assortment as we do in these categories. We believe our lifetime plant guarantee policy also drives customer loyalty.

We Stock High Margin Product Categories.

While our stores offer a wide range of merchandise, in contrast to our larger warehouse home center competitors, we stock repair and maintenance products, not construction materials that typically yield lower gross margins and requires a substantial amount of selling space. Our limited offerings in these areas allow us to dedicate valuable selling space to higher-margin items which meet the needs of our convenience-oriented customers.

Our Stores Are Easy to Navigate and Convenient to Shop.

To facilitate the shopping experience, our stores are generally designed in a conventional format using lower profile shelving and higher visibility signage than is usually found in our larger warehouse home center competitors, which are typified by warehouse racking and over-stacked aisles. Customers can generally view the majority of our store upon entering, helping them to easily and quickly locate items. Related departments are generally located adjacent to each other, and most merchandise is displayed according to centrally developed floor plans that are designed to optimize space utilization. Product labels and descriptive signage assist customers in easily identifying merchandise. In addition, we strive to select store sites that are easily accessible, conveniently located and have ample parking capacity. These features are intended to provide customers with a comfortable and convenient shopping environment.

We Strive to Deliver Outstanding Customer Service and Value Added Services.

We believe that our customers associate us with providing outstanding customer service and attractive value added services. We drive customer loyalty by striving to deliver outstanding customer service, a broad selection of products and high in-stock levels through friendly, experienced and knowledgeable sales people and store

87

managers. Many of our in-store personnel have repair experience and our associates pass written tests on store policies and products in their respective departments. In addition, we offer repair services on gas outdoor power products through our Eager Beaver Engine House, which we believe distinguishes us from many of our competitors. We also provide pickup and delivery services.

We Have an Experienced Management Team and Store Leadership

We have recruited an experienced executive management team with the objective of increasing our profitability and stimulating our growth. Our executive management team has an average of over 18 years of retail related experience and an average of 8 years in the home improvement industry.

Our executive management is supported by what we believe is one of the more stable and experienced groups of store-level managers in the industry. The average tenure of an Orchard store manager is approximately 15 years. In addition, we believe that we have a pool of highly qualified assistant store managers who are experienced and ready to become store managers as we continue to expand. The average tenure for an assistant store manager with Orchard is approximately 10 years.

Our stores are generally open seven days per week. Depending on the size and sales volume of the store, the total number of personnel at a particular store varies from about 35 to 105, with about 10 to 35 of whom are full-time employees. Our stores are operated by store managers, who report to one of eight district managers. Our store managers are responsible for day-to-day store operations, subject to operating procedures established at our store support center. A typical store is staffed with a store manager, two assistant managers and seven department leads.

Our Vision and Strategy

We plan to continue to enhance our competitive position, grow our business and increase our net sales and profitability. Key components of our growth strategy are as follows:

Increase Net sales through Enhanced Marketing and Merchandising. We are focused on developing new marketing initiatives to increase the number of customers and frequency of customer visits in our stores as well as increase the average amount of time they spend in our stores. Our marketing initiatives include a new campaign to improve our brand awareness, which involves beginning to standardize the look and feel of our stores as well as how we communicate our “Orchard Supply Hardware” brand, and continuing to more efficiently utilize our advertising expenditures to better communicate our value proposition to our target customers. We continually test new marketing offers and media to optimize our return on investment on our advertising programs.

We focus on offering the complete solution for customers to satisfy their home repair and maintenance, lawn and garden needs. Our merchandising initiatives are focused on enhancing our in-store merchandising and store layouts to drive incremental revenue and improve gross margin performance. For example, we have added “off-shelf” merchandise, stocked with relevant accessories that tend to be low-price, high-margin impulse purchases at the end of each aisle and rearranged our store layout to improve cross-selling across departments.

Improve Gross Margin Performance. We are continually focusing on various initiatives intended to improve our gross margin performance, including accelerated line reviews, increasing our private label offerings and expanding the sourcing of merchandise from overseas. Our line reviews are focused on enhancing the overall quality and value proposition of our merchandise through targeted negotiation with our vendors. We continually identify product lines for review and work with our vendors to strive for the best possible quality, pricing and terms for a particular product category. In keeping with the industry trend, our private label products typically generate higher profit margins compared to similar national brands. We believe our private label merchandise provides our customers with high quality products at excellent values and therefore allows us to compete effectively in the market. For fiscal 2010, private label sales accounted for approximately 6% of our total net sales.

88

Provide Multiple Sales Channels. In today’s competitive environment it is essential that we offer our customers the convenience of shopping for our products through multiple channels. As such, we launched our E-commerce website with approximately 6,400 products as of July 30, 2011. In 2011, our goal is to continue to expand the number of products offered on the site which we believe will drive future revenue growth.

Expand Our Store Base. We believe that we are positioned to leverage our competitive advantages and grow our store base over the long term. We target densely populated markets and sites adjacent to existing retailers that create a high traffic retail corridor that is attractive to customers. We continue to identify expansion opportunities in California and we believe that California offers a compelling opportunity for retailers based on its favorable demographic composition and expanding market potential.

Our near term store expansion is predicated on leveraging our brand equity in markets where we currently have a well established presence. We expect to continue expanding into Northern and Southern California and we are contemplating expanding beyond California into contiguous states. We believe that our brand equity and market presence in the San Francisco Bay Area and Central Valley regions will allow us to leverage our existing advertising awareness and economics of scale in these markets and open successful stores in a relatively short timeframe. We believe that the Southern California market presents our biggest expansion opportunity within California. With significantly increased store penetration in Southern California, we believe that we will develop better economies of scale and improved customer awareness in that market.

We developed a new store prototype in both our Clayton and Santa Rosa stores that we believe will provide an enhanced and more enjoyable shopping experience for our customers, which we expect to integrate into future store openings and into existing stores.

Offer Competitive Pricing. We employ a value driven pricing strategy. We continually review our pricing strategy through routine competitor price checks. Everyday prices are complemented by periodic off price item promotions and storewide discount events like “We Pay the Sales Tax” weekends. Additionally, “Dollar Days” events featuring low priced products are employed to underscore our value pricing. To reassure our customers that they cannot overpay at Orchard stores and to compete with low price competitors, we have a “Match Any Price” policy.

Our Products and Suppliers

Our focus on the repair, maintenance and improvement needs of convenience-oriented customers drives our merchandise selection. Our merchandise mix is offered through various product categories each of which represents from 2% to 15% of our fiscal 2010 revenue. Our three major revenue generating categories in 2010 were seasonal, plumbing and garden and our three smallest were appliances, outdoor power and industrial. Appliance net sales are limited as we do not sell appliances at every store location. In 2010, we expanded the number of stores which sell appliances from 19 to 34 locations. Our goal is to offer our customers a large selection of brands and products within each of our product categories.

We maintain excellent relationships with our nearly 2,000 vendors and greatly value our long-standing partnerships. In 2010, our largest supplier accounted for 3.5% of our merchandise and our top ten suppliers accounted for approximately 24.4% of our total purchases. Most of our merchandise is available from multiple suppliers and the loss of any single one would not materially impact our business.

We believe our merchandising program effectiveness is enhanced by systematically sharing point-of-sale and inventory data with many suppliers. Vendors provide substantial financial support that allows us to partially mitigate costs associated with marketing, product liquidation, merchandise program rollouts, full store resets and new store openings. In-store support, such as associate training, order placement, merchandise layout and maintenance is routinely provided by vendors.

89

Seasonality

We experience seasonal fluctuations in our net sales and operating results and historically have realized a significant portion of our net sales and earnings for the year in the spring, primarily during our second fiscal quarter. In 2009 and 2010, we generated 29% and 30% of our net sales in the second fiscal quarter, respectively. Thus, lower than expected second quarter net sales could have an adverse impact on our annual operating results.

Distribution and Systems Infrastructure

A majority of our orders from our stores are filled by our distribution facility and 40,000 square foot warehouse, both located in Tracy, California which process and deliver orders to all of our stores. Our distribution center stocks the majority of products that are offered in our stores and cross-docks additional products to provide our stores with approximately 63% of our merchandise needs. The remainder of our merchandise, including all of our live goods, comes directly from our vendors or distributors to our stores. We operate a private fleet of 25 leased tractors and 162 owned and leased trailers to deliver merchandise to most of our Northern California stores. We contract with a third party common carrier to deliver our merchandise to selected coastal and more distant Northern California and Southern California stores.

Our distribution system allows our stores to perform key services and to promote efficient store operations. For example, our distribution system allows store department managers to place emergency orders to quickly replenish fast selling merchandise. We also use a two-way transportation system that assists us in minimizing non-selling space and markdowns by eliminating unproductive inventory and logistics related materials.

We utilize a computerized point-of-sale system, which supports an in-store system, which in turn supports a purchase order management system. Our in-store system integrates store sales, credit, inventory and data collection systems. Our point-of-sale system includes enhanced systems for check verification and acceptance, and provides alternative pay choices, including most nationally recognized financial institution debit and credit cards. Each store is linked to our host computer, which provides efficiencies in data transfers to the store support center. The in-store system is coupled with the point-of-sale system and processes transmitted store orders. In addition, we are in the process of implementing a new automated replenishment system in 2010, which we believe will reduce future inventory costs and logistics and improve the in store availability of our products.

Employees

As of July 30, 2011 we had approximately 5,800 employees, approximately 35% of whom were full-time employees. None of our employees are unionized. We believe that we have an excellent working relationship with our employees and we have never experienced an interruption of business as a result of labor disputes.

Facilities and Store Locations

As of July 30, 2011 we operated 89 retail stores, one appliance center (owned), one distribution center (owned) and one store support center (leased). Of the 89 retail stores, we owned 14 stores and lease 75 stores, six of which are situated on ground leases. Nineteen of our locations (composed of our 14 owned retail locations, four ground leases and the distribution center) were collateralized pursuant to our $50.0 million Real Estate Secured Term Loan agreement.

On October 24, 2011, a subsidiary of the Company entered into a Purchase and Sale Agreement pursuant to which a subsidiary of the Company sold for $21.3 million, all of its interest in its distribution center located in Tracy, California, which is comprised of a building containing approximately 458,360 square feet and the underlying land. In connection with the closing of the sale of the distribution center, a subsidiary of the Company entered into a lease agreement with respect to the distribution center. The commencement date of the lease was October 28, 2011. The lease is a 20-year lease and provides for three five-year extension options. The initial base

90

rent under the lease is $1.7 million per year with 10% increases every five years. The Company will record a loss in the amount of approximately $14 million on the sale of the distribution center in the third quarter of fiscal 2011. The Company will continue to operate the facility consistent with its existing use throughout the term. In connection with the transaction, the Company repaid $7.6 million of the Real Estate Secured Term Loan and removed the distribution center from the loan collateral.

We believe that our facilities are well maintained and are sufficient to meet our current and projected needs. We review leases that will expire in the short term in order to determine the appropriate action to take with respect to them.

Intellectual Property

We have registered a number of trademarks and service marks in the United States including OSH^®, ORCHARD SUPPLY HARDWARE^®, BRIDGEWATER^®, OSH ORCHARD SUPPLY HARDWARE^®, WESTERN HAWK^{® ®} and PACIFIC BAY^®. We have 12 trademark registrations pending. Generally, our right to use our trademarks and service marks continues so long as we use them.

We believe that our trademarks and service marks are material to our success and are important to building our name recognition.

Environmental Matters

Item 103 of SEC Regulation S-K requires that we disclose legal proceedings to which the Company and a governmental authority is a party and that arise under laws dealing with the discharge of materials into the environment or the protection of the environment, if the proceeding reasonably involves potential monetary sanctions of $100,000 or more. Disclosure also is required as to any such proceedings known by us to be contemplated by governmental authorities. In that connection, we note that we have received a notice of violation from the California South Coast Air Quality Management District (“SCAQMD”) alleging that Orchard stores that are located in the SCAQMD jurisdiction sold architectural coating products that exceed the current SCAQMD limitations on volatile organic compounds.

We are currently negotiating toward a resolution of this matter and do not expect it to have a material impact on our operations. During fiscal 2010, compliance with federal, state and local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment did not have a material effect on capital expenditures.

Legal Proceedings

Save Mart Supermarkets v. Orchard Supply Hardware LLC—On April 1, 2011, a judgment was entered against us in the case of the Save Mart Supermarkets v. Orchard Supply Hardware LLC, in California Superior Court in Fresno, California. Save Mart obtained a $5.1 million verdict on claims of breach of contract and breach of the implied covenant of good faith relating to the termination by Orchard Supply Hardware LLC of a contract for the lease of a store to be built by Save Mart. On August 24, 2011, the Company entered into a settlement agreement with Save Mart to satisfy the $5.1 million judgment, release the Company of all liabilities, and waive all rights of appeals by both parties. The settlement includes three parts: 1) a $0.5 million cash consideration paid to Save Mart, 2) the amendment and extension of an existing lease between Save Mart and the Company for a store unrelated to the one originally in dispute and 3) the lease of a new property to the Company. As of July 30, 2011, we had recorded a $5.1 million reserve for this matter. The Company estimates that this liability will be reduced by approximately $1.0 million to $2.0 million as a result of the settlement.

We are from time to time subject to class action claims of wage and hour violations. These claims generally seek monetary damages including back pay and statutory penalties, injunctive relief, or both. If a class were

91

certified in one of these cases, an unfavorable judgment or settlement might be material. Based on the information currently available, management does not believe that any such legal proceedings that may be currently pending would have a material adverse effect on the consolidated financial position or results of operations of the Company.

In addition, we are from time to time subject to claims of employment discrimination, unlawful employment practices and other Americans with Disabilities Act claims. These claims have not involved members of senior management and do not ordinarily involve damage claims that are material to our business.

In the ordinary course of business, we are subject to product liability litigation as a result of the sale of certain products, including products that have included asbestos. We are currently a party in two such cases, both pertaining to asbestos. These asbestos cases are early in the proceedings and it is not currently possible to evaluate the likelihood of an unfavorable outcome and not, therefore, possible to estimate with any degree of certainty any range of possible loss. However, in similar litigations we have been routinely dismissed and in those cases that Orchard has settled, the settlement has not been material.

We are subject to various legal and governmental proceedings arising out of the ordinary course of business. We believe we have valid defenses with respect to proceedings pending against us. Nevertheless litigation is inherently unpredictable and any proceedings, claims or regulatory actions against us, whether meritorious or not, may be time consuming, result in significant legal expenses, require significant amounts of management time, result in the diversion of significant operational resources, require changes in our methods of doing business that could be costly to implement, reduce our net sales, increase our expenses, require us to make substantial payments to settle claims or satisfy judgments, require us to cease conducting certain operations or offering certain products in certain areas or generally, and otherwise harm our business, results of operations, financial condition and cash flows, perhaps materially.

Defending the aforementioned lawsuits requires significant management attention and financial resources. The costs required to defend these lawsuits are unpredictable and vary from year to year. In the past, these sums have been material.

Our Relationship with Sears Holdings

We were originally formed as a purchasing cooperative by a group of farmers in California’s Santa Clara Valley. We opened for business in March 1931 with a single store in San Jose, California and we were incorporated in Delaware on March 31, 1989. In 1996, we were acquired by Sears Roebuck and we are currently an indirect majority owned subsidiary of Sears Holdings. Sears Holdings is the parent company of Sears Roebuck and Kmart Holding Corporation. Immediately following the spin-off, Sears Holdings shareholders will own 100% of the outstanding shares of our Class A Common Stock and Preferred Stock. ESL Investments, Inc. and affiliated entities (“ESL”) will own approximately 61% of our outstanding Class A Common Stock, representing approximately 61% of Class A Common Stock voting power and 49% of the voting power of our outstanding capital stock, and ESL will own approximately 61% of our outstanding Preferred Stock, which is our outstanding nonvoting capital stock. After the spin-off, we will operate as a publicly traded company independent from Sears Holdings.

Before the Distribution, we will enter into the Distribution Agreement and other agreements with Sears Holdings to effect the Distribution and provide a framework for our relationship with Sears Holdings after the Distribution. These agreements will govern the relationship between Sears Holdings and us subsequent to the completion of the spin-off and provide for the principal steps to be taken in connection with the spin-off and other matters. For a detailed description of these agreements, see “Certain Relationships and Related Party Transactions—Agreements with Sears Holdings” in this Prospectus.

92

Corporate Information

We were incorporated in Delaware on March 31, 1989. We conduct substantially all our operations through our wholly owned subsidiary, Orchard Supply Hardware LLC. Our principal executive offices are located at 6450 Via Del Oro, San Jose, California 95119 and our telephone number is (408) 281-3500. Our website address is www.osh.com.

93

MANAGEMENT

Directors and Executive Officers Following the Distribution

The following table sets forth information regarding the individuals who are currently expected to serve as our executive officers following the Distribution and their anticipated titles following the Distribution. All of these individuals are currently employees of Sears Holdings or its subsidiaries. After the Distribution, none of these individuals will continue to be employees of Sears Holdings. Additional executive officers may be appointed prior to the Distribution and information concerning those executive officers will be included in an amendment to this Prospectus. We are in the process of identifying the individuals who will be our directors following the spin-off, and we expect to provide details regarding these individuals in an amendment to this Prospectus.

Name	Age		Position with Orchard
Mark R. Baker		53	Chief Executive Officer, President and Director
Chris D. Newman		46	Senior Vice President, Chief Financial Officer and Treasurer
Steven L. Mahurin		51	Executive Vice President, Merchandising
Stephen W. Olsen		39	Senior Vice President, Supply Chain, IT and Chief Strategy Officer
Thomas J. Carey		53	Senior Vice President, Chief Marketing Officer
David I. Bogage		57	Senior Vice President, Human Resources
Mark A. Bussard		46	Senior Vice President, Operations
Michael W. Fox		52	Senior Vice President, General Counsel and Secretary

On October 3, 2011, Michael W. Fox was appointed as our Senior Vice President, General Counsel and Secretary, replacing Roger L. Smith, who had served as our Vice President, Real Estate, General Counsel and Secretary until September 30, 2011.

On November 7, 2011, Chris D. Newman was appointed interim Senior Vice President, Chief Financial Officer and Treasurer, replacing William C. Robertson, who served as our Senior Vice President, Chief Financial Officer and Treasurer until that time.

MARK R. BAKER: Chief Executive Officer, President and Director.

Mr. Baker has been President and Chief Executive Officer and a Director of Orchard since March 2011. Mr. Baker served as President and Chief Operating Officer of The Scotts Miracle-Gro Co., a leading manufacturer and marketer of branded consumer lawn and garden products, from September 2008 to October 2010. He served as Chief Executive Officer and President of Gander Mountain Company, an outdoor retailer specializing in hunting, fishing and camping gear, from September 2002 to September 2008. Prior to Gander Mountain Company, Mr. Baker served as Chief Merchandising Officer and Executive Vice President of Merchandising at The Home Depot, Inc. from October 2000 to 2001. From June 1999 to October 2000, he served as Group President and Senior Vice President of Merchandising at The Home Depot. From 1997 to 1999, he served as President of the Midwest Division at The Home Depot. From 1992 to 1996, Mr. Baker served as Executive Vice President of Merchandising at HomeBase, Inc. He was Vice President of Merchandising and Marketing of Scotty’s Home Improvement Centers from 1988 to 1992. Prior to Scotty’s Home Improvement Centers, Mr. Baker held various management positions for Knox Hardware and Lumber from 1980 to 1988. He has been a Director of Orchard Supply Hardware since March 2011. He served as a Director of The Scotts Miracle-Gro Co., from January 2004 to October 2010. Mr. Baker was a Director of Gander Mountain Company from April 2004 to September 2008 and currently serves as a Director of Andersen Windows, a private company.

Mr. Baker brings extensive operational leadership and merchandising experience within the home improvement retail industry to our Board of Directors. As President and Chief Operating Officer of Scott’s Miracle-Gro and Chief Executive Officer and President of the Gander Mountain Company, Mr. Baker gained extensive experience in supervising finance, supply-chains, merchandising and real-estate functions in consumer-facing retail companies. In addition, Mr. Baker brings to our Board of Directors his experience in managing and acting as a director of a publicly traded company as well as experience as a director of private retail companies.

94

CHRIS D. NEWMAN: Senior Vice President, Chief Financial Officer and Treasurer

Mr. Newman joined Orchard as Senior Vice President, Chief Financial Officer and Treasurer on November 7, 2011. From March 2006 to July 2011, Mr. Newman was Chief Financial Officer, Senior Vice President and Secretary of Restoration Hardware, Inc. Prior to Restoration Hardware, from September 2005 to March 2006, Mr. Newman served as Vice President and Chief Financial Officer of Store Operations at Limited Brands, Inc. Mr. Newman also worked in various other executive-level positions at Limited Brands, including Vice President of Finance, Bath & Body Works, and Vice President of Finance, Victoria’s Secret Stores.

STEVEN L. MAHURIN: Executive Vice President, Merchandising

Mr. Mahurin joined Orchard on May 1, 2011 as Executive Vice President, Merchandising. Mr. Mahurin served as Executive Vice President of Merchandising for Office Depot Incorporated, a multi-channel office supply and technology retailer and distributor, from March 2008 until April 2011. From March 2004 until March 2008, Mr. Mahurin served as Senior Vice President, Chief Merchandising Officer for True Value Company, a $2 billion hardware cooperative. He served as Vice President of Merchandising and Marketing at Golf and Tennis Pro Shop, Incorporated, a golf and tennis superstore retailer, from September 2002 to February 2004. From July 1989 until March 2002, Mr. Mahurin worked for The Home Depot where he held a number of ever increasing senior management roles ultimately serving as a Senior Vice President of Merchandising.

STEPHEN W. OLSEN: Senior Vice President, Supply Chain, Information Technology and Chief Strategy Officer

Mr. Olsen joined Orchard in June 2010 as Senior Vice President, Merchandising. In April 2011, Mr. Olsen was promoted to Senior Vice President, Supply Chain, Information Technology and Chief Strategy Officer. Previously, Mr. Olsen served as Vice President of Merchandising, Supplies at Office Depot, Inc., a global supplier of office products and services, from 2004 to May 2010, where he was responsible for retail, catalog, online and contract channels. From 1996 to 2004, Mr. Olsen held various positions of increasing responsibility ultimately serving as a Senior Manager at Accenture plc.

THOMAS J. CAREY: Senior Vice President, Chief Marketing Officer

Mr. Carey joined Orchard in July 2007 as Vice President and Chief Marketing Officer, he was promoted to Senior Vice President and Chief Marketing Officer in August 2009, responsible for marketing, advertising, branding and public relations. From 2003 to 2007, Mr. Carey served as Senior Vice President of Marketing for West Marine, Inc., the world’s largest boating supply retailer. From 2002 to 2003, Mr. Carey served as Senior Vice President of Marketing and Advertising for Goody’s Family Clothing. Mr. Carey was Senior Vice President of Marketing for Sunglass Hut International from 1999 to 2001. Additionally, Mr. Carey served in various executive roles at Bloomingdale’s, Inc. from 1997 to 1999, and Builders Square, Inc. from 1994 to 1997. Prior to his retail experience, Mr. Carey spent 12 years from 1982 to 1994 with various marketing and advertising agencies, including Ogilvy & Mathers, N.W. Ayer Advertising, Young & Rubicam Advertising, and MARS Communication.

DAVID I. BOGAGE: Senior Vice President, Human Resources

Mr. Bogage joined Orchard as Senior Vice President of Human Resources in April 2011. Mr. Bogage served as Senior Vice President, Talent and Organizational Development of The Scotts Miracle-Gro Co., a leading manufacturer and marketer of branded consumer lawn and garden products, from February 2009 to January 2011. He served as Senior Vice President, Human Resources and Organizational Development for The Haskell Company from August 2003 to March 2008. He served as Vice President, Human Resources at The Home Depot, Inc. from 1994 to 2003.

MARK A. BUSSARD: Senior Vice President, Operations

Mr. Bussard joined Orchard of Senior Vice President, Operations in June 2011. From October, 1994 until October, 2010 Mr. Bussard served in ever increasing leadership roles with Gander Mountain, a retail industry

95

leader in hunting, fishing, camping equipment and outdoor apparel ultimately becoming the Senior Vice President of Retail Sales. From 1989 until 1994, Mr. Bussard served in various management roles with Quality Farm and Fleet, a retail chain of stores offering home improvement, agriculture, lawn and garden maintenance, and livestock, equine and pet care products.

MICHAEL W. FOX: Senior Vice President, General Counsel and Secretary

Mr. Fox joined Orchard in October 2011 as Senior Vice President, General Counsel and Secretary. Previously, from August 2008 to September 2011, Mr. Fox served as Senior Vice President and General Counsel of Jamba, Inc. and was its Corporate Secretary since November 2006. Mr. Fox joined Jamba Juice Company as Vice President, Legal Affairs in February 2005.

Board Structure

Our board of directors currently consists of six directors. At the time of the Distribution, we expect to have an appropriate number of independent members on our board of directors as required by the federal securities laws and the rules of the NASDAQ Capital Market. All of our directors will stand for election at each annual meeting of our shareholders. There are no family relationships among any of our directors or executive officers.

Committees of the Board

We expect that, prior to the Distribution, the standing committees of our board of directors will consist of an audit committee, a compensation committee and a governance committee.

Audit Committee

The duties and responsibilities of the Audit Committee will be set forth in its charter available on our website, and we expect they will include the following:

• to oversee the quality and integrity of our financial statements and our accounting and financial reporting processes;

• to prepare the audit committee report required by the SEC in our annual proxy statements;

• to review and discuss with management and the independent registered public accounting firm our annual and quarterly financial statements;

• to review and discuss with management and the independent registered public accounting firm our earnings press releases;

• to appoint, compensate and oversee our independent registered public accounting firm, and pre-approve all auditing services and non-audit services to be provided to us by our independent registered public accounting firm;

• to review the qualifications, performance and independence of our independent registered public accounting firm; and

• to establish procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.

At the time of listing on the NASDAQ Capital Market, at least one member of the audit committee will be “independent,” as defined under and required by the rules and regulations of the SEC and the NASDAQ Capital Market, including Rule 10A-3(b)(1) under the Securities and Exchange Act of 1934, as amended (the “Exchange

96

Act”), and we expect that one member will be the “audit committee financial expert” as defined under and required by the rules and regulations of the SEC and the NASDAQ Capital Market. A majority of the members of the committee will be “independent” within 90 days of listing on the NASDAQ Capital Market and all members will be independent within one year of listing on the NASDAQ Capital Market.

Our board of directors will adopt a written charter for the audit committee prior to the completion of this Distribution which will be available on our website.

Compensation Committee

The duties and responsibilities of the compensation committee will be set forth in its charter available on our website, and we expect they will include the following:

• to determine, or recommend for determination by our board of directors, the compensation of our chief executive officer and other executive officers;

• to establish, review and consider employee compensation policies and procedures;

• to review and approve, or recommend to our board of directors for approval, any employment contracts or similar arrangement between the company and any executive officer of the company;

• to review and discuss with management the Company’s compensation policies and practices and management’s assessment of whether any risks arising from such policies and practices are reasonably likely to have a material adverse effect on the Company; and

• to review, monitor, and make recommendations concerning incentive compensation plans, including the use of stock options and other equity-based plans.

At the time of listing on the NASDAQ Capital Market, at least one member of the committee will be “independent.” A majority of the members of the committee will be “independent” within 90 days of listing on the NASDAQ Capital Market and all members will be independent within one year of listing on the NASDAQ Capital Market.

Corporate Governance and Nominating Committee

The duties and responsibilities of the corporate governance and nominating committee will be set forth in its charter available on our website, and we expect they will include the following:

• to recommend to our board of directors proposed nominees for election to the board of directors by the shareholders at annual meetings, including an annual review as to the renominations of incumbents and proposed nominees for election by the board of directors to fill vacancies that occur between shareholder meetings;

• to make recommendations to the board of directors regarding corporate governance matters and practices; and

• to recommend members for each committee of the board of directors.

At the time of listing on the NASDAQ Capital Market, at least one member of the committee will be “independent.” A majority of the members of the committee will be “independent” within 90 days of listing on the NASDAQ Capital Market and all members will be independent within one year of listing on the NASDAQ Capital Market.

Compensation Committee Interlocks and Insider Participation

No member of our compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or

97

compensation committee. Additional information concerning transactions between us and entities affiliated with members of the compensation committee is included in this Prospectus under the heading “Related Party Transactions.”

Code of Ethics

We expect that prior to the completion of the Distribution our board of directors will adopt a code of ethics applicable to our directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer and other senior officers, in accordance with applicable rules and regulations of the SEC and the NASDAQ Capital Market. Our code of ethics will be available on our website.

Corporate Governance Guidelines

We expect that our board of directors will adopt a set of corporate governance guidelines that sets forth our policies and procedures relating to corporate governance. Our corporate governance guidelines will be available on our website.

98

COMPENSATION OF DIRECTORS

We will be providing certain information relating to the compensation of our directors in an amendment to this Prospectus.

99

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Named Executive Officers

For fiscal 2010, the following individuals were our Named Executive Officers (“NEOs”) and were employed directly by us in such capacity: (i) our former Chief Executive Officer, (ii) our former Chief Administrative Officer who served as our principle executive officer through the hiring of our current President and Chief Executive Officer in March 2011, (iii) our Chief Financial Officer and (iv) the three other most highly compensated executive officers who were serving as executive officers on January 29, 2011.

• Robert M. Lynch, former President and Chief Executive Officer, or CEO, (whose employment with us ended on December 27, 2010);

• Allen R. Ravas, former Chief Administrative Officer (who commenced employment with us on December 20, 2010 and ended employment with us on April 26, 2011);

• William C. Robertson, former Senior Vice President, Chief Financial Officer and Treasurer;

• Stephen W. Olsen, Senior Vice President, Supply Chain, IT and Chief Strategy Officer (formerly Senior Vice President, Merchandising, who commenced employment with us on June 28, 2010);

• Thomas J. Carey, Senior Vice President, Chief Marketing Officer; and

• John S. Beasley, III, former Senior Vice President, Retail Operations and Administration (whose employment with us ended on April 16, 2011).

Effective March 7, 2011, Mark R. Baker became our President and Chief Executive Officer. In connection with the Distribution, Mr. Baker will be designated as an executive officer for securities law reporting purposes. However, in accordance with SEC regulations, since Mr. Baker was not an executive officer as of the end of the most recent fiscal year for which compensation information is being presented, he is not an NEO for fiscal 2010.

Overview of Compensation Objectives and Philosophy

Prior to the Distribution, we have been a majority-owned indirect subsidiary of Sears Holdings and our approach to executive compensation has been focused on providing total cash compensation commensurate with the levels necessary to attract and retain senior-level executives within our industry, as well as providing equity-based compensation that aligns the interests of our executive team with those of our shareholders.

Historically, we have generally not used, and have not had the need to use, many of the more formal compensation practices and policies employed by publicly traded companies subject to the executive compensation disclosure rules of the SEC and Section 162(m) of the Internal Revenue Code (the “Code”). We have not had, and currently do not have, a separate compensation committee to administer our executive compensation arrangements. However, we intend to establish a compensation committee concurrently with the Distribution that will be responsible for setting policies for executive compensation and administering all cash-based and equity-based plans and programs for our senior management.

Compensation Determination Process

Our board of directors, along with our former Chief Executive Officer and our former Vice President, Human Resources, have historically been responsible for making compensation decisions for our NEOs except that our former CEO’s compensation was determined exclusively by our board of directors. Our board of directors has relied on, and will continue to rely on, its judgment in making compensation decisions after reviewing factors including, but not limited to, our performance (including our short- and long-term strategies and current economic and market conditions) and evaluating an executive’s performance during the year against

100

our overall strategic goals and generally assessing an executive’s leadership qualities, business responsibilities, career with us, current compensation arrangements and long-term potential to enhance our value.

Our main objective in establishing compensation arrangements has been and will be to set criteria that are consistent with our business strategies. Generally, in evaluating performance, we have and will continue to review the following criteria:

• Strategic goals and objectives, such as profitability;

• Individual management objectives that relate to our strategies; and

• Achievement of specific operational goals of the executive officers.

Our executive compensation programs and policies have and will continue to depend on the position and responsibility of each executive officer and will remain consistent with our objectives. However, we do not specifically weigh these goals and objectives in our assessment of executive compensation arrangements, and we may not rely on these goals exclusively in making compensation decisions. We have designed our compensation packages to not only reward past performance, but also to proactively encourage long-term future performance through a combination of cash and equity incentive awards.

Role of Our Chief Executive Officer in Compensation Decisions

The compensation package of our former Chief Executive Officer and of our former Chief Administrative Officer was determined as a result of arm’s length negotiations with our board of directors at the time each of them commenced employment with us. Compensation for the other NEOs was determined by our former Chief Executive Officer and our former Vice President, Human Resources, and approved by our board of directors.

Generally, the compensation packages of our NEOs are determined at levels commensurate with each executive’s position and scope of responsibilities with us. While our board of directors, our former Chief Executive Officer and our former Vice President, Human Resources took into consideration various factors as noted above (none of which was individually weighted) in determining our executive compensation packages, no specific methodology or decision-making process was utilized in making such decisions. In addition, the compensation packages for our newly hired NEOs were generally the product of arm’s length negotiations with each such NEO.

Following the completion of the Distribution, the compensation committee will administer our executive compensation plans and programs and make all determinations with respect to the compensation of our NEOs.

Compensation Strategies and Use of Peer Groups

We have not historically utilized specific peer groups or formal benchmarking in determining the compensation packages for our NEOs. Instead, compensation was determined based on the factors as discussed above, including (i) each executive’s performance, (ii) our financial performance, (iii) current economic and market conditions, and (iv) our general knowledge of the market for executive talent. In addition, we reviewed aggregated compensation data from pre-selected compensation surveys utilized by Sears Holdings in setting compensation ranges for its workforce to assist us in negotiating the compensation packages of newly hired executives, as well as in connection with executive promotions.

Components of our Executive Compensation Program

The key components of our executive compensation program are:

• Base salary;

• Short-term cash incentives;

101

• Long-term equity incentives;

• Severance benefits; and

• Other benefits.

We did not and do not currently have formal policies relating to the allocation of total compensation among the various elements of compensation. However, the more senior the position an executive holds, the more influence he has over our financial performance, and for this reason, our former Chief Executive Officer (Mr. Lynch) received a greater amount of total cash compensation than our other NEOs. He also received equity-based awards of higher value than were awarded to other NEOs to reflect his status and level of responsibility within our organization and his enhanced ability to drive our overall financial performance.

Base Salary

We set base salaries to reflect each NEO’s performance and experience, the executive’s expected future contributions to our Company, the responsibilities, impact and importance of the position within our Company, internal pay equity and competitive pay research. The timing and amount of base salary increases depends on each NEO’s past performance, promotion and other changes in responsibilities, expected future contributions and current market competitiveness. However, none of the foregoing factors received a specific weighting in the compensation decision-making process. Rather, they were used as overall guidelines in determining the appropriate levels of compensation needed to retain and incentivize our NEOs to remain with us and to grow our portfolio base and future profitability. In making their decisions regarding each NEO’s base salary, our former Chief Executive Officer (Mr. Lynch) and our former Vice President, Human Resources relied on their general knowledge and business experiences in our industry, without using any formal peer group analysis or analysis of any specific group of competing companies, but did utilize the Sears Holdings compensation market data described above from time to time. The compensation package of NEOs hired during fiscal 2010 was determined pursuant to arm’s length negotiations with such NEOs.

For fiscal 2010, the annual base salary of each of our NEOs was as follows:

Named Executive Officer	FY2010 Base Salary
Robert M. Lynch	$	450,000
Allen R. Ravas	$	450,000
William C. Robertson	$	260,000
Stephen W. Olsen	$	350,000
Thomas J. Carey	$	334,800
John S. Beasley, III	$	269,241

Except for Mr. Robertson and Mr. Ravas, whose base salaries were increased to $284,200 and $475,000, effective May 8, 2011 and April 26, 2011, respectively, none of our NEOs received salary increases for fiscal 2011, as our board of directors determined that the level of base salaries remains appropriate for purposes of retaining and incentivizing our executives in light of our current performance and overall economic conditions.

Short-Term Cash Incentives

Each of our NEOs participates in our annual cash incentive plan, or Annual Incentive Plan, along with other members of our management. The Annual Incentive Plan is intended to provide performance-based cash compensation designed to reward our executives for their contribution to our fiscal performance. The NEOs are eligible to earn bonuses under the Annual Incentive Plan based on our achievement of financial performance objectives. The financial metrics used in our Annual Incentive Plan for fiscal 2010 include EBITDA, revenue, gross margin, rate of inventory turn and payroll expenses as a percentage of sales. Productivity measures of rate of inventory turn to plan and payroll expenses as a percentage of sales were assigned to specific NEOs based on

102

their role within the organization and ability to influence the metric. In addition, the minimum threshold for EBITDA must be met for the other metrics to achieve a payout so that NEO’s continue to maintain focus on EBITDA along with the productivity metric.

We strive to set annual incentive compensation targets that are achievable only through strong financial performance, believing that this motivates our executives and other participants to deliver ongoing value creation, while allowing the Company to attract and retain a highly talented senior leadership team. Incentive award targets are established as a percentage of base pay that are based on the level of responsibility and position within the company and external market competitiveness. The incentive award targets are reviewed and approved by the by the Board of Directors annually.

The Board of Directors uses EBITDA as the primary profitability measure for establishing the required level of financial performance that must be achieved for management and executive annual incentive compensation purposes. The EBITDA goals for the annual incentive plan are set by the Board of Directors based upon factors including, but not limited to, competitive business dynamics in the markets in which we operate, anticipated business unit growth, anticipated cost synergies and budget projections.

For purposes of the Annual Incentive Plan, EBITDA is calculated as net income after adding back income taxes, depreciation and amortization, interest expense, stock-based compensation, rent equalization, loss on fixed assets, disposals and other one-time restructuring charges. Under the Annual Incentive Plan for fiscal 2010, the threshold, target and maximum bonus potential for our NEOs was as follows:

Executive Officer	Threshold Bonus Potential (90% of Plan) (% of Base Salary)			Target Bonus Potential (100% of Plan) (% of Base Salary)			Maximum Bonus Potential (125% of Plan) (% of Base Salary)
Robert M. Lynch		45	%		75	%		150	%
Allen R. Ravas		45	%		75	%		150	%
William C. Robertson		30	%		50	%		100	%
Stephen W. Olsen1		30	%		50	%		100	%
Thomas J. Carey		30	%		50	%		100	%
John S. Beasley, III		30	%		50	%		100	%

¹  Mr. Olsen was contractually entitled to receive a minimum guaranteed bonus of $125,000 for fiscal 2010.

Bonus awards for the NEOs were based on one or more financial and productivity metrics, as set forth below.

Named Executive Officer	Performance Objectives	Weighting
Robert M. Lynch	EBITDA		100	%
Allen R. Ravas	EBITDA		100	%
William C. Robertson	EBITDA		100	%
Stephen W. Olsen	EBITDA		50	%
	Revenues		20	%
	Gross margin		20	%
	Inventory turn to plan		10	%
Thomas J. Carey	EBITDA		60	%
	Revenues		20	%
	Gross margin		20	%
John S. Beasley, III	EBITDA		70	%
	Revenues		20	%
	Payroll expenses as a % of sales		10	%

The bonus opportunity available to our Chief Executive Officer was higher than for our other NEOs on the basis of his level of responsibility for our overall performance, and because it serves as a key

103

pay-for-performance component of a total cash compensation package that we believe is competitively appropriate for a Chief Executive Officer in our industry. The range and weightings of performance metrics applicable to our other NEOs are a reflection of each NEO’s particular level and scope of responsibility and influence with our organization.

Under the terms of the Annual Incentive Plan for fiscal 2010, we were required to achieve at least 90% of our EBITDA objective in order for any bonus amounts to be paid. No bonus amounts were paid to the NEOs for fiscal 2010, with the exception of Mr. Olsen’s minimum guaranteed bonus of $125,000 and his sign-on bonus of $137,000, under the plan because we did not meet our minimum EBITDA threshold. As a general matter, achievement of target performance objectives is difficult, requiring significant and sustained effort on the part of our executives and members of our senior management team. The targeted performance objectives require superior performance under our annual operating plan, although, as a general matter, we anticipate the minimum performance thresholds necessary to earn the threshold bonus amounts to be more readily achievable.

Long-Term Equity Incentives

We believe that successful performance over the long-term is aided by the use of equity-based awards, which create an ownership culture among our executives. To accomplish this goal, in May 2010, our board of directors approved the OSH Stores Corporation 2010 Stock Incentive Plan, or the 2010 Plan, to provide certain key employees, including our NEOs, with incentives to align their interests with the interests of our shareholders. The 2010 Plan provides for grants of stock awards, incentive stock options, nonqualified stock options, restricted stock, performance awards, or any combination of the forgoing. As of January 29, 2011, the aggregate number of shares of our Class B Common Stock which could be issued under the 2010 Plan for such awards was 111,347 shares.

In connection with the adoption of the 2010 Plan, we canceled our prior long-term equity incentive plan and all outstanding options thereunder because the exercise price of such options was significantly higher than the fair market value of our Class B Common Stock. We issued new option grants for our Class B Common Stock in May 2010. Specifically, time-vesting stock options to purchase 26,723 shares of our Class B Common Stock (equal to approximately 2.6% of our fully-diluted shares of common stock at the time of grant) were granted to Mr. Lynch, all of which options were forfeited in connection with his termination of employment with us on December 27, 2010. In addition, time-vesting stock options to purchase 8,017 shares of our Class B Common Stock were also granted to each of Messrs. Robertson, Olsen, Carey and Beasley. As our Senior Vice Presidents, each of these executives received an option grant representing approximately 0.8% of our fully diluted shares of common stock at the time of grant. Stock option awards are granted at the discretion of the Board of Directors, based on its subjective assessment of the individual contribution of the executive to the attainment of short and long-term Company goals. The number of options granted to our NEOs was determined by taking into consideration each executive’s seniority, position and responsibilities, internal pay equity and our strategic goals, financial condition and performance.

All of the options awarded to our NEOs were granted in three tranches: 33.34% was granted at an exercise price of $100 per share, 33.33% was granted at an exercise price of $200 per share and 33.33% was granted at an exercise price of $300 per share. All of the option grants were made at a premium to fair market value, as the valuation of our Class B Common Stock at the time of grant was equal to approximately $87 per share of Class B Common Stock. The options granted during fiscal 2010 to our NEOs, under the 2010 Plan, vest over four years and become exercisable as to 25% on each of the first, second, third and fourth anniversaries of the grant date prior to an initial public distribution, but, after an initial public distribution, become exercisable as to 33.33% on each of the first, second and third anniversaries of the grant date following such distribution, with vesting credit given retroactively to the grant date. The more favorable vesting terms awarded by our board of directors for options granted during fiscal 2010 was to provide NEO’s vesting credit for their previous years of employment with the Company.

104

In the event that we terminate an executive’s employment without “Cause” (as defined in the 2010 Plan) or the executive terminates employment for “Good Reason” (as defined the executive’s employment or severance agreement, if applicable) within 12 months of a “Change in Control” (as defined in the 2010 Plan), all of his stock options will become fully vested and exercisable upon the date of such termination. For a discussion of the vesting of stock options under the 2010 Plan in connection with a Change in Control, see “Potential Payments upon Termination or Change in Control—Vesting of Stock Options under the 2010 Plan” below.

In connection with this Distribution, we intend to adopt a new equity incentive plan for our employees, directors and consultants, to be called the “2011 Equity Incentive Plan.”

Severance Protections

In addition to providing accelerated vesting of stock options provided upon a qualifying termination following a change in control, as discussed above, we have entered into severance agreements with each of our NEOs which provide for severance payments and other benefits upon a qualifying termination. The severance agreements do not include change in control triggers. We provide severance to our NEOs as a component of a competitive compensation package. We believe that severance payments provide our executives a window of time to locate a new position in the marketplace should their employment with us terminate. In addition, we believe that it is important to provide our NEOs with a sense of stability, both in the middle of transactions that may create uncertainty regarding their future employment and following termination as they seek future employment. We believe that severance protections allow management to focus their attention and energy on the business transaction at hand without any distractions regarding, for example, the impacts on future employment as a result of a transaction.

Under the terms of the severance agreements, in the event a termination without “Cause” or resignation for “Good Reason” (as each such term is defined in the applicable severance agreement), NEOs with a title of Senior Vice President are generally entitled to severance payments and/or benefits equal to: (i) six months of salary continuation, (ii) continued participation in a subset of the Company’s benefit plans as an active employee for six months, and (iii) up to six months of company-paid outplacement services. Our CEO is generally entitled to greater severance payments and benefits to reflect his seniority and position with us, as well as competitive pay practices in relation to severance payable for comparable positions in our industry. The severance payments and benefits for our CEO are generally equal to: (i) 12 months of salary continuation, (ii) continued participation in a subset of the Company’s benefit plans for 12 months as an active employee, and (iii) up to 12 months of Company-paid outplacement services. For a further discussion of the severance payments and other benefits provided in connection with a qualifying termination of employment under the severance agreements, see “Potential Payments upon Termination or Change in Control.”

Other Benefits

We may pay sign-on bonuses to our executives when determined necessary or appropriate to attract top executive talent from other companies. Executives we recruit often have unrealized value in the form of unvested equity and other forgone compensation opportunities. Sign-on bonuses are an effective means of offsetting compensation opportunities an executive may lose when he or she leaves a former company to join us. During fiscal 2010, a sign-on bonus was awarded to Mr. Olsen in connection with the commencement of his employment with us. Furthermore, we typically pay bonuses to cover relocation costs incurred by executives who are required to relocate in connection with the commencement of their employment with us. For more information regarding other benefits, see “—Summary Compensation Table—All Other Compensation” below.

Tax Considerations

Section 162(m) of the Code generally disallows a tax deduction for certain compensation in excess of $1.0 million per year paid by a publicly held company to its chief executive officer or any of its three other most

105

highly paid executive officers (other than the company’s chief executive officer and chief financial officer). Qualifying performance-based compensation is not subject to the deduction limitation if specified requirements are met. In addition, “grandfather” provisions may apply to certain compensation arrangements that were entered into by a company before it was publicly held. We generally intend to structure the performance-based portion of our executive compensation, when feasible, to comply with exemptions in Section 162(m) so that the compensation remains tax deductible to us. However, to remain competitive with other employers, the board of directors may, in its judgment, authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate to attract and retain executive talent.

Recovery of Certain Awards

We do not currently have a formal policy for recovery of annual incentives paid on the basis of financial results which are subsequently restated. Under the Sarbanes-Oxley Act, a company’s chief executive officer and chief financial officer must forfeit incentive compensation paid on the basis of financial statements for which they were responsible and which need to be restated. We intend to implement a formal policy whereby, in the event of such a restatement, we would expect to recover affected bonuses and incentive compensation. In addition, following the completion of the Distribution, we intend to implement a formal policy for the recovery of incentive-based compensation paid to current and former executives, in compliance with regulations pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, following the enactment of such regulations.

Summary Compensation Table

The following table provides summary information concerning compensation paid or accrued by us to or on behalf of our NEOs for services provided to us during the 2010, 2009 and 2008 fiscal years:

Name and Principal Position	Year		Salary(1) ($)		Bonus(2) ($)		Option Awards(3) ($)			Non-Equity Incentive Plan Compensation(4) ($)		All Other Compensation(5) ($)		Total ($)
Robert M. Lynch		2010		398,077		—		1,257,636	(6)		—		—		1,655,713
Former President and Chief Executive Officer		2009		450,000		—		—			263,372				713,372
		2008		426,462		—		—			314,322				740,784
Allen R. Ravas		2010		51,923		—					—		17,355		69,278
Former Chief Administrative Officer
William C. Robertson		2010		260,000		—		377,300			—		—		637,300
Former Senior Vice President, Chief Financial Officer and Treasurer		2009		204,615		—		—			69,929				274,544
		2008		201,558		—		—			85,749		—		287,307
Stephen W. Olsen		2010		208,654		262,000		377,001			—		193,792		1,041,447
Senior Vice President, Supply Chain, IT, and Chief Strategy Officer
Thomas J. Carey		2010		334,800		—		377,300			—		—		712,100
Senior Vice President, Chief Marketing Officer		2009		329,415		—		—			172,915		—		502,330
		2008		323,692		—		—			132,660		—		456,352
John S. Beasley, III		2010		269,241		—		377,300			—		—		646,541
Former Senior Vice President, Retail Operations and		2009		269,241		—		—			153,488		—		422,729
		2008		268,323		—		—			145,378		—		413,701
Administration

106

(1) The salary amounts reported in this column for Messrs. Lynch, Ravas, Robertson, Olsen, Carey, and Beasley represent salary earned in fiscal 2010. Mr. Lynch, our former President and Chief Executive Officer, whose employment with us ended on December 27, 2010, had an annual base salary of $450,000. The salary amount reported in this column for Mr. Lynch is pro-rated for the number of days he worked during fiscal 2010. Mr. Ravas, who commenced employment during fiscal 2010 as our Chief Administrative Officer, had an annual base salary of $450,000. The salary amount reported in this column for Mr. Ravas is pro-rated for the number of days he worked during fiscal 2010. Mr. Olsen, who joined us on June 28, 2010, had an annual base salary of $350,000 for fiscal 2010. The salary amount reported in this column for Mr. Olsen is pro-rated for the number of days he worked during fiscal 2010.

(2) The bonus amount reported in this column for Mr. Olsen represents his minimum guaranteed bonus of $125,000 for fiscal 2010 and a sign-on bonus of $137,000, pursuant to the terms of his offer letter.

(3) The amounts reported in this column for fiscal 2010 represent the aggregate grant date value of the time-based stock options granted under the 2010 Plan, calculated in accordance with FASB ASC Topic 718. See Note 7 to the Notes to the Consolidated Financial Statements included elsewhere in this Prospectus for a discussion of the assumptions used to calculate these values. For a discussion of the 2010 Plan, see “Compensation Discussion and Analysis–Components of our Executive Compensation Program–Long-Term Equity Incentives” above.

(4) No bonus amounts were paid to the NEOs for fiscal 2010 under the Annual Incentive Plan because we did not meet the minimum EBITDA threshold for any bonuses to be paid under the terms of the plan. For a discussion of the Annual Incentive Plan, see “Compensation Discussion and Analysis –Components of our Executive Compensation Program–Short-Term Cash Incentives” above.

(5) The amounts reported in this column include the incremental cost of perquisites and other benefits received by our NEOs in excess of $10,000 during fiscal 2010. With respect to Mr. Ravas, the amount in this column is equal to his commuter expense benefit for travel between his home and our head office. With respect to Mr. Olsen, the amount in this column is equal to his relocation reimbursement, received in connection with his hiring.

(6) All of Mr. Lynch’s time-vesting stock options were cancelled during fiscal 2010 in connection with his resignation effective as of December 27, 2010.

107

Grants of Plan-Based Awards

The following table provides supplemental information relating to grants of plan-based awards made to our NEOs during fiscal 2010:

Name	Grant Date		Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)						All Other Option Awards: Number of Securities Underlying Options(2) (#)		Exercise or Base Price of Option Awards ($/Sh)		Grant Date Fair Value of Option Awards(3) ($)
			Threshold ($)		Target ($)		Maximum ($)
Robert M. Lynch Former President and Chief Executive Officer				202,500		337,500		675,000
		5/26/2010								8,909	$	100	$	505,067
		5/26/2010								8,907	$	200	$	406,361
		5/26/2010								8,907	$	300	$	346,208
Allen R. Ravas Former Chief Administrative Officer				22,192		36,986		73,973
William C. Robertson Former Senior Vice President, Chief Financial Officer and Treasurer				78,000		130,000		260,000
		5/26/2010								2,673	$	100	$	151,537
		5/26/2010								2,672	$	200	$	121,904
		5/26/2010								2,672	$	300	$	103,859
Stephen W. Olsen Senior Vice President, Supply Chain, IT and Chief Strategy Officer				61,849		103,082		206,164
		1/13/2011								2,673	$	100	$	151,444
		1/13/2011								2,672	$	200	$	121,801
		1/13/2011								2,672	$	300	$	103,756
Thomas J. Carey Senior Vice President, Chief Marketing Officer				100,440		167,400		334,800
		5/26/2010								2,673	$	100	$	151,537
		5/26/2010								2,672	$	200	$	121,904
		5/26/2010								2,672	$	300	$	103,859
John S. Beasley, III Former Senior Vice President, Retail Operations and Administration				80,772		134,621		269,241
		5/26/2010								2,673	$	100	$	151,537
		5/26/2010								2,672	$	200	$	121,904
		5/26/2010								2,672	$	300	$	103,859

(1) The awards reported in these columns are the award opportunities that were available under the Annual Incentive Plan. For a discussion of the Annual Incentive Plan, see “Components of our Executive Compensation Program—Short-Term Cash Incentives” above; provided, however, that a bonus opportunity for Messrs. Lynch, Ravas and Olsen was pro-rated based on the number of days worked by the named executive officer during fiscal 2010. Mr. Lynch was not eligible for his bonus as a result of his resignation from the Company.

108

(2) The stock options reported in this column are time-based stock options granted under the 2010 Plan. For a discussion of the vesting and terms of these time-based stock options, see “Components of our Executive Compensation Program—Long-Term Equity Incentives” above.

(3) The amounts reported in this column represent the grant date fair value of the time-vesting stock options granted during fiscal 2010, calculated in accordance with FASB ASC Topic 718. See Note 7 to Notes to the Consolidated Financial Statements in this Prospectus for a discussion of the assumptions used to calculate these values.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2010 Table

Certain of the components of the compensation paid to our NEOs reflected in the Summary Compensation Table and the Grants of Plan-Based Awards in 2010 table are based on our NEOs’ employment agreements and/or offer letters with the Company. These employment agreements and offer letters establish the minimum terms and conditions of each executive’s employment, which are summarized below. For a discussion of the severance payments and other benefits provided in connection with a qualifying termination of employment under each NEO’s severance agreement, see “Potential Payments upon Termination or Change in Control” below and for a discussion of the accelerated vesting of stock options provided upon a qualifying termination in connection with a change in control, see “Potential Payments upon Termination or Change in Control—Vesting of Stock Options under the 2010 Plan” below.

Offer Letter with Mr. Baker

Mr. Baker has entered into an offer letter with us providing for his employment as our President and Chief Executive Officer, effective March 7, 2011. Mr. Baker’s base salary is $600,000; however, for subsequent fiscal years, his annual base salary will be: (i) $700,000 when EBITDA for the immediately prior fiscal year is greater than $90,000,000 but less than $100,000,000 and (ii) $800,000 when EBITDA for the immediately prior fiscal year is greater than $100,000,000. Mr. Baker received a one-time sign-on bonus of $322,767. In the event that Mr. Baker voluntarily terminates his employment with us or is terminated by us for misconduct or reasons relating to his integrity on or before March 7, 2013, he will be required to repay (i) 100% of the sign-on bonus if such termination occurs on or before March 7, 2012 and (ii) 50% of the sign-on bonus if such termination occurs after March 7, 2012, but before March 7, 2013. The offer letter also provides Mr. Baker with the opportunity to earn an annual bonus with a target based on Company performance equal to 100% of his base salary, up to a maximum of 200% of base salary. Mr. Baker’s annual bonus for fiscal 2011 will be pro-rated from his start date through the last day of fiscal 2011. Mr. Baker is eligible to participate in all retirement and welfare programs on at least the same basis as other executives at his level. In addition, pursuant to the terms of his offer letter, Mr. Baker is entitled to be granted an option to purchase 30,038.135599 shares of Class B Common Stock, subject to vesting of 20% per year on each anniversary of the date of grant for 5 years. We have agreed with Mr. Baker to grant this option on Class A Common Stock after the Distribution.

Pursuant to the terms of his offer letter, Mr. Baker is required to purchase $500,000 of our Class A Common Stock at a fair market value price to be determined by the board of directors following the completion of the Distribution. Upon making the stock purchase, Mr. Baker will be granted an option to purchase 5,000 shares of Class A Common Stock at the higher of (x) $100 per share or (y) the price per share of the stock purchase. The option will expire at the earlier of (A) March 7, 2013 or (B) upon Mr. Baker’s termination of employment with us for any reason.

Employment Agreement with Mr. Lynch

Mr. Lynch, our former Chief Executive Officer, entered into an employment agreement with us dated November 23, 2005, as subsequently amended on March 20, 2007 and February 1, 2009. At the time he terminated employment with us, Mr. Lynch’s base salary was $450,000 and his target annual bonus opportunity was equal to 75% of his base salary, up to a maximum of 150% of his base salary. Mr. Lynch did not receive any severance payments or benefits from us in connection with his resignation effective as of December 27, 2010.

109

Employment Terms with Mr. Ravas

For Fiscal 2010, Mr. Ravas was entitled to receive an annual salary of $450,000, and then from the beginning of Fiscal 2011 until the termination of his temporary assignment as our Chief Administrative Officer on April 26, 2011, Mr. Ravas was entitled to receive an annual salary of $475,000, and his target annual bonus opportunity was equal to 75% of his base salary, up to a maximum of 150% of his base salary. Mr. Ravas also received commuter expense benefit for travel between his home and our head office.

Offer Letter with Mr. Robertson

Pursuant to the terms of his offer letter dated February 1, 2007, Mr. Robertson agreed to serve as our Vice President and Controller, and was promoted to Vice President and Chief Financial Officer and subsequently to Senior Vice President and Chief Financial Officer effective January 17, 2010. Mr. Robertson is entitled to an annual base salary of $260,000, and a target bonus equal to 50% of his base salary, up to a maximum bonus of 100% of base salary. Mr. Robertson is eligible to participate in a variety of benefits available to salaried associates, including medical, dental and long-term disability.

Offer Letter with Mr. Olsen

Mr. Olsen serves as our Senior Vice President, Supply Chain, Information Technology and Chief Strategy Officer pursuant to the terms of an offer letter dated May 21, 2010. Mr. Olsen is entitled to a base salary of $350,000, with periodic increases based on his performance. Mr. Olsen received a one-time sign-on bonus of $137,000, which he is required to return to us if he quits on or before June 28, 2012; he was also entitled to receive a minimum guaranteed bonus of $125,000 for fiscal 2010, irrespective of our performance. The offer letter also provides Mr. Olsen with a target bonus opportunity equal to 50% of his base salary, up to a maximum of 100% of his base salary. Mr. Olsen is eligible to participate in a variety of benefits available to salaried associates, including medical, dental and long-term disability.

In connection with his commencement of employment with us, Mr. Olsen received a relocation payment of $193,792. If Mr. Olsen voluntarily terminates employment with us on or before his first year anniversary of employment with us, he will be required to pay back 100% of such relocation payment; if Mr. Olsen voluntarily terminates employment with us on or before his second year anniversary of employment with us, he will be required to pay back 50% of such relocation payment.

Offer Letter with Mr. Carey

Mr. Carey served as our Vice President, Chief Marketing Officer pursuant to the terms of an offer letter dated May 30, 2007; he was subsequently promoted to Senior Vice President, Chief Marketing Officer pursuant to the terms of a revised offer letter dated August 25, 2009. Under his revised offer letter, Mr. Carey is entitled to a base salary of $334,800 and a target bonus equal to 50% of his base salary, up to a maximum of 100% of his base salary. Mr. Carey is eligible to participate in a variety of benefits available to salaried associates, including medical, dental and long-term disability.

Offer Letter with Mr. Beasley

Until his termination of employment on April 16, 2011, Mr. Beasley served as our Senior Vice President, Retail Operations and Administration pursuant to the terms of his offer letter dated April 27, 2004. Mr. Beasley was entitled to a base salary of $269,241, with a target bonus equal to 50% of his base salary, up to a maximum of 100% of his base salary.

Offer Letter with Mr. Newman

Pursuant to the terms of his offer letter dated November 7, 2011, Mr. Newman agreed to serve as our interim Senior Vice President, Chief Financial Officer and Treasurer until January 31, 2012. Mr. Newman is entitled to an annual base salary of $585,000 and is eligible for a one-time retention bonus of $63,300 payable on February 1, 2012. Mr. Newman also receives reimbursement for travel and temporary living expenses.

110

Outstanding Equity Awards at January 29, 2011

The following table provides information regarding outstanding equity awards held by our NEOs as of January 29, 2011. None of our NEOs received an option award in Fiscal 2010:

Name	Number of Securities Underlying Unexercised Options (#) Unexercisable(1)		Option Exercise Price ($)		Option Expiration Date
Robert M. Lynch(3)		8,908	$	100		5/26/2020
Former President and Chief Executive Officer(2)		8,908	$	200		5/26/2020
		8,907	$	300		5/26/2020
William C. Robertson		2,673	$	100		5/26/2020
Former Senior Vice President, Chief Financial Officer and Treasurer		2,672	$	200		5/26/2020
		2,672	$	300		5/26/2020
Stephen W. Olsen		2,673	$	100		1/13/2021
Senior Vice President, Supply Chain, IT and Chief Strategy Officer		2,672	$	200		1/13/2021
		2,672	$	300		1/13/2021
Thomas J. Carey		2,673	$	100		5/26/2020
Senior Vice President, Chief Marketing Officer		2,672	$	200		5/26/2020
		2,672	$	300		5/26/2020
John S. Beasley, III(3)		2,673	$	100		5/26/2020
Former Senior Vice President, Retail Operations and Administration		2,672	$	200		5/26/2020
		2,672	$	300		5/26/2020

(1) Subject to accelerated vesting in connection with a change in control of the Company, time-based stock options reported in this column vest over four years and become exercisable as to 25% on each of the first, second, third and fourth anniversaries of the grant date. Following the Distribution, the vesting schedule will automatically accelerate such that the options will vest over three years and become exercisable as to 33.33% on each of the first, second and third anniversaries of the grant date, with vesting credit retroactive to the grant date.

(2) All of Mr. Lynch’s time-vesting stock options were canceled during fiscal 2010 in connection with his resignation effective as of December 27, 2010.

(3) Messrs. Beasely and Lynch’s options failed to vest in connection with their resignations.

Option Exercises

None of our NEOs exercised any of their stock options during fiscal 2010.

Severance Agreements

Severance Agreements with Messrs. Baker, Ravas, Robertson, Carey and Beasley.

Messrs. Baker, Ravas, Robertson, Carey and Beasley have each entered into a severance agreement with us, dated March 7, 2011, February 7, 2011, January 8, 2009, January 8, 2009 and July 23, 2007, respectively, on substantially the same terms (except for the length of the applicable severance protection period). Pursuant to the terms of the severance agreements, if the executive is terminated by us without Cause or resigns for Good Reason, he will be placed on a severance-related leave of absence and will be entitled to receive the following

severance payments and benefits: (i) 12 months of base salary continuation for Messrs. Baker and Ravas, and six

111

months of base salary continuation for Messrs. Robertson, Carey and Beasley, subject to certain offsets, (ii) continued participation in all of our benefit plans and programs (except for our long-term disability plan, flexible spending accounts, company-paid life insurance and 401(k) plan) as an active employee for 12 months for Messrs. Baker and Ravas, and six months for Messrs. Robertson, Carey and Beasley, and (iii) outplacement services for up to 12 months for Messrs. Baker and Ravas, and up to six months for Messrs. Robertson, Carey and Beasley. All such severance payments and benefits are subject to the executive’s execution of a release of claims. The severance agreements also provide that each executive is subject to a perpetual confidentiality covenant and a post-termination non-solicitation of employees covenant for a period equal to the period of his respective salary continuation period opportunity, regardless of whether severance pay and benefits are payable under the severance agreement.

Severance Agreement with Mr. Olsen.

Mr. Olsen entered into a severance agreement with us dated July 16, 2010. Pursuant to the terms of his severance agreement, if Mr. Olsen is terminated by us without Cause or if he resigns for Good Reason within 12 months of employment, he is entitled to the same severance payments and benefits as Messrs. Baker and Ravas, as described above. However, if Mr. Olsen is terminated by us without Cause or resigns for Good Reason after completing 12 months of commencing employment, he will be entitled to the same level of severance payments and benefits as Messrs. Robertson, Carey and Beasley. Mr. Olsen’s severance agreement likewise provides that he is subject to a perpetual confidentiality covenant and a post-termination non-solicitation of employees covenant for his salary continuation period.

Severance Agreement Definitions.

For purposes of Mr. Baker’s severance agreement, “Cause” generally means his insubordination, dishonesty, fraud, incompetence, moral turpitude, refusal to perform his duties or responsibilities for any reason other than illness or incapacity or unsatisfactory performance of his duties, as determined by our board of directors in its sole discretion. For purposes of the severance agreements with our other executives, “Cause” generally means (i) a material breach by the executive (other than due to disability) of his duties and responsibilities which breach is demonstrably willful and deliberate on his part, is committed in bad faith or without reasonable belief that such breach is in our best interest and is not remedied in a reasonable period of time after receipt of written notice from us specifying such breach, (ii) the commission by the executive of a felony involving moral turpitude or (iii) dishonesty or willful misconduct in connection with the executive’s employment.

For purposes of the severance agreements, “Good Reason” generally means (i) a reduction in more than 10% in the sum of the executive’s annual base salary and target bonus, (ii) the executive’s mandatory relocation to an office more than 50 miles from the primary location at which he is required to perform his duties or (iii) any other action or inaction that constitutes a material breach of the terms of the agreement, including failure of a successor company to assume or fulfill the obligations of the agreement. Mr. Baker also has Good Reason to quit if he is removed from our board of directors. In each case, the executive must provide us with written notice of the events giving rise to a claim of Good Reason within 30 days of its initial existence and we will have 60 days to remedy such event.

Separation of Messers. Beasley and Ravas.

On April 16, 2011, Mr. Beasley ceased employment with us. Mr. Beasley is entitled to receive the severance payments and benefits outlined above for a period of six months following termination. On April 26, 2011, Mr. Ravas ceased employment with us as our Chief Administrative Officer; Mr. Ravas did not receive any severance payments or benefits following his termination of employment with us.

112

Vesting of Stock Options under the 2010 Plan.

Under the 2010 Plan, in the event an NEO’s employment is terminated without Cause or by the executive for Good Reason, or due to the executive’s death or disability, in each case within 12 months of a Change in Control, all of his options will become fully vested and exercisable upon the date of such termination.

For purposes of the 2010 Plan, “Cause” and “Good Reason” is generally given the meaning of such term in the executive’s severance agreement, as outlined above. In addition, for purposes of the 2010 Plan, “Change in Control” generally means (i) the sale or disposition, in one or a series of related transactions, of all or substantially all, of the assets of the Company to any “person” or “group” (other than to certain permitted holders), (ii) any person or group, other than permitted holders, is or becomes the “beneficial owner” of more than 50% of the total voting power of our voting stock, including by way of a merger, consolidation, tender or exchange offer or otherwise, (iii) a reorganization, recapitalization, merger or consolidation (a “Corporate Transaction”), unless securities representing 50% or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or the corporation resulting from such Corporate Transaction are held subsequent to such transaction by the person or persons who were the “beneficial owners” of our outstanding voting securities entitled to vote generally in the election of directors immediately prior to such Corporate Transaction, in substantially the same proportions as their ownership immediately prior to such Corporate Transaction or (iv) following the distribution date and during any period of 12 months, individuals who, as of the beginning of such period, constitute our board of directors (our “Incumbent Directors”), cease for any reason to constitute at least a majority of our board of directors, provided, however, that any individual elected or nominated to our board of directors by a majority of our then Incumbent Directors shall be considered for these purposes to be an Incumbent Director.

Estimated Potential Termination and Change in Control Payments and Benefits

The following table provides the total dollar value of the compensation that would be paid to certain of our NEOs assuming a change in control or the termination of his employment in certain defined circumstances on January 29, 2011, pursuant to the arrangements described above:

Name and Principal Position	Compensation	Termination without Cause or resignation for Good Reason not in connection with a Change in Control			Termination without Cause or resignation for Good Reason following a Change in Control
Stephen W. Olsen	Salary Continuation	$	350,000	(5)	$	350,000	(5)
Senior Vice President,	Continued Benefits		4,908	(6)		4,908	(6)
Strategy, Supply Chain and IT	Outplacement Services		24,000	(7)		24,000	(7)
	Equity Vesting		0	(4)		0	(4)
	Total	$	378,908		$	378,908
Thomas J. Carey	Salary Continuation	$	167,400	(1)	$	167,400	(1)
Senior Vice President, Chief	Continued Benefits		2,454	(2)		2,454	(2)
Marketing Officer	Outplacement Services		16,000	(3)		16,000	(3)
	Equity Vesting		0	(4)		0	(4)
	Total	$	185,854		$	185,854
William C. Robertson	Salary Continuation	$	130,000	(1)	$	130,000	(1)
Senior Vice President, Chief	Continued Benefits		2,454	(2)		2,454	(2)
Financial Officer, Treasurer	Outplacement Services		16,000	(3)		16,000	(3)
	Equity Vesting		0	(4)		0	(4)
	Total	$	148,454		$	148,454

(1) Severance amount is equal to six months of salary continuation.

113

(2) Amount represents value of continued participation in our benefit plans and programs for six months in which the executive would be entitled to participate following termination of active employment with us.

(3) Amount represents cost of six months of outplacement services.

(4) None of our NEOs would have realized any value from the acceleration of his stock options on January 29, 2011 because the exercise prices for all three tranches of outstanding stock options exceeded the fair market value of our Class B Common Stock of $86.78 per share on such date. Note further that the executive would be entitled to vesting acceleration in the event of his death or disability within 12 months following a change in control; however, no value would be realized in the event of such acceleration on January 29, 2011 for the reasons stated herein.

(5) Assumes severance amount is equal to 12 months of salary continuation. If Mr. Olsen is terminated after June 28, 2011 and eligible for severance pay and benefits, this amount is $175,000 or 6 months of salary continuation.

(6) Amount represents value of continued participation in our benefit plans and programs for 12 months in which the executive would be entitled to participate following termination of active employment with us. If Mr. Olsen is terminated after June 28, 2011 and eligible for severance pay and benefits, this amount is $2,454 or 6 months of continued benefits.

(7) Amount represents cost of 12 months of outplacement services. If Mr. Olsen is terminated after June 28, 2011 and eligible for severance pay and benefits, this cost will be up to $16,000 or 6 months of outplacement services.

114

SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Immediately prior to the time of the Distribution, all of our Class A Common Stock and all of our Preferred Stock will be beneficially owned by Sears Holdings. After the spin-off, Sears Holdings will not own any shares of our Class A Common Stock, Preferred Stock, or any other of our capital stock. The following table provides information with respect to the anticipated beneficial ownership of our capital stock immediately following the spin-off by:

• each of our current directors and our directors following the spin-off;

• each officer named in the summary compensation table;

• all of our directors and executive officers following the spin-off as a group; and

• each of our shareholders who we believe (based on the assumptions described below) will beneficially own more than 5% of any class of the outstanding shares of our capital stock.

Except as otherwise noted below, we based the Class A Common Stock and Preferred Stock share amounts on such person’s beneficial ownership of Sears Holdings shares on                     , 2011, giving effect to a distribution ratio of              shares of Class A Common Stock for every              shares of common stock of Sears Holdings held by such person and              shares of Preferred Stock for every              shares of common stock of Sears Holdings held by such person. Except as otherwise noted below, we based the Class B Common Stock share amounts on such person’s beneficial ownership of Class B Common Stock on                     , 2011, giving effect to a              to              stock split of our capital stock expected to occur prior to the Distribution to increase the number of shares of our capital stock to a number appropriate for the Distribution. Except as otherwise noted below, we based the Class C Common Stock share amounts on such person’s beneficial ownership of Class A Common Stock on                     , 2011, giving effect to an exchange in which such person’s Class A Common Stock is expected to be exchanged for an equal number of shares of Class C Common Stock prior to the Distribution and then giving effect to a              to              stock split of our capital stock expected to occur prior to the Distribution to increase the number of shares of our capital stock to a number appropriate for the Distribution.

To the extent our directors and executive officers own Sears Holdings shares at the record date of the spin-off, they will participate in the Distribution on the same terms as other holders of Sears Holdings shares.

Except as otherwise noted in the footnotes below, each person or entity identified in the table has sole voting and investment or dispositive power with respect to the securities they hold.

Immediately following the spin-off, we estimate that              shares of Class A Common Stock and              shares of Preferred Stock will be issued and outstanding, based on the number of Sears Holdings shares expected to be outstanding as of the record date. The actual number of our outstanding shares of Class A Common Stock and Preferred Stock following the spin-off will be determined on                     , 2011, the record date. Immediately following the spin-off, we estimate that              shares of Class B Common Stock will be issued and outstanding, based on the number of such shares expected to be outstanding as of the distribution date and giving effect to a              to              stock split of our capital stock expected to occur prior to the Distribution to increase the number of shares of our capital stock to a number appropriate for the Distribution. Immediately following the spin-off, we estimate that              shares of Class C Common Stock will be issued and outstanding, based on the number of shares of our Class A Common Stock that the anticipated holder of Class C Common Stock is expected to hold as of the distribution date and giving effect to an exchange in which such person’s Class A Common Stock is expected to be exchanged for an equal number of shares of Class C Common Stock prior to the Distribution and then giving effect to subsequent              to              stock split of our capital stock expected to occur prior to the Distribution to increase the number of shares of our capital stock to a number appropriate for the Distribution.

115

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Orchard Supply Hardware Stores Corporation, 6450 Via Del Oro, San Jose, CA 95119.

Name	Title of Capital Stock Class(1)	Beneficial Ownership(1)	Percent of Class		Combined Voting Power of All Classes of Stock Beneficially Owned(1)(2)
Directors and Named Executive Officers:
Mark R. Baker	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
Matthew D. Cwiertnia(3)	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
David B. Kaplan(3)	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
William C. Robertson	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
Stephen W. Olsen	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
Thomas J. Carey	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
John S. Beasley III(4)	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
Allen R. Ravas(4)	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
William C. Crowley	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
William R. Harker	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%

116

Name	Title of Capital Stock Class(1)	Beneficial Ownership(1)	Percent of Class		Combined Voting Power of All Classes of Stock Beneficially Owned(1)(2)
Jeffrey Stollenwerck	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
All directors and executive officers as a group	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
5% Shareholders:
ESL Investments, Inc. and related entities, as a group(5)	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock	(6) (6)		%  %  %  %		%
Fairholme Capital Management, L.L.C.(7)	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock	(8)		%  %  %  %		%
ACOF I LLC(3)(10)	Class A Common Stock Class B Common Stock Class C Common Stock			%  %  %		%
John S. Beasley III(4)(9)	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
Sandra C. Whitehouse(4)	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
Michael J. Racer(4)	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%
Martin H. Hodgett(4)	Class A Common Stock Class B Common Stock Class C Common Stock Preferred Stock			%  %  %  %		%

(1) Beneficial ownership of a security consists of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the power to dispose or direct the disposition) with respect to the security through any contract, arrangement, understanding, and relationship or otherwise. Unless otherwise indicated, beneficial ownership disclosed consists of sole voting and investment or dispositive power. Beneficial ownership of Class A Common Stock is exclusive of the shares of Class A Common Stock that are issuable upon conversion of shares of Class C Common Stock upon the

117

occurrence of (i) a transfer of such shares of Class C Common Stock to any person or entity other than to certain permitted transferees of ACOF I LLC (“ACOF”), (ii) ACOF owning a number of shares of our Class B Common Stock and Class C Common Stock representing in the aggregate a percentage of our outstanding common stock that is less than 5% (calculated without reference to any shares of capital stock issued or issuable after the Distribution) or (iii) the approval of our board of directors and subsequent approval of our shareholders voting as a separate class and the holders of a majority of the voting power of the Class C Common Stock voting as a separate class. Beneficial ownership of Class A Common Stock is also exclusive of the shares of Class A Common Stock that are issuable upon conversion of shares of Class B Common Stock upon the approval of our board of directors and our shareholders of any such conversions. See “Description of Our Capital Stock—Conversion”.

(2) Following the spin-off, the holder of one share of Class A Common Stock will have one vote per share at a meeting of our shareholders; the holder of one share of Class B Common Stock will have 1/10th of one vote per share at a meeting of our shareholders; the holder of one share of Class C Common Stock will have one vote per share at a meeting of our shareholders; and the holders of Preferred Stock will have no voting rights provided that holders of Class A Common Stock will have the right to elect eight members of our board of directors and holders of Class B Common Stock and Class C Common Stock voting together will have the right to elect two members of our board of directors.

(3) Both Messrs. Kaplan and Cwiertnia are Senior Partners in the Private Equity Group of Ares Management LLC. Each of Messrs. Kaplan and Cwiertnia expressly disclaims beneficial ownership of the shares of the Company owned by ACOF. The address of each of Messrs. Kaplan and Cwiertnia is c/o of Ares Management LLC, 2000 Avenue of the Stars, 12^th Floor, Los Angeles, CA 90067.

(4) Messrs. Beasley, Hodgett, Racer, Ravas and Ms. Whitehouse are no longer employed by Orchard.

(5) The group consists of ESL Investments, Inc., a Delaware corporation (“ESL”); Edward S. Lampert; ESL Institutional Partners, L.P., a Delaware limited partnership (“Institutional”); CRK Partners, LLC, a Delaware limited liability company (“CRK LLC”); ESL Partners, L.P., a Delaware limited partnership (“Partners”); and ESL Investors L.L.C., a Delaware limited liability company (“Investors”). Mr. Lampert is the sole stockholder, chief executive officer and director of ESL. ESL is the general partner of RBS Partners, L.P., a Delaware limited partnership (“RBS”), the sole member of CRK LLC and the manager of RBS Investment Management, L.L.C., a Delaware limited liability company (“RBSIM”). RBS is the general partner of Partners and the managing member of Investors. RBSIM is the general partner of Institutional. The address of each ESL entity is 200 Greenwich Ave., Greenwich, CT 06830.

(6) This number was calculated by using the number of Sears Holdings common shares beneficially owned by ESL as disclosed in the Schedule 13D/A filed by ESL on August 20, 2010, and the number of outstanding common shares of Sears Holdings as of May 13, 2011 as disclosed in Sears Holdings’ Quarterly Report on Form 10-Q for the quarter ended April 30, 2011.

(7) Beneficial ownership is based on the Schedule 13G filed by Fairholme Capital Management, L.L.C. (“FCM”) reporting its ownership of 14,917,873 Sears Holdings shares as of December 31, 2010. The address of each FCM entity is 4400 Biscayne Boulevard, 9th Floor, Miami, FL 33137.

(8) This number is based on the Sears Holdings shares owned, in the aggregate, by Bruce K. Berkowitz and various investment vehicles managed by FCM, of which 13,172,573 Sears Holdings shares are owned by The Fairholme Fund, a series of Fairholme Funds, Inc. FCM disclosed shared voting power as to 13,946,173 Sears Holdings shares and shared dispositive power as to 14,917,873 Sears Holdings shares. Fairholme Funds, Inc. disclosed shared voting power and shared dispositive power as to 13,172,573 Sears Holdings shares. Because Mr. Bruce R. Berkowitz, in his capacity as the Managing Member of FCM or as President of Fairholme Funds, Inc., has voting or dispositive power over all such Sears Holdings shares (and hence all such Class A Common Stock and Preferred Stock) beneficially owned by FCM, he is deemed to have beneficial ownership of all of such Sears Holdings shares (and hence all such Class A Common Stock and Preferred Stock).

(9) The inclusion of Mr. Beasley in the 5% Shareholders section of this table represents a duplicative entry from the Directors and Named Executive Officers section of this table. The beneficial ownership information for Mr. Beasley is included again in the 5% Shareholders section because he beneficially owns more than 5% of a class of our capital stock.

118

(10) Reflects shares owned by ACOF. The sole member of ACOF is Ares Corporate Opportunities Fund, L.P. (“ACOF I”), the general partner of ACOF I is ACOF Management, L.P. (“ACOF Management”) and the general partner of ACOF Management is ACOF Operating Manager, L.P. (“ACOF Operating Manager”). ACOF Operating Manager is indirectly owned by Ares Management LLC which, in turn, is indirectly controlled by Ares Partners Management Company LLC (“Ares Partners,” together with ACOF Management, ACOF Operating Manager, ACOF and ACOF I, the “Ares Entities”). Ares Partners is managed by an executive committee comprised of Messrs. Kaplan, Michael Arougheti, Gregory Margolies, Antony Ressler and Bennett Rosenthal. Each of the members of the executive committee expressly disclaims beneficial ownership of the shares of stock of the Company owned by ACOF. Each of the Ares Entities (other than ACOF and ACOF I, with respect to the securities owned by ACOF) and the partners, members and managers of the Ares Entities and the executive committee of Ares Partners expressly disclaims beneficial ownership of these shares. The address of each Ares Entity is 2000 Avenue of the Stars, 12th Floor, Los Angeles, California 90067.

119

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Agreements with Sears Holdings

Following the spin-off, Orchard and Sears Holdings will operate independently of each other, and neither will have any ownership interest in the other. In order to govern relationships between Orchard and Sears Holdings after the spin-off and to provide mechanisms for an orderly transition, Orchard Supply Hardware Stores Corporation and/or any of its applicable subsidiaries (referred to collectively in this “Certain Relationships and Related Party Transactions” section as “Orchard”, “we” or “us”) and Sears Holdings Corporation and/or subsidiaries of Sears Holdings Corporation (referred to collectively in this “Certain Relationships and Related Party Transactions” section as “Sears Holdings”) intend to enter into agreements pursuant to which Sears Holdings will provide us with specified services and rights following the spin-off. Orchard and Sears Holdings will indemnify each other against specified liabilities arising from these agreements from and after the spin-off. The following is a summary of the terms of the material agreements we have entered into or expect to enter into with Sears Holdings.

Distribution Agreement

Prior to the Distribution we will enter into the Distribution Agreement with Sears Holdings, which will set forth the principal actions to be taken in connection with the Distribution. The Distribution Agreement will also govern our ongoing relationship with Sears Holdings following the Distribution.

Internal Reorganization. The Distribution Agreement will provide that prior to the Distribution the following actions will occur (collectively referred to herein as the “Internal Transactions”):

• A wholly owned subsidiary of Orchard will merge with and into Orchard, and, through that merger, the Amended and Restated Certificate of Incorporation in substantially the form filed as an exhibit to the Registration Statement of which this Prospectus is a part will become effective;

• Orchard will cause to become effective the Amended and Restated Bylaws in substantially the form filed as an exhibit to the Registration Statement of which this prospectus is a part;

• ACOF I LLC will exchange its shares of Class A Common Stock for an equal number of shares of Class C Common Stock;

• Orchard will effectuate a forward stock split of its outstanding capital stock;

• Orchard will file a Certificate of Designation to create, and will subsequently issue to Sears Roebuck, the Preferred Stock; and

• Sears Roebuck will distribute to Sears Holdings all of our Class A Common Stock and Preferred Stock that Sears Roebuck owns.

Orchard–Sears Holdings Arrangements. All agreements, arrangements, commitments and understandings, including most intercompany accounts payable or accounts receivable, between us and our subsidiaries and other affiliates, on the one hand, and Sears Holdings and its other subsidiaries and other affiliates, on the other hand, will terminate effective as of the Distribution, except certain agreements and arrangements that we and Sears Holdings expressly provide will survive the Distribution.

The Distribution. The Distribution Agreement will govern the rights and obligations of the parties regarding the proposed Distribution. Prior to the spin-off, Sears Holdings will deliver all of our issued and outstanding Class A Common Stock and Preferred Stock to the distribution agent. At the Distribution, the distribution agent will electronically deliver the shares of our Class A Common Stock and Preferred Stock to entitled Sears Holdings shareholders based on the applicable distribution ratio. Sears Holdings will have the sole and absolute discretion to determine the terms of, and whether to proceed with, the Distribution.

120

Conditions. The Distribution Agreement will also provide that the Distribution is subject to various conditions that must be satisfied or waived by Sears Holdings in its sole discretion. For information regarding these conditions, see the section entitled “The Spin-Off—Spin-Off Conditions” in this Prospectus. Sears Holdings may, in its sole discretion, determine the record date, the distribution date and the terms of the Distribution and may at any time prior to the completion of the Distribution decide to abandon or modify the Distribution.

Exchange of Information. We and Sears Holdings will agree to provide each other with information reasonably necessary to comply with reporting, disclosure, filing or other requirements of any national securities exchange or governmental authority, for use in judicial, regulatory, administrative and other proceedings and to satisfy audit, accounting, litigation and other similar requests. We and Sears Holdings will also agree to use reasonable best efforts to retain such information in accordance with our respective record retention policies as in effect on the date of the Distribution Agreement. Until the end of the first full fiscal year following the Distribution, each party will also agree to use its reasonable best efforts to assist the other with respect to its financial reporting and audit obligations.

Termination. The Distribution Agreement will provide that it may be terminated by Sears Holdings at any time prior to the Distribution.

Release of Claims. We and Sears Holdings will agree to broad releases pursuant to which we will each release the other and its affiliates, successors and assigns and their respective shareholders, directors, officers, agents and employees from any claims against any of them that arise out of or relate to events, circumstances or actions occurring or failing to occur or any conditions existing at or prior to the time of the Distribution. These releases will be subject to certain exceptions set forth in the Distribution Agreement.

Indemnification. We and Sears Holdings will agree to indemnify each other and each others’ current and former directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing against certain liabilities in connection with the Distribution and each others’ respective businesses. In addition, we will agree to certain restrictions on our ability to take actions that could cause the spin-off to fail to qualify for favorable tax treatment under the Code.

Tax Sharing Agreement

In connection with our deconsolidation from Sears Holdings’ consolidated U.S. federal income tax group in 2005, we entered into a Tax Sharing Agreement with Sears Holdings that governs the respective rights, responsibilities and obligations of Sears Holdings and us with respect to, among other things, liabilities for U.S. federal, state, local and other taxes. In addition to the allocation of tax liabilities, the Tax Sharing Agreement addresses the preparation and filing of tax returns for such taxes and disputes with taxing authorities regarding such taxes. Under the terms of the Tax Sharing Agreement, Sears Holdings is generally responsible for any property taxes for periods beginning on or before January 1, 2005, and for all other taxes for periods beginning on or before November 23, 2005. We are generally responsible for all other taxes relating to our business, which are generally determined each taxable year based on the amount of tax we would have paid had we independently filed a tax return for such taxable period as a separate company. Sears Holdings and we are each generally responsible for managing those disputes that relate to the taxes for which each of us is responsible and, under certain circumstances, we may jointly control any dispute relating to taxes for which both parties are responsible.

Transition Services Agreement

We intend to enter into a Transition Services Agreement (the “Transition Services Agreement”) with Sears Holdings effective at the Distribution, pursuant to which Sears Holdings will provide us with certain accounting, human resources, certain employee benefits, logistical and supply chain, information technology, environmental and safety program, risk management and insurance and inventory support services. The Transition Services Agreement will continue for a period not to exceed twelve months from the date of the Distribution. We will pay Sears Holdings the fees, expenses and taxes incurred by Sears Holdings in connection with its provision of the

121

services as set forth in the Transition Services Agreement. The Transition Services Agreement may be terminated (i) by mutual agreement of the parties, (ii) for cause by either party, (iii) for convenience by Orchard upon sixty days’ prior written notice to Sears Holdings or (iv) the sixtieth day following Orchard’s receipt of written notice from Sears Holdings terminating the agreement due to a change in control of Orchard.

Appliances Agreement

On October 28, 2011, we entered into an appliances agreement (referred to herein as the “Appliances Agreement”) with a subsidiary of Sears Holdings pursuant to which Sears Holdings has authorized us to sell specified categories of major and small kitchen appliances (together, the “Products”) and related protection agreements on a consignment basis as a distributor through our designated retail locations. The Appliances Agreement provides that our distributorship is a part of a distribution system consisting of independently owned and operated dealer merchandise sales facilities known as the Sears Authorized Hometown Stores (together, the “Sears Authorized Hometown Stores”). At each of our designated retail locations we offer for sale specified types of major appliances and, as agreed by Sears Holdings and us, other categories of merchandise supplied by Sears Holdings at its discretion, services, and merchandise protection agreements. The Appliances Agreement requires that Sears Holdings pay us commissions on our net sales of the Products and the protection agreements for the Products. Commissions for Products vary by Product category and Sears Holdings may in its sole discretion modify from time to time the commission rate for each category of Product, but the annual weighted-average aggregate commission rate for all categories of Products for each Sears Holdings fiscal year for the Sears Authorized Hometown Stores as a group, including us, will not be less than a specified rate. The Products include specified categories of Kenmore, Bosch, Electrolux, GE, LG, Samsung and Whirlpool branded appliances. The agreement generally incorporates arm’s length terms and conditions, including market-based pricing and term of duration.

Under the Appliances Agreement, we transferred to Sears Holdings our entire inventory of major appliances purchased from Sears Holdings for $1.9 million in cash, which represented our cost of the purchased appliances, subject to adjustments based on, among other things, the results of a physical inventory of the purchased appliances and the cost of certain clearance markdowns realized by Sears Holdings during the 60-day period following the effective date of the Appliances Agreement.

The Appliances Agreement also provides that (i) Sears Holdings has not granted to us any exclusive territory or Product rights, (ii) Sears Holdings is currently engaged in the business of selling, installing, and servicing Products and other products that compete with the Products through businesses that are owned by Sears Holdings (including online businesses) or through businesses (including dealers and franchises) that Sears Holdings has authorized to sell, install, and service Products and other products (together, the “Sears Businesses”), some of which are, or in the future may be, in close proximity to one or more of our retail locations, (iii) Sears Holdings may in the future in its sole discretion and without restriction expand or extend the Sears Businesses; and (iv) Sears Holdings may offer to sell and sell the Products and other products that compete with the Products by or through all other means of distribution and resale, including selling Products and other products that compete with the Products, to wholesalers and retailers that are not Sears Holdings’ affiliates, anywhere without geographic, distribution, channel, or resale restrictions of any kind.

The Appliances Agreement has a term of five years. We may terminate the Appliances Agreement early for our convenience after the first 18 months of the term of the Appliances Agreement by delivering six months prior written notice to Sears Holdings or if Sears Holdings fails to comply with any of its material obligations in the Appliances Agreement and the failure remains uncured for 30 days or more following notice. Sears Holdings may terminate the Appliances Agreement early for its convenience by delivering six-months’ prior written notice to us after the first anniversary of the effective date of the Appliances Agreement or if (a) with respect to a Sears Holdings’ fiscal quarter our sales of Products during the fiscal quarter are not at least 70% of our sales of Products during the same fiscal quarter in the prior year or (b) we fail to comply with any of our material obligations in the Agreement and the failure remains uncured for 30 days or more following notice.

122

The Appliances Agreement provides that during its term we will not be able to operate in California other businesses that sell merchandise similar to the Products. The Appliances Agreement also will provide that for two years following the end of the term we will not be able to operate a business that competes with Sears Businesses at, or within ten miles of, our retail locations that sold Products at any time during the term.

Brands Agreements

We intend to enter into one or more brands license agreements (the “Brands Agreements”) with a subsidiary of Sears Holdings effective at the Distribution pursuant to which Sears Holdings will allow us to purchase a limited assortment of Craftsman products, Easy Living and Weatherbeater paints, Kenmore-branded water heaters and consumer household products directly from vendors. Under the Brands Agreements, we will pay specified license fees to Sears Holdings. The agreements generally will incorporate arm’s length terms and conditions, including market-based pricing and term of duration. The agreements will have a three-year term and may be extended subject to the mutual agreement of the parties. For the Brands Agreement related to the license of the Craftsman brand, following the second anniversary, if the aggregate of our Craftsman product sales over any 12 month period falls by more than 25% below the preceding 12 month period, Sears Holdings will be permitted to terminate that Brands Agreement in its sole discretion with 60 days’ notice.

Transactions with Sears Holdings Prior to the Spin-Off

We entered into the following agreements with Sears Holdings or Sears Roebuck (as applicable) on November 23, 2005: (i) a services agreement (the “Services Agreement”), which will be terminated as of the Distribution, (ii) the Tax Sharing Agreement, described above, which will remain in effect following the Distribution, (iii) an appliances sales agreement, as amended (the “Appliances Sales Agreement”), which will be terminated as of the Distribution, (iv) an authorized seller agreement, as amended (the “Authorized Seller Agreement”), which will be terminated as of the Distribution, (v) a brand sales agreement, as amended (the “Brand Sales Agreement”), which will be terminated as of the Distribution and (vi) a home services agreement, as amended (the “Home Services Agreement”), which will be terminated as of the Distribution. For more information on certain transactions between Sears Holdings and us prior to the spin-off, please see Note 9 to the Notes to the Consolidated Financial Statements.

Services Agreement. Sears Holdings provided us with certain support services pursuant to the Services Agreement prior to the spin-off. The services provided pursuant to the Services Agreement included information technology support, human resources support, accounting support, risk management, data extraction, advertising, logistics and legal counseling and compliance. The total amount charged to us under the Services Agreement was based on the estimated cost to Sears Holdings of providing the services under the agreement plus reimbursement for certain costs. In fiscal 2010, the total amount we paid for services provided by Sears Roebuck pursuant to the Services Agreement was approximately $0.5 million. We estimate that the total amount for services provided under the Services Agreement for the period beginning at the start of fiscal 2011 and ending at the spin-off will be approximately $0.6 million.

Appliances Sales Agreement. The Appliances Sales Agreement permitted us to buy from Sears Roebuck certain major branded appliances (including Kenmore-branded appliances) and to resell such appliances to our customers. From the beginning of fiscal 2010 through the time of the spin-off, we have been able to purchase such appliances at Sears Roebuck’s cost; additionally, we were obligated to pay certain royalty payments to Sears Roebuck in connection with the sale of such appliances. Total Orchard payments to Sears Roebuck pursuant to this agreement were approximately $11.9 million in fiscal 2010 and we estimate that such payments will be approximately $12.4 million for the period beginning at the start of fiscal 2011 and ending at the spin-off.

Authorized Seller Agreement. The Authorized Seller Agreement designated us as an authorized independent seller of Sears Roebuck protection agreements that provide for repair and maintenance protection on various products, including products sold in connection with the Appliances Sales Agreement. All amounts collected

123

with respect to the sales of protection agreements were remitted to Sears Roebuck net of a 20% commission earned by us. The total amount that we have remitted to Sears Roebuck since the beginning of fiscal 2010 pursuant to the Authorized Seller Agreement has been approximately $0.1 million.

Brand Sales Agreement. The Brand Sales Agreement provided us with the right to purchase from Sears Roebuck and its approved vendors, as well as to resell, certain products marketed under proprietary Sears Roebuck brands, such as Craftsman tools and hardware, Kenmore household consumer products not otherwise covered by the Appliances Sales Agreement, and Easy Living and Weatherbeater paints. From the beginning of fiscal 2010 through the time of the spin-off, the price paid by us for products under this agreement was equal to Sears Roebuck’s cost; additionally, we were obligated to pay certain royalty payments to Sears Roebuck in connection with our sale of such products. Total Orchard payments to Sears Roebuck pursuant to this agreement were approximately $3.3 million in fiscal 2010 and we estimate that such payments will be approximately $2.4 million for the period beginning at the start of fiscal 2011 and ending at the spin-off.

Home Services Agreement. The Home Services Agreement appointed Sears Roebuck as the primary, non-exclusive independent service contractor to perform repair and maintenance services and to provide certain installation services on certain products that we were permitted to purchase under the Appliances Agreement and the Brand Sales Agreement. Sears Roebuck charged us for parts and labor at a price equal to its costs. Total Orchard payments to Sears Roebuck pursuant to this agreement were approximately $0.2 million in fiscal 2010 and we estimate that such payments will be approximately $0.1 million for the period beginning at the start of fiscal 2011 and ending at the spin-off.

Other Related Party Transactions

Stockholders’ Agreement

On November 23, 2005, we entered into a stockholders’ agreement with Sears Roebuck and ACOF that was amended and restated as of January 8, 2008 (the “Existing Stockholders’ Agreement”). Pursuant to the terms of the Existing Stockholders’ Agreement, certain Orchard preferred stock is issuable to Sears Roebuck. Orchard, Sears Roebuck and ACOF have agreed that this preferred stock will be issued to Sears Roebuck in the form of the Series A Preferred Stock described in this Prospectus, and that Sears Holdings will thereafter distribute such Preferred Stock to its shareholders in the Distribution. The Existing Stockholders’ Agreement also provides for certain transfer restrictions, governance provisions, registration rights and other matters.

Orchard, ESL and ACOF intend to amend and restate the Existing Stockholders’ Agreement (as amended and restated, the “Stockholders’ Agreement”) on terms that include transfer restrictions, purchase restrictions, preemptive rights, registration rights, governance provisions (including veto rights for Class B/C Directors with respect to the redemption of Preferred Stock) and other matters. In connection with the amendment and restatement of the Existing Stockholders’ Agreement, certain provisions of the Existing Stockholders’ Agreement will be terminated and superseded by the provisions of the Stockholders’ Agreement. The terms of the Stockholders’ Agreement will be described in a subsequent amendment to this Registration Statement.

Policy and Procedures Governing Related Party Transactions

Prior to the completion of the Distribution, our board of directors will adopt a written statement of policy regarding transactions with related persons, which we refer to as our “Statement of Policy Regarding Transactions with Related Persons.” Our policy requires that a “related person” (as defined in paragraph (a) of Item 404 of Regulation S-K) must promptly disclose to our general counsel any “related person transaction” (defined as any transaction that is reportable by us under Item 404(a) of Regulation S-K in which we are or will be a participant and the amount involved exceeds $120,000 and in which any related person has or will have a direct or indirect material interest) in which such related person has or will have a direct or indirect material interest and all material facts with respect thereto. The general counsel will promptly communicate such

124

information to our audit committee or another independent body of our board of directors. No related person transaction will be entered into without the approval or ratification of our audit committee or another independent body of our board of directors. It is our policy that directors interested in a related person transaction will recuse themselves from any such vote. Our policy does not specify the standards to be applied by our audit committee or another independent body of our board of directors in determining whether or not to approve or ratify a related person transaction and we accordingly anticipate that these determinations will be made in accordance with principles of Delaware law generally applicable to directors of a Delaware corporation.

125

DESCRIPTION OF OUR CAPITAL STOCK

General

The following is a summary of information concerning our capital stock. For a complete legal description of our capital stock and related matters, please refer to our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, both of which will be effective immediately prior to the Distribution. The forms of these documents will be included as exhibits to our Registration Statement, of which this Prospectus is part.

Distributions of Securities

Immediately prior to the Distribution, we will issue the Preferred Stock to Sears Roebuck, and at such time, the Preferred Stock will not have been registered under the Securities Act. Other than with respect to the Preferred Stock, in the past three years, the Company has not sold any securities, including sales of reacquired securities, new issues, securities issued in exchange for property, services, or other securities, and new securities resulting from the modification of outstanding securities, that were not registered under the Securities Act or issued pursuant to an exemption from registration under the Securities Act.

Authorized Capital Stock

Immediately following the spin-off, our authorized capital stock will consist of              shares of Class A Common Stock, par value $0.01 per share,              shares of Class B Common Stock, par value $0.01 per share,              shares of Class C Common Stock, par value $0.01 per share, and              shares of preferred stock, par value $0.01 per share, of which              shares have been designated as the Preferred Stock.

Class A Common Stock, Class B Common Stock and Class C Common Stock (together, the “Common Stock”)

Shares Outstanding. Immediately following the spin-off, we estimate that              shares of Class A Common Stock will be issued and outstanding and held by approximately              shareholders, based on the ownership of Sears Holdings shares expected as of the record date. The actual number of our outstanding shares of Class A Common Stock and the number of shareholders holding such shares following the spin-off will be determined on                     , 2011, the record date. Immediately following the spin-off, we estimate that              shares of Class B Common Stock will be issued and outstanding and held by four shareholders, based on the ownership of such shares as of the distribution date and giving effect to a              to              stock split of our capital stock expected to occur prior to the Distribution to increase the number of shares of our capital stock to a number appropriate for the Distribution. Immediately following the spin-off, we estimate that              shares of Class C Common Stock will be issued and outstanding and held by one shareholder, ACOF, based on the number of shares of our Class A Common Stock that ACOF is expected to hold as of the distribution date and giving effect to an exchange pursuant to which ACOF’s Class A Common Stock is expected to be exchanged for an equal number of shares of Class C Common Stock prior to the Distribution and then giving effect to subsequent              to              stock split of our capital stock expected to occur prior to the Distribution to increase the number of shares of our capital stock to a number appropriate for the Distribution.

Voting Rights. Subject to the discussions below with respect to the election of directors, holders of Class A Common Stock are entitled to one vote per share, holders of Class B Common Stock are entitled to one-tenth of one vote per share and holders of Class C Common Stock are entitled to one vote per share. All actions submitted to a vote of shareholders are voted on by holders of the Common Stock voting together as a separate class with any one or more classes or series of capital stock of the Company entitled to vote thereon, except for the election of directors, and as otherwise required by law.

126

With respect to the election of directors:

• for so long as the quotient, expressed as a percentage, obtained by dividing (x) the aggregate number of shares of Class B Common Stock and Class C Common Stock held by ACOF and certain permitted transferees by (y) the aggregate number of outstanding shares of Common Stock (such percentage, the “ACOF Ownership Percentage”) is equal to or greater than 10% (calculated without reference to any shares of capital stock issued or issuable after the Distribution), holders of Class A Common Stock will vote as a separate class and be entitled to elect eight of the directors constituting our board of directors (at least three of whom must be independent of Orchard, ESL and ACOF) and holders of Class B Common Stock and Class C Common Stock, voting together as a single class, will be entitled to elect two of the directors constituting our board of directors;

• for any periods when the ACOF Ownership Percentage is less than 10% but equal to or greater than 5% (calculated without reference to any shares of capital stock issued or issuable after the Distribution), holders of Class A Common Stock will vote as a separate class and be entitled to elect nine of the directors constituting our board of directors (at least three of whom must be independent of Orchard, ESL and ACOF) and holders of Class B Common Stock and Class C Common Stock, voting together as a single class, will be entitled to elect one of the directors constituting our board of directors; and

• for any periods when the ACOF Ownership Percentage is less than 5% (calculated without reference to any shares of capital stock issued or issuable after the Distribution), holders of the Common Stock shall vote together as a single class with any one or more classes or series of capital stock of the Corporation entitled to vote thereon to elect directors.

(Immediately following the spin-off, it is expected that the ACOF Ownership Percentage will be approximately 20%. With respect to the number of directors constituting the board of directors of Orchard, subject to the rights of the holders of any preferred stock then outstanding to elect additional directors under specified circumstances, (1) from the Distribution until the ACOF Ownership Percentage is less than 5% (calculated without reference to any shares of capital stock issued or issuable after the Distribution), the number of directors shall be 10 and (2) from and after such time that the ACOF Ownership Percentage is less than 5% (calculated without reference to any shares of capital stock issued or issuable after the Distribution), the number of directors shall be determined from time to time by a resolution adopted by an affirmative vote of a majority of the board of directors).

In addition, the affirmative vote or consent of the holders of at least 66 ²/3% of the outstanding shares of Common Stock, voting together as a single class, is required for the amendment or repeal of the corporate opportunity provision of our Amended and Restated Certificate of Incorporation, which generally provides, with certain exceptions, that we shall have no interest or expectancy in any corporate opportunity and no expectation that such corporate opportunity be offered to us, if such opportunity is one that ESL or ACOF or any of ESL’s or ACOF’s affiliated companies or any of their or their affiliated companies’ directors, officers, employees or agents, including any director, officer, employee or agent of us who is also a director, officer, employee or agent of ESL or ACOF or any of ESL’s or ACOF’s affiliated companies, has acquired knowledge of or is otherwise pursuing, and any such interest or expectancy in any such corporate opportunity is renounced, so that as a result of such renunciation, the corporate opportunity shall belong to ESL or ACOF or ESL’s or ACOF’s affiliated companies, and such person or entity: (1) shall have no duty to present such corporate opportunity to us and shall have the right to hold and exploit any such corporate opportunity for its own account and benefit, or to direct, sell, assign or transfer such corporate opportunity to persons other than us and (2) cannot be, and shall not be, liable to us for breach of any fiduciary duty to us by reason of the fact that such person or entity does not present such corporate opportunity to us or pursues, acquires or exploits such corporate opportunity for itself or directs, sells, assigns or transfers such corporate opportunity to another person or entity.

Unless otherwise provided in any preferred stock certificate of designation, the number of authorized shares of any class or classes of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the then-outstanding shares of capital stock of the Company entitled to vote thereon.

127

Our Amended and Restated Certificate of Incorporation does not provide for cumulative voting.

Conversion. The Class A Common Stock has no conversion features. The Class B Common Stock may be converted into Class A Common Stock on the basis of one share of Class A Common Stock for each share of Class B Common Stock only upon the approval of our board of directors and subsequent approval of our shareholders voting together as a single class although there currently is no proposal to do so. The Class C Common Stock may be converted into Class A Common Stock on the basis of one share of Class A Common Stock for each share of Class C Common Stock upon the approval of our board of directors and subsequent approval of (i) our shareholders voting as a separate class and (ii) the holders of a majority of the voting power of the Class C Common Stock voting as a separate class, although there currently is no proposal to do so. In addition, shares of Class C Common Stock are automatically converted on the basis of one share of Class A Common Stock for each share of Class C Common Stock upon the occurrence of (i) a transfer of such shares of Class C Common Stock to any person or entity other than to certain permitted transferees of ACOF or (ii) ACOF owning a number of shares of Class B Common Stock and Class C Common Stock representing in the aggregate a percentage of our outstanding common stock that is less than 5%. See “Security Ownership by Certain Beneficial Owners and Management” in this Prospectus.

Dividends. The terms of the Certificate of Designation of the Preferred Stock will provide that dividends and other distributions may not be paid on all or substantially all of the shares of our capital stock until all outstanding shares of the Preferred Stock have been redeemed in accordance with the terms of such Certificate of Designation or otherwise repurchased unless such dividend or distribution (i) has been unanimously approved by our board of directors, (ii) relates to a “poison pill” stockholder rights plan or (iii) is a distribution of cash in lieu of fractional shares made in connection with this Distribution. After all outstanding shares of the Preferred Stock have been repurchased or redeemed in accordance with the terms of the Certificate of Designation of the Preferred Stock, dividends and other distributions may be declared and paid on the Common Stock as and when determined by our board of directors and subject to any preferential dividend or other rights of any then outstanding preferred stock. Without the affirmative vote of the holders of a majority of the outstanding Class A Common Stock, voting as a separate class, Class B Common Stock, voting as a separate class and Class C Common Stock, voting as a separate class, we may not declare or pay any dividends or other distributions with respect to any class of Common Stock unless (i) at the same time we make a ratable, equal and substantially identical dividend or distribution with respect to each outstanding share of Common Stock, regardless of class or (ii) such dividend or distribution is pursuant to a “poison pill” stockholder rights plan. We do not expect to pay dividends on any shares of our capital stock for the foreseeable future.

Redemption. The terms of the Certificate of Designation of the Preferred Stock will provide that no shares of our capital stock, other than our Preferred Stock, may be redeemed, repurchased or otherwise acquired by us until all outstanding shares of the Preferred Stock have been redeemed in accordance with the terms of such Certificate of Designation or otherwise repurchased unless such redemption or repurchase (i) is made in connection with an employee incentive or benefit plan or other compensatory arrangement, (ii) has been unanimously approved by our board of directors, (iii) relates to a “poison pill” stockholder rights plan or (iv) is a distribution of cash in lieu of fractional shares made in connection with the Distribution.

Liquidation. Upon the dissolution or liquidation of the Company, whether voluntary or involuntary, holders of Common Stock will be entitled to share ratably, and receive equal and substantially identical distributions of, all assets of the Company available for distribution to its stockholders, subject to any preferential or other rights of any then outstanding preferred stock, including the Preferred Stock. The quotient obtained by dividing $20 million by the number of shares of Preferred Stock to be spun out to the holders of Sears Holdings common stock in the Distribution is equal to the Preferred Stock per share liquidation preference (the “Preferred Stock Per Share Liquidation Preference”). In the event of any liquidation, dissolution or winding up of Orchard, whether voluntary or involuntary, before any payment or distribution of Orchard’s assets (whether capital or surplus) shall be made to or set apart for the holders of Common Stock, but after any payments or distributions are made on, or set apart for, any of Orchard’s indebtedness and to holders of any stock then outstanding that ranks senior to the Preferred Stock, holders of the Preferred Stock shall be entitled to receive an amount per share equal to the

128

Preferred Stock Per Share Liquidation Preference but shall not be entitled to any further payment or other participation in any distribution of the assets of Orchard.

Preemption. Following the spin-off, other than as set forth in the Stockholders’ Agreement as described following this sentence, no holders of our capital stock will have preemptive rights or preferential rights to subscribe for shares of our capital stock pursuant to our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.

The Stockholders’ Agreement provides that prior to an issuance by us or any of our subsidiaries of shares of capital stock (other than (i) in an underwritten public offering registered under the Securities Act; (ii) pursuant to any stock option, stock purchase plan or agreement or other benefit plans approved by our board; (iii) in connection with a recapitalization; or (iv) in connection with any acquisition that has been approved by the unanimous consent of our board), Orchard shall give written notice (a “Preemptive Notice”) thereof to ACOF, ESL, Edward S. Lampert and William C. Crowley (such parties, the “Named Stockholders”), so long as each such party owns at least the requisite number of shares of Common Stock specified in the Stockholders’ Agreement. The Preemptive Notice shall specify the securities to be issued (the “Preemptive Shares”), the proposed purchasers, the date of issuance, the consideration that Orchard will receive and all other material terms of such issuance and contain an offer to sell to the Named Stockholders, at the same price and for the same consideration, the Preemptive Shares. Following the delivery of a Preemptive Notice, each Named Stockholder will be entitled to elect to purchase up to that Named Stockholder’s pro rata portion of the Preemptive Shares. In the event that a preemptive offer is accepted by any Named Stockholder, we shall sell to that Named Stockholder, for the consideration and on the terms set forth in the Preemptive Notice, the securities that Named Stockholder has elected to purchase.

Notwithstanding the foregoing, if a Preemptive Notice is delivered from the date of the spin-off until the earlier of (i) the date that ACOF completes the acquisition of an aggregate number of additional shares of Common Stock equal to 15% of the total shares of Common Stock outstanding as of such date and (ii) the date that is six months from the date on which the distribution agent has completed the electronic issuance of all of the shares of Class A Common Stock in connection with the spin-off, as such date shall be extended for trading days during such six-month period during which ACOF was prohibited from purchasing securities of the Company as a result of ACOF possessing material non-public information: (a) for a period of ten business days following the delivery of that Preemptive Notice, ACOF shall have the sole right to elect to purchase all or a portion of the related Preemptive Shares on the terms set forth therein; (b) in the event that ACOF makes such election, we shall (or shall cause such subsidiary to) sell to ACOF, for the consideration and on the terms set forth in the Preemptive Notice, the shares that ACOF has elected to purchase; and (c) ESL shall not purchase any Preemptive Shares.

Fully Paid. The issued and outstanding shares of our capital stock are fully paid and non-assessable. We will not issue any additional shares of capital stock in the future unless they also are fully paid and non-assessable.

Preferred Stock

Our Amended and Restated Certificate of Incorporation will authorize our board of directors to designate and issue from time to time one or more series of preferred stock without shareholder approval. Our board of directors may fix and determine the preferences, limitations and relative rights of each series of preferred stock. There are no present plans to issue any shares of preferred stock other than the Preferred Stock that is being distributed in the Distribution.

Shares Outstanding. Immediately following the spin-off, we estimate that              shares of Preferred Stock will be issued and outstanding and held by approximately              shareholders, based on the ownership of Sears Holdings shares expected as of the record date. The actual number of our outstanding shares of Preferred Stock and the number of shareholders holding such shares following the spin-off will be determined on                     , 2011, the record date.

129

Voting Rights. Except as required by law, the Preferred Stock shall not entitle the holders thereof to vote on any matter submitted for shareholder action, and the consent of the holders thereof shall not be required for the taking of any corporate action, provided that the terms of the Certificate of Designation of the Preferred Stock shall not, by merger, consolidation or otherwise, be amended, waived, altered or repealed without the affirmative vote of the holders of a majority of the voting power of the Preferred Stock, voting as a separate class.

Conversion. The Preferred Stock will not be convertible into shares of Common Stock or any other security of Orchard.

Dividends. The terms of the Preferred Stock do not entitle the holders thereof to any dividends. The terms of the Certificate of Designation of the Preferred Stock will provide that dividends and other distributions may not be paid on all or substantially all of the shares of our capital stock until all outstanding shares of the Preferred Stock have been redeemed in accordance with the terms of such Certificate of Designation or otherwise repurchased unless such dividend or distribution (i) has been unanimously approved by our board of directors, (ii) relates to a “poison pill” stockholder rights plan or (iii) is a distribution of cash in lieu of fractional shares made in connection with this Distribution. We do not expect to pay cash dividends on any shares of our capital stock for the foreseeable future.

Redemption. All, but not less than all, of the then-outstanding shares of Preferred Stock may be redeemed at a redemption price per share of Preferred Stock in cash equal to the Preferred Stock Per Share Liquidation Preference upon a date and time, or the happening of an event, determined by the affirmative vote of a majority of our board of directors and, (i) for as long as holders of Class B Common Stock and Class C Common Stock shall elect at least one director, such vote must include the vote of at least one such director and, (ii) for as long as holders of Class B Common Stock and Class C Common Stock shall elect at least one director and ESL and its affiliates shall hold at least 5% (calculated without reference to any shares of capital stock issued or issuable after the Distribution) of our outstanding common stock, such vote must also include the vote of at least one director elected by the holders of the Class A Common Stock who is not independent of us, ESL or ACOF.

In addition, to the extent not prohibited by law or the Stockholders’ Agreement, Orchard may, at any time and from time to time, repurchase in the open market, in privately negotiated transactions or through tender offers or other transactions any amount of the then outstanding shares of Preferred Stock that it desires to repurchase at such sums and on such conditions as shall be negotiated between or among Orchard and one or more holders of Preferred Stock.

The terms of the Certificate of Designation of the Preferred Stock will provide that no shares of our capital stock, other than our Preferred Stock, may be redeemed, repurchased or otherwise acquired by us until all outstanding shares of the Preferred Stock have been redeemed in accordance with the terms of such Certificate of Designation or otherwise repurchased unless such redemption or repurchase (i) is made in connection with an employee incentive or benefit plan or other compensatory arrangement, (ii) has been unanimously approved by our board of directors, (iii) relates to a “poison pill” stockholder rights plan or (iv) is a distribution of cash in lieu of fractional shares made in connection with this Distribution.

Liquidation. In the event of any liquidation, dissolution or winding up of Orchard, whether voluntary or involuntary, before any payment or distribution of Orchard’s assets (whether capital or surplus) shall be made to or set apart for the holders of Common Stock, but after any payments or distributions are made on, or set apart for, any of Orchard’s indebtedness and to holders of any stock then outstanding that ranks senior to the Preferred Stock, holders of the Preferred Stock shall be entitled to receive an amount per share equal to the Preferred Stock Per Share Liquidation Preference but shall not be entitled to any further payment or other participation in any distribution of the assets of Orchard. If, upon any liquidation, dissolution or winding-up of Orchard, whether voluntary or involuntary, our assets, or proceeds thereof, distributable among the holders of the Preferred Stock are insufficient to pay in full the preferential amount aforesaid and liquidating payments on any stock then outstanding that is on a parity with the Preferred Stock, then such assets, or the proceeds thereof, shall be distributed among the holders of the Preferred Stock and any other stock on a parity with the Preferred Stock,

130

equally and ratably in proportion to the respective amounts that would be payable on such shares of Preferred Stock and any then outstanding stock on parity with the Preferred Stock, if all amounts payable thereon were paid in full.

Preemption. Following the spin-off, other than as set forth in the Stockholders’ Agreement as described following this sentence, no holders of our capital stock will have preemptive rights or preferential rights to subscribe for shares of our capital stock pursuant to our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.

The Stockholders’ Agreement provides that prior to an issuance by us or any of our subsidiaries of shares of capital stock (other than (i) in an underwritten public offering registered under the Securities Act; (ii) pursuant to any stock option, stock purchase plan or agreement or other benefit plans approved by our board; (iii) in connection with a recapitalization; or (iv) in connection with any acquisition that has been approved by the unanimous consent of our board), Orchard shall give written notice (a “Preemptive Notice”) thereof to ACOF, ESL, Edward S. Lampert and William C. Crowley (such parties, the “Named Stockholders”), so long as each such party owns at least the requisite number of shares of Common Stock specified in the Stockholders’ Agreement. The Preemptive Notice shall specify the securities to be issued (the “Preemptive Shares”), the proposed purchasers, the date of issuance, the consideration that Orchard will receive and all other material terms of such issuance and contain an offer to sell to the Named Stockholders, at the same price and for the same consideration, the Preemptive Shares. Following the delivery of a Preemptive Notice, each Named Stockholder will be entitled to elect to purchase up to that Named Stockholder’s pro rata portion of the Preemptive Shares. In the event that a preemptive offer is accepted by any Named Stockholder, we shall sell to that Named Stockholder, for the consideration and on the terms set forth in the Preemptive Notice, the securities that Named Stockholder has elected to purchase.

Notwithstanding the foregoing, if a Preemptive Notice is delivered from the date of the spin-off until the earlier of (i) the date that ACOF completes the acquisition of an aggregate number of additional shares of Common Stock equal to 15% of the total shares of Common Stock outstanding as of such date and (ii) the date that is six months from the date on which the distribution agent has completed the electronic issuance of all of the shares of Class A Common Stock in connection with the spin-off as such date shall be extended for trading days during such six-month period during which ACOF was prohibited from purchasing securities of the Company as a result of ACOF possessing material non-public information: (a) for a period of ten business days following the delivery of that Preemptive Notice, ACOF shall have the sole right to elect to purchase all or a portion of the related Preemptive Shares on the terms set forth therein; (b) in the event that ACOF makes such election, we shall (or shall cause such subsidiary to) sell to ACOF, for the consideration and on the terms set forth in the Preemptive Notice, the shares that ACOF has elected to purchase; and (c) ESL shall not purchase any Preemptive Shares.

Fully Paid. The issued and outstanding shares of our capital stock are fully paid and non-assessable. We will not issue any additional shares of capital stock in the future unless they also are fully paid and non-assessable.

Certain Provisions of Delaware Law, Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws

Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws

Certain provisions in our proposed Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a shareholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by shareholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control.

131

Blank Check Preferred Stock. Our Amended and Restated Certificate of Incorporation will permit us to issue, without any further vote or action by the shareholders, up to              shares of preferred stock (or              shares of preferred stock after taking into account the              shares of Preferred Stock that will be issued in connection with the Distribution) in one or more series and, with respect to each such series, to fix the number of shares constituting the series and the designation, powers, preferences and rights, and any qualifications, limitations or restrictions thereof, of the shares of such series. The ability to issue such preferred stock could discourage potential acquisition proposals and could delay or prevent a change in control. For example, we could issue shares of preferred stock that may, depending on the terms of such series, make it more difficult or discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or other means. Such shares could also be privately placed with purchasers favorable to the board of directors in opposing such actions. In addition, the board of directors could authorize holders of a series of preferred stock to vote either separately as a class or with the holders of our Common Stock, on any merger, sale or exchange of assets by us or any other extraordinary corporate transaction. The issuance of new shares also could be used to dilute the stock ownership of a person or entity seeking to obtain control of us should the board of directors consider the action of such entity or person not to be in the best interest of our shareholders and could be used to entrench current management or deter an attempt to replace the board of directors.

Special Shareholder Meetings. Under our proposed Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, special meetings of shareholders of the Company may be called only by the board of directors acting pursuant to a resolution adopted by a majority of the board of directors.

Requirements for Advance Notification of Shareholder Nomination and Proposals. Under our proposed Amended and Restated Bylaws, shareholders of record will be able to nominate persons for election to our board of directors or, at annual meetings, bring other business constituting a proper matter for shareholder action only by providing proper notice to our secretary. Proper notice must be timely, generally received between 75 and 45 days prior to the one-year anniversary of the first mailing of the previous year’s proxy materials (or, in the case of a special meeting, 90 days prior to the special meeting or prior to the tenth day following announcement of the meeting, whichever is later), and must include, among other information, the name and address of the shareholder giving the notice, certain information relating to each person whom such shareholder proposes to nominate for election as a director, a brief description of any business such shareholder proposes to bring before the meeting and the reason for bringing such proposal, the name and address of any beneficial owner on whose behalf the record shareholder is acting, and other information concerning the record shareholder and, if applicable, the beneficial owner, including any shares owned by such persons, any derivative instruments owned by such persons or other similar arrangements with respect to shares of our common stock and a representation as to whether any such person intends to deliver a proxy statement and/or form of proxy to our shareholders (with which such representation such person is required to act in accordance). Nothing in the Amended and Restated Bylaws will be deemed to affect any rights of shareholders to request inclusion of proposals in our proxy statement pursuant to Rule 14a-8 under the Securities Exchange of 1934, as amended.

Delaware Takeover Statute

The Delaware General Corporation Law (the “DGCL”) contains a business combination statute that protects domestic corporations from hostile takeovers and from actions following such a takeover, by prohibiting some transactions once an acquiror has gained a significant holding in the corporation. This statute generally prohibits “business combinations,” including mergers, sales and leases of assets, issuances of securities and similar transactions by a corporation or a subsidiary with an entity or person who beneficially owns 15% or more of a corporation’s voting stock (an “interested shareholder”), within three years after the person or entity becomes an interested shareholder, unless:

• the board of directors of the target corporation has approved, before the acquisition date, either the business combination or the transaction that resulted in the person becoming an interested shareholder;

• upon consummation of the transaction that resulted in the person becoming an interested shareholder, the person owns at least 85% of the corporation’s voting stock (excluding for purposes of determining

132

the voting stock outstanding shares owned by directors who are officers and shares owned by employee stock plans in which participants do not have the right to determine confidentially whether shares will be tendered in a tender or exchange offer); or

• after the person or entity becomes an interested shareholder, the business combination is approved by the board of directors and authorized by the vote of the holders of shares representing at least two-thirds of the outstanding voting power not owned by the interested shareholder.

We have opted out of Section 203 of the DGCL, which contains these restrictions on business combinations, in our Amended and Restated Certificate of Incorporation that will take effect immediately prior to the Distribution.

Indemnification and Limitation of Liability of Directors and Officers

Delaware General Corporate Law

Pursuant to the DGCL, a corporation may indemnify any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or serving at the request of such corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of such corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

The DGCL also permits indemnification by a corporation under similar circumstances for expenses (including attorneys’ fees) actually and reasonably incurred by such persons in connection with the defense or settlement of an action or suit by or in the right of the corporation to procure a judgment in its favor, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to such corporation unless the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

To the extent a present or former director or officer is successful in the defense of such an action, suit or proceeding, the corporation is required by the DGCL to indemnify such person for actual and reasonable expenses incurred thereby.

Expenses (including attorneys’ fees) incurred by an officer or director of the corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it is ultimately determined that such person is not entitled to be so indemnified. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents of the corporation or by persons serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the corporation deems appropriate.

The DGCL provides that the indemnification described above shall not be deemed exclusive of other indemnification that may be granted by a corporation pursuant to its by-laws, disinterested directors’ vote, shareholders’ vote, agreement or otherwise.

The DGCL also provides corporations with the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation in a similar capacity for another corporation, partnership, joint venture, trust or other

133

enterprise, against any liability asserted against him or her and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability as described above.

Orchard Supply Hardware Stores Corporation

Our proposed Amended and Restated Certificate of Incorporation requires Orchard to indemnify and hold harmless any current or former director of Orchard to the fullest extent permitted by Delaware law. Such indemnification rights include the right to be paid by Orchard the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition. However, except for proceedings to enforce indemnification or advancement rights, Orchard will indemnify such a director who initiates an action, suit or proceeding (or part thereof) only if such action, suit or proceeding (or part thereof) was authorized by the board of directors of Orchard.

Orchard’s Amended and Restated Bylaws extend the above-described indemnification and advancement rights to current and former officers of Orchard and to persons who are or were serving at the request of Orchard as a director, officer or trustee of another corporation or entity. The Amended and Restated Bylaws also contain certain procedures and presumptions that will govern any action brought by a person granted advancement or indemnification rights in Orchard’s Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws to enforce those rights.

The indemnification and advancement rights conferred by Orchard are not exclusive of any other right to which persons seeking indemnification or advancement may be entitled under any statute, Orchard’s Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws, any agreement, vote of shareholders or disinterested directors or otherwise.

Transfer Agent and Registrar

After the Distribution, the transfer agent and registrar for our capital stock will be Wells Fargo Bank, N.A., South St. Paul, Minnesota.

Listing and Market Information

There is currently no established public market for any of our capital stock. We intend to list our Class A Common Stock on the NASDAQ Capital Market under the ticker symbol “OSH” and quote our Preferred Stock on the OTCQB, or the “Pink Sheets” or another OTC quotation system under the ticker symbol “OSHPA”. “When-issued” trading on the NASDAQ Capital Market is expected to be under the symbol “OSHS.V,” which is different from “OSH,” our “regular-way” trading symbol. We do not intend to list our Class B Common Stock or Class C Common Stock.

Authorized But Unissued Capital Stock

The DGCL does not require shareholder approval for any issuance of authorized shares. However, the listing requirements of the NASDAQ Capital Market, which would apply so long as our Class A Common Stock is listed on the NASDAQ Capital Market, require shareholder approval of certain issuances equal to or exceeding 20% of the then-outstanding voting power or then outstanding number of shares of Class A Common Stock. These additional shares may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.

One of the effects of the existence of unissued and unreserved capital stock may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the shareholders of opportunities to sell their shares of capital stock at prices higher than prevailing market prices.

134

SHARES ELIGIBLE FOR FUTURE SALE

Based on the number of Sears Holding shares expected to be outstanding as of                     , 2011, the record date, we expect that              of the shares of Class A Common Stock and              of the shares of Preferred Stock outstanding immediately following the Distribution will be freely tradable without restriction in the public markets, except any shares of Class A Common Stock and Preferred Stock held by “affiliates,” as that term is defined in Rule 144 under the Securities Act, may only be sold in compliance with the limitations described below. “Restricted securities” may be sold in the public market only pursuant to an effective registration statement under the Securities Act or if the sale qualifies for an exemption from registration under such as the exemptions afforded by Section 4(1) of the Securities Act or Rule 144 thereunder or Rule 701, which rules are summarized below.

Rule 144

In general, under Rule 144 of the Securities Act as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

• 1% of the number of shares of common stock then outstanding; or

• the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Rule 144 also provides that a person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has for at least six months beneficially owned shares of our common stock that are restricted securities, will be entitled to freely sell such shares of our common stock subject only to the availability of current public information regarding us. A person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned for at least one year shares of our common stock that are restricted securities, will be entitled to freely sell such shares of our common stock under Rule 144 without regard to the current public information requirements of Rule 144.

Rule 701

Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144.

Stock Plans

We intend to file registration statements on Form S-8 under the Securities Act covering all of the shares of our common stock subject to options outstanding or reserved for issuance under our stock plans, including our 2011 Equity Incentive Plan. We expect to file this registration statement as soon as practicable after this

135

offering. Accordingly, shares registered under the registration statement on Form S-8 will be available for sale in the open market following its effective date, subject to the Rule 144 limitations applicable to affiliates.

Registration Rights Agreements

We expect that the Stockholders’ Agreement will provide certain of our shareholders with certain registration rights, which will be described in an amendment to this Prospectus.

136

USE OF PROCEEDS

We will not receive any proceeds from the distribution of our common stock in the spin-off.

137

DETERMINATION OF OFFERING PRICE

No consideration will be paid for the shares of common stock distributed in the spin-off.

138

LEGAL MATTERS

The validity of the Class A Common Stock and Preferred Stock to be distributed in the spin-off and certain tax matters related to the spin-off will be passed upon for us by Simpson Thacher & Bartlett LLP, Palo Alto, California and New York, New York.

139

EXPERTS

The consolidated financial statements as of January 29, 2011 and January 30, 2010 and for each of the three years in the period ended January 29, 2011 included in this Prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

140

WHERE YOU CAN FIND MORE INFORMATION

We have filed a Registration Statement on Form S-1 with the SEC with respect to the shares of our Class A Common Stock and Preferred Stock being distributed as contemplated by this Prospectus. This Prospectus is a part of, and does not contain all of the information set forth in, the Registration Statement and the exhibits and schedules to the Registration Statement. For further information with respect to the Company and our Class A Common Stock and Preferred Stock, please refer to the Registration Statement, including its exhibits and schedules. Statements made in this Prospectus relating to any contract or other document are not necessarily complete, and you should refer to the exhibits attached to the Registration Statement for copies of the actual contract or document. You may read and copy all materials that we file with the SEC, including the Registration Statement and its exhibits and schedules, at the SEC’s public reference room, located at 100 F Street, N.E., Washington, D.C. 20549, as well as on the Internet website maintained by the SEC at www.sec.gov. Please call the SEC at 1-800-SEC-0330 for more information on the public reference room. Information contained on any website referenced in this Prospectus does not and will not constitute a part of this Prospectus or the Registration Statement on Form S-1 of which this Prospectus is a part.

As a result of the Distribution, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC.

You may request a copy of any of our filings with the SEC at no cost, by writing or telephoning us at the following address:

Orchard Supply Hardware Stores Corporation

6450 Via Del Oro,

San Jose, California 95119

(408) 281-3500

We intend to furnish holders of our Class A Common Stock and Preferred Stock with annual reports containing consolidated financial statements prepared in accordance with United States generally accepted accounting principles and audited and reported on, with an opinion expressed thereto, by an independent registered public accounting firm.

You should rely only on the information contained in this Prospectus or to which we have referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this Prospectus.

141

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES

	Page
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of January 29, 2011 and January 30, 2010		F-3
Consolidated Statements of Operations for the fiscal years ended January 29, 2011, January  30, 2010 and January 31, 2009		F-4
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the fiscal years ended January 29, 2011, January 30, 2010 and January 31, 2009		F-5
Consolidated Statements of Cash Flows for the fiscal years ended January 29, 2011, January  30, 2010 and January 31, 2009		F-6
Notes to Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Orchard Supply Hardware Stores Corporation

San Jose, California

We have audited the accompanying consolidated balance sheets of Orchard Supply Hardware Stores Corporation and subsidiaries (the “Company”) as of January 29, 2011 and January 30, 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended January 29, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Orchard Supply Hardware Stores Corporation and subsidiaries as of January 29, 2011 and January 30, 2010, and the results of their operations and their cash flows for each of the three years in the period ended January 29, 2011, in conformity with accounting principles generally accepted in the United States of America.

The Company is a subsidiary of Sears Holdings Corporation (“Sears”). The accompanying consolidated financial statements have been prepared from the separate records maintained by the Company and may not necessarily be indicative of the conditions that would have existed or the results of operations if the Company had been operated as an unaffiliated company. As more fully described in Notes 1, 6 and 9, certain items included in the accompanying consolidated financial statements represent allocations from Sears applicable to the consolidated group as a whole.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

April 26, 2011

F-2

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JANUARY 29, 2011 AND JANUARY 30, 2010

(In thousands, except for share amounts)

	2010			2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,604		$	8,961
Restricted cash		556
Merchandise inventories		172,050			161,265
Deferred income taxes		16,444			10,302
Prepaid expenses and other current assets		11,253			12,155
Total current assets		215,907			192,683
PROPERTY AND EQUIPMENT—Net		262,968			272,116
OTHER INTANGIBLE ASSETS		145,451			154,090
DEFERRED FINANCING COSTS		5,666			2,657
TOTAL	$	629,992		$	621,546
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Merchandise payables	$	55,325		$	36,279
Accrued expenses and other liabilities		40,116			40,645
Current portion of long-term debt and capital lease obligations		19,292			126,597
Payable to Sears		12,458			4,899
Total current liabilities		127,191			208,420
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS		318,928			238,261
OTHER LONG-TERM LIABILITIES		16,338			15,797
DEFERRED INCOME TAXES		69,503			70,082
COMMITMENTS AND CONTINGENCIES (Note 10)
Total liabilities		531,960			532,560
STOCKHOLDERS’ EQUITY
Series A common stock ($0.01 par value; 1,049,000 shares authorized 1,000,000 shares issued and outstanding at January 29, 2011 and January 30, 2010)		10			10
Series B common stock ($0.01 par value; 1,049,000 shares authorized) 2,118 shares issued and outstanding at January 29, 2011 and January 30, 2010) Additional paid in capital		262,825			262,496
Accumulated losses		(164,803	)		(173,520	)
Total stockholders’ equity		98,032			88,986
TOTAL	$	629,992		$	621,546

See notes to consolidated financial statements.

F-3

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE FISCAL YEARS ENDED JANUARY 29, 2011, JANUARY 30, 2010 AND JANUARY 31, 2009

(In thousands, except for per share amounts)

	2010			2009			2008
NET SALES	$	660,701		$	682,393		$	761,489
COST OF SALES AND EXPENSES:
Cost of sales (excluding depreciation and amortization)		431,839			438,060			486,222
Selling and administrative		165,993			165,639			191,282
Depreciation and amortization		31,187			29,870			31,410
Goodwill impairment								262,763
Total costs of sales and expenses		629,019			633,569			971,677
OPERATING INCOME (LOSS)		31,682			48,824			(210,188	)
INTEREST EXPENSE, net		(17,392	)		(16,770	)		(22,875	)
INCOME (LOSS) BEFORE INCOME TAXES		14,290			32,054			(233,063	)
INCOME TAXES		5,573			12,749			10,304
NET INCOME (LOSS)	$	8,717		$	19,305		$	(243,367	)
INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO STOCKHOLDERS
Basic and diluted income (loss) per share	$	8.70		$	19.27		$	(242.88	)
Basic and diluted weighted average common shares outstanding		1,002			1,002			1,002

See notes to consolidated financial statements.

F-4

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

FOR THE FISCAL YEARS ENDED JANUARY 29, 2011, JANUARY 30, 2010 AND JANUARY 31, 2009

(In thousands, except share amounts)

	Series A Common Stock				Series B Common Stock					Additional Paid-In Capital			Retained Earnings (Accumulated Losses)			Total			Comprehensive Income (Loss)
	Shares		Amount		Shares			Amount
BALANCE—February 2, 2008		1,000,000	$	10		2,457		$	—	$	261,976		$	50,542		$	312,528
Repurchase of treasury stock						(339	)				(100	)					(100	)
Stock-based compensation expense											125						125
Net loss														(243,367	)		(243,367	)	$	(243,367	)
BALANCE—January 31, 2009		1,000,000		10		2,118			—		262,001			(192,825	)		69,186
Stock-based compensation expense											495						495
Net income														19,305			19,305		$	19,305
BALANCE—January 30, 2010		1,000,000		10		2,118			—		262,496			(173,520	)		88,986
Stock-based compensation expense											329						329
Net income														8,717			8,717		$	8,717
BALANCE—January 29, 2011		1,000,000	$	10		2,118		$	—	$	262,825		$	(164,803	)	$	98,032

See notes to consolidated financial statements.

F-5

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDED JANUARY 29, 2011, JANUARY 30, 2010 AND JANUARY 31, 2009

(In thousands)

	2010			2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	8,717		$	19,305		$	(243,367	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		31,187			29,870			31,410
Goodwill impairment								262,763
Amortization of deferred financing costs		1,170			1,006			793
Loss on sale and impairment of property and equipment		633			275
Stock-based compensation		329			495			125
Deferred income taxes		(6,721	)		(4,572	)		(10,478	)
Deferred rent		(1,302	)		529			1,639
Change in operating assets and liabilities:
Merchandise inventories		(10,785	)		(2,682	)		5,559
Prepaid expenses and other assets		902			713			994
Merchandise payables		19,046			(14,721	)		(8,025	)
Payable to Sears		7,559			(1,139	)		1,380
Accrued expenses and other liabilities		1,813			(3,187	)		415
Net cash provided by operating activities		52,548			25,892			43,208
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash		(556	)					3,277
Purchases of property and equipment		(11,486	)		(11,462	)		(10,511	)
Net cash used in investing activities		(12,042	)		(11,462	)		(7,234	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on Senior Secured Credit Facility		48,300			7,585			33,925
Repayments on Senior Secured Credit Facility		(300	)		(7,585	)		(50,925	)
Principal payments on Senior Secured Term Loan		(2,000	)		(13,000	)		(9,000	)
Principal payments on Commercial Mortgage-backed Loan		(120,000	)
Borrowings from Real Estate Term Loan		50,000
Payment of deferred financing costs		(4,152	)		(1,331	)		(150	)
Repurchase of treasury stock								(100	)
Payments of capital lease obligations		(5,711	)		(3,917	)		(3,830	)
Net cash used in financing activities		(33,863	)		(18,248	)		(30,080	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		6,643			(3,818	)		5,894
CASH AND CASH EQUIVALENTS—Beginning of period		8,961			12,779			6,885
CASH AND CASH EQUIVALENTS—End of period	$	15,604		$	8,961		$	12,779
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for interest	$	16,421		$	15,703		$	22,493
Cash paid for income taxes	$	16,651		$	16,984		$	13,200
NONCASH INVESTING AND FINANCING ACTIVITIES:
Noncash equipment purchases	$	1,137		$	1,620		$	812
Assets acquired through capital lease	$	3,073		$	6,477		$	9,989

See notes to consolidated financial statements.

F-6

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED JANUARY 29, 2011, JANUARY 30, 2010 AND JANUARY 31, 2009

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Nature of Operations—The consolidated financial statements include the accounts of Orchard Supply Hardware Stores Corporation (“Company”) and its subsidiaries, Orchard Supply Hardware LLC (“OSH LLC”), OSH Properties LLC (“OSH Properties”), and OSH Finance Corporation. Unless otherwise specified, all references to the “Company” refer to Orchard Supply Hardware Stores Corporation and subsidiaries. All intercompany amounts and transactions have been eliminated in consolidation. The Company is 80.1% owned by Sears Holdings Corporation (“Sears”).

As of January 29, 2011, January 30, 2010 and January 31, 2009, the Company operated a chain of 89, 88 and 86 home improvement stores located in California, respectively. The stores offer a variety of home improvement and specialty products, including garden, nursery, hardware, industrial, electrical, housewares, plumbing, tools, paint, seasonal, outdoor power and appliances. The majority of the Company’s merchandise is handled through a single warehouse and distribution facility located in Tracy, California.

In November 2005, the Company completed a series of recapitalization transactions (the “Recapitalization”), whereby, an affiliate of Ares Management LLC (“Ares”) invested $58.7 million in cash in exchange for 19.9% of the Company’s outstanding voting stock and a three-year option to acquire additional shares in the Company (the “Ares Option”).

In January 2008, the Ares Option was amended to allow the Company to create and issue Sears 20,000 shares of nonconvertible and nonvoting preferred stock with a liquidation preference of $1,000 per share (the “Preferred Stock”), a contingent forward to issue preferred stock, subject to any required consents from lenders, in the event the option expires without exercise. On November 23, 2008, the Ares Option was not exercised and expired. As a result, the Company expects to create and issue the 20,000 shares of Preferred Stock (see Note 2).

As a subsidiary of Sears, the Company does not maintain all of its own legal, tax, and certain other corporate support functions. In connection with the Recapitalization, Sears and the Company entered into a shared services agreement to provide the Company with certain corporate support services while the Company builds its own stand-alone corporate infrastructure. The Company is charged by Sears for such corporate services under the terms described in Note 6. The costs and allocations charged to the Company by Sears do not necessarily reflect the costs of obtaining the services from unaffiliated third parties or of the Company providing the applicable services itself. Management believes that the methods by which Sears allocates its costs are reasonable and are based on a prorated estimate of costs expected to be incurred by Sears. The consolidated financial statements contained herein may not be indicative of the Company’s consolidated financial position, operating results and cash flows in the future, or what they would have been if it had been a stand-alone company during all periods presented. In August 2008, the Company completed the transition of the majority of its significant accounting functions from Sears and converted its accounting system to be independently operated by the Company.

Fiscal Year—The Company’s fiscal year ends on the Saturday nearest to January 31. The fiscal years ended January 29, 2011 (“fiscal 2010”), January 30, 2010 (“fiscal 2009”) and January 31, 2009 (“fiscal 2008”), all consisted of 52 weeks.

Segment Reporting—The Company has one reportable segment. The Company’s operations include activities related to its retail stores that are all operated in California, United States.

F-7

The following table presents the Company’s sales by product categories for fiscal 2010, 2009, and 2008 (in thousands):

	Fiscal Year
	2010		2009		2008
Repair and maintenance	$	328,685	$	349,237	$	401,180
Lawn and garden		252,578		252,902		269,323
In-home		79,438		80,254		90,986
Total	$	660,701	$	682,393	$	761,489

Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and reported amounts of net sales and expenses during the reporting period. Actual results may differ from these estimates. Significant estimates are required as part of inventory valuation, reserves for sales returns and allowances, recoverability of long-lived assets, goodwill and intangible asset valuations, and accruals for casualty insurance reserves.

Cash and Cash Equivalents—Cash and cash equivalents consist of cash on hand and in banks as well as all highly liquid investments with a maturity date at purchase of three months or less. The Company also includes within cash equivalents deposits in transit from banks for payments related to third-party credit card and debit card transactions.

The Company classifies outstanding checks in excess of funds on deposit within payables and reduces cash and cash equivalents when these checks clear the bank on which they were drawn. There were no outstanding checks in excess of funds on deposit included in payables at January 29, 2011 and January 30, 2010.

Restricted Cash—As of January 29, 2011, the Company had restricted cash of $0.6 million to pay for maintenance costs related to owned properties. This cash was set up in connection with the Real Estate Term Loan (see Note 4).

Transactions with Sears—All intercompany activities performed in the normal course of business are settled in cash with Sears. Amounts not paid during the period incurred are recorded as a net receivable or payable and are reported in the consolidated statements of cash flows as an operating activity.

Merchandise Inventories—Merchandise inventories are valued at the lower of cost or market, with cost determined using the retail inventory method (RIM). Inherent in the RIM calculation are certain significant management judgments and estimates, including, merchandise markons, markups, markdowns, and shrinkage, which significantly impact the ending inventory valuation at cost as well as resulting gross margins. The methodologies utilized by the Company in its application of the RIM are consistent for all periods presented. Such methodologies include the development of the cost-to-retail ratios, the groupings of homogenous classes of merchandise, the development of shrinkage and obsolescence reserves, and the accounting for retail price changes. Management believes that the Company’s RIM provides an inventory valuation that reasonably approximates cost.

At January 29, 2011 and January 30, 2010, approximately $47.3 million and $50.3 million, respectively, of the Company’s merchandise inventories were valued under the last-in, first-out (LIFO) basis. If the first-in, first-out method of inventory valuation had been used instead of the LIFO method, merchandise inventories would have been $1.8 million lower at January 29, 2011 and January 30, 2010. There were no liquidations of the LIFO layers during the three years reported.

Vendor Rebates and Allowances—The Company receives various vendor-funded rebates and allowances through a variety of programs and arrangements intended to offset the Company’s costs of promoting and selling certain vendor products. These vendor payments are recorded as a reduction to the cost of

F-8

merchandise inventories when earned and, thereafter, as a reduction of cost of sales, as the merchandise is sold. Up-front consideration received from vendors linked to purchases or other commitments is deferred until performance of the specified activity is deemed to be complete. The Company earned vendor rebates and allowances of $30.3 million, $29.2 million and $28.3 million in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. Vendor rebates and allowances deferred at January 29, 2011 and January 30, 2010 were $11.8 million and $11.2 million, respectively, and are included as a reduction to merchandise inventories in the consolidated balance sheets.

Property and Equipment—Property and equipment is stated at cost, less accumulated depreciation and amortization. Additions and substantial improvements are capitalized and include expenditures that materially extend the useful lives of existing facilities and equipment. Maintenance and repairs that do not materially improve or extend the lives of the respective assets are expensed as incurred. Certain real properties of the Company, including 14 store locations, 4 stores situated on ground leases, and a distribution center, are collateral for a portion of the Company’s outstanding debts (see Note 4).

The Company’s property and equipment at January 29, 2011 and January 30, 2010, consist of the following (in millions):

	2010			2009
Land	$	96.0		$	96.0
Buildings and improvements		146.1			141.7
Furniture, fixtures and equipment		74.5			67.8
Construction in progress		2.3			5.0
Capitalized leases		67.1			64.0
Total property and equipment		386.0			374.5
Less accumulated depreciation and amortization		(123.0	)		(102.4	)
Total property and equipment, net	$	263.0		$	272.1

Depreciation and amortization is recorded using the straight-line method over the estimated useful lives of the related assets, which is generally between 3 to 10 years for furniture, fixtures, and equipment, and 15 to 40 years for buildings and improvements. Leasehold improvements are amortized over the shorter of the original lease term or estimated useful life of the improvement, which is between 1 and 21 years. Capital lease assets are amortized over the lesser of the term of the lease or the useful lives of the asset. Accumulated amortization of capitalized lease assets was $23.9 million and $17.7 million at January 29, 2011 and January 30, 2010, respectively.

Goodwill and Other Intangible Assets—The Company does not amortize goodwill, but tests it for potential impairment on an annual basis or whenever events or changes in circumstances indicate that its value may not be recoverable. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others a significant decline in the Company’s expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, and slower growth rates.

The Company’s goodwill resided in one reporting unit. The goodwill impairment test involves a two-step process. The first step is a comparison of the reporting unit’s fair value to its carrying value. Potential impairment exists if the carrying amount of net assets, including goodwill, is greater than the fair value of net assets, which is based on the income approach using a calculation of discounted estimated future cash flows. The projection uses management’s best estimates of economic and market conditions over the projected period including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment loss. The amount of

F-9

impairment is determined by comparing the implied fair value of reporting unit goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination.

The Company’s recorded goodwill and accumulated impairment of goodwill was $0 and $262.8 million, respectively, as of January 31, 2009. During fiscal 2008, the Company recorded a goodwill impairment charge of $262.8 million and has no remaining goodwill.

Intangible assets with “indefinite” useful lives are required to be tested for impairment and intangible assets with “definite” useful lives are amortized over their useful lives. Included in other intangible assets in the consolidated balance sheets are indefinite-lived trade names and definite-lived favorable leasehold rights. The Company’s trade name assets, OSH and Orchard Supply Hardware, are not subject to amortization, as management expects the trade names to generate cash flows indefinitely. The Company’s trade names are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Potential impairment exists if the carrying amount of trade names is greater than their fair value, which is based on the relief from royalty method. The Company performed its test for impairment on trade names by comparing the fair value of the trade names to their carrying amounts. No impairment charges related to trade names were recorded in any period presented. Favorable leasehold rights are amortized on a straight-line basis over the respective lease terms for up to 38 years.

The impairment analysis for trade names is performed as of the last day of the Company’s November accounting period each year.

Other intangible assets as of January 29, 2011 and January 30, 2010, include the following (in millions):

	January 29, 2011							January 30, 2010
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Indefinite-lived trade names	$	107.6	$	—		$	107.6	$	107.6	$	—		$	107.6
Favorable leases		94.9		(57.0	)		37.9		94.9		(48.4	)		46.5
Total	$	202.5	$	(57.0	)	$	145.5	$	202.5	$	(48.4	)	$	154.1

The Company recorded intangible amortization expense of $8.6 million, $8.8 million and $9.3 million in the consolidated statements of operations during fiscal 2010, fiscal 2009 and fiscal 2008, respectively.

Intangible amortization expense for the next five fiscal years based on the intangible asset balances as of January 29, 2011, is expected to be $7.4 million, $6.8 million, $5.9 million, $5.1 million, and $3.4 million.

Impairment or Disposal of Long-Lived Assets—Long-lived assets, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying value of the asset exceeds the expected future cash flows expected to result from the use of the asset, on an undiscounted basis, an impairment loss is recognized. The impairment loss recognized is the excess of the carrying value of the asset over its fair value. The fair market value of these assets is determined using the income approach and Level 3 inputs, which require management to make estimates about future cash flows. Management estimates the amount and timing of future cash flows based on its experience and knowledge of the retail market in which each store operates. The impairment charges are included in selling and administrative expenses in the consolidated statements of operations.

The Company recorded $0.7 million, $0.2 million and $0.0 million of impairment and disposal charges for fiscal 2010, fiscal 2009 and fiscal 2008, respectively. The impairment charges reduced the then carrying amount of applicable long-lived assets of $0.7 million and $0.3 million to their fair values of $0.0 million and $0.1 million during fiscal 2010 and fiscal 2009, respectively.

F-10

Leases—The Company leases certain stores, office facilities, computers, and transportation equipment. The determination of operating and capital lease obligations is based upon the expected terms of the lease, and the contractual minimum lease payments as defined within the lease agreements. For certain stores, amounts in excess of these minimum lease payments are payable based upon specified percentages of sales. Contingent rent is accrued during the period it becomes probable that a particular store will achieve a specified sales level thereby triggering a contingent rental obligation. Certain leases also include escalation clauses and renewal option clauses calling for increased rents. Where a lease contains an escalation clause or concession such as a rent holiday, rent expense is recognized using the straight-line method over the term of the lease.

Casualty Claim Reserves—The Company has historically participated in Sears’ insurance programs, which has provided the Company with comprehensive insurance coverage. On February 25, 2008, the Company entered into its own insurance contracts for exposures incurred after that date with third-party insurance companies for a number of risks including workers’ compensation and general liability claims. The Company records reserves for uninsured claims based on the expected ultimate settlement value of claims filed and claims incurred but not yet reported. The Company’s estimated claim amounts are discounted using a risk-free rate based on the duration that approximates the expected period to settle such claims. In estimating this liability, the Company utilized loss trend factors based on Company-specific data to project the future loss rate. Loss estimates are adjusted based upon actual claims settlements and reported claims. These projections are subject to a high degree of variability based upon future inflation rates, litigation trends, legal interpretations, benefit level changes, and claim settlement patterns. The components of the Company’s insurance reserves as of January 29, 2011 and January 30, 2010, are as follows (in millions):

	2010			2009
Self insurance reserves—beginning of period	$	4.7		$	3.0
Claim expenses		2.3			2.7
Claim payments		(1.1	)		(1.0	)
Self insurance reserves—end of period	$	5.9		$	4.7
Total undiscounted self insurance reserves—end of period	$	6.8		$	5.4

The Company’s casualty insurance reserves reflected in other current liabilities and other long-term liabilities in the consolidated balance sheets represent an estimate of the ultimate cost of claims incurred as of the balance sheet date. Although the Company does not expect the amounts ultimately paid to differ significantly from its estimates, insurance reserves could be affected if future claim experience differs significantly from the historical trends and the actuarial assumptions.

Revenue Recognition—The Company recognizes revenues from merchandise sales at the later of point of sale or delivery of goods to customers. Merchandise sales are reported net of estimated returns and allowances, customer rebates and exclude sales taxes. The reserve for returns and allowances is calculated as a percentage of sales based on historical return percentages.

Net sales are presented net of any taxes collected from customers and remitted to governmental authorities.

The Company also records deferred revenue for the sale of gift cards and recognizes this revenue upon the redemption of the gift cards.

Reserve for Sales Returns and Allowances—The Company calculates a reserve for returns and allowances as a percentage of sales based on historical return percentages which is included in accrued expenses in the consolidated balance sheets. The reserve for sales returns and allowances consists of the following (in millions):

Year ended:	Beginning Balance		Additions		Returns			Ending Balance
January 29, 2011	$	0.6	$	24.1	$	(24.1	)	$	0.6
January 30, 2010		0.7		25.0		(25.1	)		0.6
January 31, 2009		0.7		26.2		(26.2	)		0.7

F-11

Cost of Sales—Cost of sales includes the cost of merchandise, distribution, warehousing, delivery costs and store occupancy costs, offset by vendor allowance and rebates received by the Company.

Selling and Administrative Expenses—Selling and administrative expenses primarily include selling and support payroll, advertising, and other administrative expenses.

Pre-Opening Costs—Store pre-opening costs are expensed in the period in which they occur.

Advertising—Costs for newspaper, television, radio, and other media advertising are expensed the first time the advertising occurs. The cost of advertising charged to selling and administrative expenses was $22.9 million, $21.7 million and $29.2 million for fiscal 2010, fiscal 2009 and fiscal 2008, respectively.

Rent Expense—Minimum rental expense is recognized over the term of the lease. The Company recognizes minimum rent starting when possession of the property is taken from the landlord, which normally includes a construction period prior to store opening. When a lease contains a predetermined fixed escalation of the minimum rent, the Company recognizes the related rent expense on a straight-line basis and records the difference between the recognized rental expense and the amounts payable under the lease as a deferred rent liability. The Company also receives tenant allowances, which are amortized as a reduction to rent expense in the consolidated statements of operations over the term of the lease.

Certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily based on a percentage of sales that are in excess of a predetermined level. These amounts are excluded from minimum rent and are included in the determination of rent expense when it is probable that the expense has been incurred and the amount is reasonably estimable (see Note 5).

Deferred Financing Costs—The Company amortizes deferred financing costs using the straight-line method, which approximates the effective interest method, over the life of the associated financing agreements. Amortization of deferred financing costs was $1.2 million, $1.0 million and $0.8 million for fiscal 2010, fiscal 2009 and fiscal 2008, respectively.

Income Taxes—The Company records deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws. The tax balances and income tax expense recognized by the Company are based on management’s interpretation of the tax laws of multiple jurisdictions. Income tax expense also reflects the Company’s best estimates and assumptions regarding, among other things, the level of future taxable income, interpretation of the tax laws, and tax planning. Future changes in tax laws, changes in projected levels of taxable income, and tax planning could affect the effective tax rate and tax balances recorded by the Company.

Tax positions are recognized when they are more likely than not to be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is more likely than not of being realized upon settlement. The Company is subject to periodic audits by the Internal Revenue Service and other state and local taxing authorities. These audits may challenge certain of the Company’s tax positions such as the timing and amount of income and deductions and the allocation of taxable income to various tax jurisdictions. The Company evaluates its tax positions and establishes liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and circumstances change and are adjusted accordingly. This requires significant management judgment in estimating final outcomes. Actual results could materially differ from these estimates and could significantly affect the Company’s effective tax rate and cash flows in future years. Interest and penalties are classified as income tax expense in the consolidated statements of operations (see Note 8).

Comprehensive Income (Loss)—Comprehensive income (loss) encompasses all changes in equity other than those arising from transactions with stockholders. Comprehensive income (loss) was equal to net income (loss) for the periods presented.

Earnings Per Share (“EPS”)—The Company computes and reports both basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted average number of common shares outstanding

F-12

for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity plan awards, including unexercised stock options.

There are no dilutive common equivalents, and therefore basic and dilutive EPS are the same for all periods presented.

Fair Value of Financial Instruments—Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, (“ASC 820”) defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. Under ASC 820, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities;

Level 2—Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;

Level 3—Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Due to their short-term nature, the carrying value of the Company’s cash and cash equivalents, customer and other receivables, merchandise payables, accrued expenses, and other current liabilities approximate their fair value. Based on borrowing rates available to the Company, the carrying value of the Company’s debt obligations approximated their fair value at January 29, 2011 and January 30, 2010.

As described above, the Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis.

The Company was not required to measure any other significant non-financial assets and liabilities at fair value as of January 29, 2011 and January 30, 2010.

Stock-Based Compensation—The Company recognizes as expense the fair value of all stock-based compensation awards, including stock options, and reports tax benefits associated with stock-based compensation deductions as cash from financing activities rather than cash from operating activities. The Company recognizes compensation expense as awards vest on a straight-line basis over the requisite service period of the award. The Company accounts for stock-based compensation using the fair value method. The Company recognized $0.3 million, $0.5 million and $0.1 million of total stock-based compensation expense for fiscal 2010, fiscal 2009 and fiscal 2008, respectively, in the consolidated statements of operations.

Subsequent Events—The Company evaluated subsequent events after the consolidated balance sheet date of January 29, 2011 through April 26, 2011, which is the date the consolidated financial statements were available to be issued.

2. STOCKHOLDERS’ EQUITY

The authorized capital stock of the Company consists of 1,049,000 shares of Class A common stock, $0.01 par value per share; and 1,049,000 shares of Class B common stock, $0.01 par value per share. The holders of Class A common stock and Class B common stock share equally, on a per share basis, in dividends or other distributions as declared by the Board of Directors. Each holder of Class A common stock is entitled to one vote for each share of Class A common stock. Class B common stock has no voting rights. In the event of voluntary or involuntary liquidation, dissolution, distribution of assets, or winding-up of the Company, the holders of Class A common stock and Class B common stock shall be entitled to share equally, on a per share basis, in all assets of the Company.

F-13

Upon the election by the Board of Directors to convert the outstanding shares of Class B common stock into Class A common stock, all of the shares of Class B common stock shall be converted, without action on the party of any holder, into the same number of shares of Class A common stock. In addition, each holder of shares of Class A common stock shall have the right, at the holder’s option, at any time, to convert any or all shares of Class A common stock into shares of Class B common stock on a one-for-one basis.

As discussed in Note 1, the Ares Option was amended in January 2008 to create and provide Sears with 20,000 shares of Preferred Stock, a contingent forward to issue preferred stock, if Ares chose not to exercise the Ares Option. Issuance of the Preferred Stock is subject to obtaining any required lender consents and modification of the Company’s articles of incorporation. During fiscal 2007, the Company recorded a $16.5 million increase to additional paid in capital and a corresponding decrease from retained earnings to reflect the fair value of the contingent forward to issue the Preferred Stock. As the Ares Option was not exercised and expired, the Company expects to issue the 20,000 shares of Preferred Stock.

3. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities at January 29, 2011 and January 30, 2010, consists of the following:

	2010		2009
Accrued expenses	$	13,485	$	12,909
Payroll and related items		6,809		10,556
Sales and other taxes		11,654		8,890
Legal judgment (Note 10)		5,561
Self insurance reserves		1,789		1,435
Income tax payable		818		6,855
Total accrued expenses and other liabilities	$	40,116	$	40,645

4. DEBT AND CAPITAL LEASE OBLIGATIONS

The components of the Company’s debt and capital lease obligations as of January 29, 2011 and January 30, 2010, are as follows (in millions):

	2010			2009
Senior Secured Credit Facility	$	48.0		$	—
Real Estate Term Loan		50.0
Senior Secured Term Loan		173.5			175.5
Commercial Mortgage-backed Loan					120.0
Capital lease obligations (see Note 5)		66.7			69.4
Total debt and capital lease obligations		338.2			364.9
Less portion to be paid within one year:
Senior Secured Credit Facility		(11.0	)
Real Estate Term Loan		(0.5	)
Senior Secured Term Loan		(2.0	)		(2.0	)
Commercial Mortgage-backed Loan					(120.0	)
Capital lease obligations		(5.8	)		(4.6	)
Total long-term debt and capital lease obligations	$	318.9		$	238.3

Senior Secured Credit Facility—On December 21, 2006, OSH LLC entered into an Amended and Restated Senior Secured Credit Agreement (the “Senior Secured Credit Facility”) with a syndicate of lenders. The Senior Secured Credit Facility provided revolving availability of up to $130 million (subject to borrowing base limits and fixed charge coverage ratio) for a period of five years, maturing on December 21,

F-14

2011. On January 29, 2010, OSH LLC amended and extended the Senior Secured Credit Facility (the “New Facility”) and reduced the revolving availability down to $120 million (subject to borrowing base limits and fixed charge coverage ratio). Under the New Facility, $20 million (or 16.67%) of the availability is funded by non-extending lenders and will continue to mature on December 21, 2011. The remaining $100 million (or 83.33%) of the availability is funded by extending lenders and will mature on December 21, 2013. During fiscal 2010 and fiscal 2009, the Company capitalized $0.3 and $1.1 million, respectively, of loan fees related to the amendment and extension of the Senior Secured Credit Facility.

The Senior Secured Credit Facility and New Facility also permit the ability to obtain letters of credit. As of January 29, 2011 and January 30, 2010, there were $7.3 million and $7.7 million of outstanding letters of credit, respectively. The Company anticipates repaying approximately $11.0 million of the Senior Secured Credit Facility during fiscal 2011.

Obligations under the Senior Secured Credit Facility and New Facility are guaranteed by Orchard Supply Hardware Stores Corporation and OSH Finance Corporation (collectively, the “Guarantors”). Borrowings under the Senior Secured Credit Facility are collateralized by substantially all of OSH LLC’s and the Guarantors’ assets.

The Senior Secured Credit Facility and New Facility places various restrictions on OSH LLC and Guarantors, including, but not limited to, limitations on their ability to incur additional debt, pay dividends, or make distributions, sell assets, or make investments. The Senior Secured Credit Facility required OSH LLC and Guarantors to meet specific covenants, including a fixed charge coverage ratio that is triggered when availability reaches a minimum threshold for three consecutive days. The Company was in compliance with these covenants as of January 29, 2011 and January 30, 2010.

Borrowings under the New Facility, at the Company’s option, can be either base rate (BR) loans or Eurodollar loans. BR loans owing to each non-extending lender bear interest at the greater of (a) the prime rate as publicly announced by Wells Fargo Bank, N.A., or (b) the federal funds rate plus 0.5%, plus the “BR applicable rate” (3.250% at January 29, 2011). BR loans owing to each extending lender bear interest at the greater of (a) the prime rate as publicly announced by Wells Fargo Bank, N.A., or (b) the federal funds rate plus 0.5%, or (c) one month London Inter-Bank Offered Rate (“LIBOR”) plus 1.0%, plus the “BR extended term applicable rate” (4.750% at January 29, 2011). Eurodollar loans owing to each Non-extending lender bear interest at LIBOR, plus the “Eurodollar applicable rate” (1.260% at January 29, 2011). Eurodollar loans owing to each extending lender bear interest at LIBOR plus the “Eurodollar Extended Term Applicable Rate” (2.760% at January 29, 2011). Applicable interest rate spreads and commitment fees paid by the Company will fluctuate based upon the performance of OSH LLC as measured by its leverage ratio, as that term is defined in the New Facility. The New Facility also requires the Company to pay unused commitment fees, based on its leverage ratio; such fees were 0.25% at January 29, 2011 for non-extending lenders and extending lenders, respectively.

Borrowings under the Senior Secured Credit Facility and the New Facility are subject to a borrowing base consisting of the sum of (i) 90% of eligible credit card accounts receivable plus (ii) 80% of other eligible accounts receivable (iii) the lesser of (x) up to 70% of eligible inventory or (y) 85% of the appraised net ordinary liquidation value of eligible inventory. The Company must deliver borrowing base certificates and reports at least monthly. The borrowing base also may be subject to certain other adjustments and reserves to be determined by the agent. As of January 29, 2011 and January 30, 2010 there was $44.4 million and $84.2 million, respectively, available to borrow under the New Facility.

Borrowings under the Senior Secured Credit Facility and the New Facility are also subject to a Fixed Charge Coverage Ratio of 1.1:1. At any time the fixed charge coverage ratio falls below 1.1, the Company can only borrow up to 90% of the available borrowing base.

Senior Secured Term Loan—On December 21, 2006, OSH LLC entered into a $200 million senior secured term loan agreement (the “Senior Secured Term Loan”), which requires quarterly principal pay-downs (the “Mandatory Payments”) of $0.5 million and has a seven-year term, maturing on December 21, 2013. On January 28, 2011, OSH LLC entered into the first amendment to the Senior Secured

F-15

Term Loan (the “Senior Secured Term Loan First Amendment”), which resulted in changes to the maximum adjusted leverage ratio covenant (the “Leverage Covenant”), applicable interest rates, definition of EBITDA and excess cash flow prepayment percentage rate. During fiscal 2010, the Company capitalized $1.3 million of loan fees related to the Senior Secured Term Loan First Amendment.

In addition to the Mandatory Payments, the Company is required to make annual prepayments on the Senior Secured Term Loan equal to a defined percentage rate (determined based on the Company’s leverage ratio) of excess cash flows. In accordance with the Senior Secured Term Loan First Amendment, the defined percentage rate of excess cash flows was increased to 75% from the current rate of 50%. The Company paid $0 million, $11.0 million and $7.0 million of excess cash flow prepayments in fiscal 2010, fiscal 2009 and fiscal 2008, respectively, and does not anticipate paying any additional prepayments in fiscal 2011.

Obligations under the Senior Secured Term Loan are guaranteed by the Guarantors. Borrowings under the Senior Secured Term Loan are collateralized by a first lien on the voting stock of OSH Properties and certain equipment, property and intangibles and a second lien on substantially all of OSH LLC’s and the Guarantors’ other assets.

The Senior Secured Term Loan places various restrictions on OSH LLC and the Guarantors, including, but not limited to, limitations on their ability to incur additional debt, pay dividends, or make distributions, sell assets, or make investments. As of January 29, 2011 and January 30, 2010, all of the Company’s earnings and net assets were free of restrictions. The Senior Secured Term Loan requires OSH LLC and the Guarantors to meet specific covenants, including the Leverage Covenant. In accordance with the Senior Secured Term Loan First Amendment, the maximum thresholds, as defined by the Senior Secured Term Loan, on the Leverage Covenant were raised for certain periods and the definition for EBITDA was amended. The Company was in compliance with the Senior Secured Term Loan covenants during fiscal 2010 and fiscal 2009.

Borrowings under the Senior Secured Term Loan and Amended Senior Secured Term Loan, at the Company’s option, can be either ABR loans or Eurodollar loans. ABR loans bear interest at the greater of (a) the prime rate as publicly announced by JPMorgan Chase Bank, and (b) the federal funds rate, plus 0.5% under the Senior Secured Term Loan or 3.75% under the Senior Secured Term Loan First Amendment, plus the “ABR applicable rate” (7.00% at January 29, 2011). Eurodollar loans bear interest at the LIBOR rate, plus the “Eurodollar Applicable Rate” of 2.75% under the Senior Secured Term Loan and 4.75% under the Senior Secured Term Loan First Amendment (5.06% at January 29, 2011). Applicable interest rate spreads paid by the Company can fluctuate based upon the performance of OSH LLC as measured by its Leverage Ratio, as that term is defined in the Senior Secured Term Loan First Amendment.

Commercial Mortgage-Backed Loan—In November 2005, OSH Properties entered into a $120 million commercial mortgage-backed loan agreement (the “CMBS Loan”) with a group of lenders. Interest on the CMBS Loan was based on LIBOR plus 1.625% per annum, and was payable monthly. In connection with the CMBS Loan, the Company entered into an interest rate cap agreement, which established a maximum interest rate on the CMBS Loan for LIBOR at 6%. The CMBS Loan was collateralized by all OSH Properties assets, including 15 owned store locations, 5 stores located on ground leases, and a distribution center. On October 27, 2010, the Company repaid the $120 million CMBS Loan in full with a combination of cash provided by a new Real Estate Secured Term Loan, as defined below, cash on hand, and additional borrowings from the New Facility.

Real Estate Term Loan—In October 2010, OSH Properties entered into a $50 million real estate secured loan (the “Real Estate Term Loan”) with a group of lenders. Interest on the Real Estate Term Loan is based on LIBOR plus 4.25% per annum (4.511% at January 29, 2011), and is payable monthly. In connection with the Real Estate Term Loan, the Company entered into an interest rate cap agreement, which establishes a maximum interest rate on the Real Estate Term Loan for LIBOR at 4% with a $25 million notional amount. The Real Estate Term Loan is collateralized by all OSH Properties assets, including 14 store locations, 4 stores located on ground leases, and a distribution center. The Real Estate Term Loan requires quarterly payments of $0.125 million beginning March 1, 2011 and matures in December 21, 2013. The Real Estate

F-16

Term Loan requires the Company to meet the Leverage Covenant, subject to maximum thresholds established by the Real Estate Term Loan. The Company was in compliance with these covenants during fiscal 2010. The Company capitalized $2.5 million of loan fees relating to the Real Estate Term Loan in fiscal 2010.

On February 17, 2011, OSH Properties entered into the first amendment to the Real Estate Term Loan, which raised the maximum thresholds, as defined by the Real Estate Term Loan, on the Leverage Covenant for certain periods and amended the definition of EBITDA.

As of January 29, 2011, debt maturities (excluding capitalized lease obligations) for the next three years are as follows (in millions):

Fiscal Years
2011	$	13.5
2012		2.5
2013		255.5
Total	$	271.5

5. LEASES

Operating lease rental expense was $30.3 million, $30.2 million and $30.5 million during fiscal 2010, fiscal 2009 and fiscal 2008, respectively, which included contingent rentals of approximately $0.3 million, $0.1 million and $0.4 million, respectively.

Minimum lease obligations, excluding taxes, insurance, and other expenses payable directly by the Company, for non-cancelable leases in effect as of January 29, 2011, are as follows (in millions):

Fiscal Years	Capital Leases			Operating Leases
2011	$	12.0		$	28.8
2012		12.1			27.2
2013		12.3			25.7
2014		12.1			22.5
2015		12.0			18.2
Thereafter		63.1			42.9
Total minimum payments		123.6		$	165.3
Less imputed interest		(56.9	)
Present value of minimum lease payments		66.7
Less current portion of capital lease obligations		(5.8	)
Long-term capital lease obligations	$	60.9

6. ALLOCATED COSTS

In fiscal 2010, fiscal 2009 and fiscal 2008, the Company participated in various benefit programs of Sears and utilized Sears’ shared service organization for certain corporate support functions, including finance, legal, human resources, information technology, and other shared services. Costs allocated to the Company by Sears for fiscal 2010, fiscal 2009 and fiscal 2008, for such services include the following (in millions):

	2010		2009		2008
Benefits	$	—	$	—	$	1.9
Shared services		0.5		0.4		0.6
Total allocated costs	$	0.5	$	0.4	$	2.5

F-17

These cost allocations may not necessarily be indicative of the costs that the Company would have incurred had it operated as an unaffiliated company, and are determined as follows:

Benefits—Qualifying Company employees are eligible to become participants in the Sears 401(k) savings plan (the “401(k)”). Under the terms of the 401(k), employees may make contributions to the plan up to maximum limits allowable under the Internal Revenue Code. In accordance with the 401(k), the Company may elect to match in cash all or a portion of employees’ contributions under a predetermined formula. Matching contributions of $1.9 million in fiscal 2008 were made and vested immediately. There were no matching contributions in fiscal 2010 or fiscal 2009.

Shared Services—Sears provides the Company with certain shared services including corporate administrative and support services in accordance with a service agreement. An extension to the term of the service agreement is expected to be completed in 2011.

7. STOCK-BASED COMPENSATION

Stock Incentive Plan—The Board of Directors originally adopted the Orchard Supply Hardware Stores Corporation Stock Incentive Plan (the “2005 Plan”) during fiscal 2005. The 2005 Plan provided for grant options, restricted stock, performance awards, or any combination of the foregoing (the “Awards”) to selected nonemployee directors, officers, consultants, and employees of the Company. The aggregate number of shares of the Company’s common stock that could have been issued under the 2005 Plan for Awards was 47,120 shares.

In May 2010, the Board of Directors approved the 2010 Stock Incentive Plan (the “2010 Plan”). The 2010 Plan provides for grants of stock awards, incentive stock options, nonqualified stock options, restricted stock, performance awards, or any combination of the forgoing (the “Awards”) to selected nonemployee directors, officers, consultants, and employees of the Company. The aggregate number of shares of the Company’s common stock which may be issued under the 2010 Plan for Awards is 111,347 shares.

In May 2010, the Company canceled the 2005 Plan and all outstanding Awards thereunder in connection with its adoption of the 2010 Plan and issued new option grants under the 2010 Plan in consideration for the cancellation of the Awards previously issued under the 2005 Plan.

Recipients of stock options are eligible to purchase the Company’s common stock at exercise prices that may not be less than 100% of the fair market value of such stock on the date of grant, except in the case of grants of an incentive stock option to a recipient that possesses more than 10% of the voting power of the Company’s common stock, in which case, the exercise price may not be less than 110% of the fair market value of such stock on the date of grant. The maximum term of options granted under the 2010 Plan is 10 years, except in the case of the grant of an incentive stock option to a recipient who possesses more than 10% of the voting power of the Company’s common stock, where the maximum term is five years. The Company may grant options that are exercisable immediately regardless of the vesting status of the option.

The fair value of each option granted was estimated on the date of the grant using the Black-Scholes valuation model. The expected life of the options represents the period of time the options are expected to be outstanding and was determined using the “simplified method” as the Company has not had sufficient exercise activity in order to evaluate the expected life. The “simplified method” calculates the expected life as the average of the vesting term and the contractual term of the option. The expected stock price volatility is based on the historic volatility of comparable companies in similar industries as the Company. The expected dividend yield is zero as the Company does not expect to pay any dividends during the expected life of the option as is consistent with the Company’s history. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and has a term that approximates the expected life. The impact of forfeitures that may occur are estimated and deducted from the amount recognized.

F-18

No grants were made in fiscal 2009 and fiscal 2008. The following table presents the weighted average assumptions used in the option pricing model for the stock options granted in fiscal 2010:

	2010
Expected dividend rate		0.0	%
Volatility		75.0	%
Risk-free interest rate		2.4	%
Expected lives (years)		6.25

The Company recorded $0.3 million, $0.5 million, and $0.1 million in stock compensation expense for fiscal 2010, 2009 and 2008, respectively, which is included as a component of selling and administrative expenses in the consolidated statements of operations. As of January 29, 2011, the Company had $1.4 million of stock compensation expense related to non-vested awards which is expected to be recognized over the next four years.

A summary of the information about stock options outstanding at January 29, 2011 is as follows:

	Options Outstanding
Range of Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Lives (in years)		Weighted Average Exercise Price
$100		17,741		9.44	$	100
$200		17,727		9.44		200
$300		17,727		9.44		300
$100 to $300		53,195		9.44	$	200

No options are exercisable at January 29, 2011.

As of January 29, 2011, 53,195 nonqualified stock options were issued and outstanding under the 2010 Plan. These options generally vest and become exercisable in equal annual installments over a four-year period, and have a term of 10 years. At January 29, 2011, 58,152 shares were available for grant under the 2010 Plan. Changes in options to purchase the Company’s common stock in fiscal 2010 and fiscal 2009 are as follows:

	Shares			Weighted Average Exercise Price		Remaining Contractual Life (in years)		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (in millions)
Balance—January 30, 2010		24,715		$	436.36		6.28	$	—	$	1.8
Grant of options		79,918			199.98		10.00		47.06
Exercise of options		—
Forfeitures or expirations		(51,438	)		313.56		7.86
Balance—January 29, 2011		53,195			199.97		9.44			$	2.6
Options vested and exercisable—January 31, 2009		12,588			435.52		7.09			$	0.8
Options vested and exercisable—January 30, 2010		17,531			435.75		6.14			$	1.2
Options vested and exercisable—January 29, 2011		—								$	—
Options vested and expected to vest—January 30, 2010		19,489			436.36		6.28		72.20	$	1.4
Options vested and expected to vest—January 29, 2011		22,665			199.97		9.44		47.06	$	1.1

F-19

8. INCOME TAXES

Prior to the Recapitalization, the Company’s operating results were included in the federal and state consolidated income tax returns of Sears. Thereafter, the Company has filed its own federal consolidated tax returns separate from Sears. For California franchise tax purposes, the Company continues to be a member of the Sears combined filing group (the “Combined Group”). As a result, the Company is allocated a prorated share of the Combined Group annual state tax liability, which is based on stand-alone California taxable income and adjusted for any tax credits.

As part of the Recapitalization, the Company entered into a tax-sharing agreement (the “Tax Agreement”) with Sears, which governs the rights and obligations of the parties with respect to tax matters for periods in which the Company is or was a member of any Sears consolidated or combined income tax return group. Under the Tax Agreement, Sears is responsible for any federal or state income tax liability relating to tax periods ending on or before the Recapitalization. For all periods after the Recapitalization, the Company is responsible for any federal or state tax liability, regardless of whether the Company is required to file as part of the Combined Group. Current income taxes payable for any federal or state income tax returns is reported in the period incurred. As of January 29, 2011 and January 30, 2010, $4.3 million and $4.0 million, respectively, of state income tax payables are recorded in Payable to Sears in the consolidated balance sheets.

The provision for income tax expense for fiscal 2010, fiscal 2009 and fiscal 2008, consists of the following (in millions):

	2010			2009			2008
Current:
Federal	$	9.5		$	13.0		$	17.2
State		2.8			3.9			4.1
Total		12.3			16.9			21.3
Deferred:
Federal		(5.2	)		(3.3	)		(7.4	)
State		(1.5	)		(0.9	)		(3.6	)
Total		(6.7	)		(4.2	)		(11.0	)
Income tax provision	$	5.6		$	12.7		$	10.3

The provision for income taxes for financial reporting purposes is different from the tax provision computed by applying the statutory federal income tax rate. Differences are as follows:

	2010			2009			2008
Federal tax rate		35.0	%		35.0	%		35.0	%
State income tax (net of federal benefit)		7.5			6.6			(0.5	)
Tax credits		(1.8	)		(0.3	)		(0.1	)
Non-deductible goodwill impairment								(39.5	)
Other		(1.7	)		(1.5	)		0.7
Effective tax rate	$	39.0	%	$	39.8	%	$	(4.4	)%

F-20

The major components of deferred tax assets and liabilities as of January 29, 2011 and January 30, 2010, are as follows (in millions):

	2010			2009
Deferred tax assets:
Inventory	$	5.8		$	3.3
State income taxes		5.2			5.7
Capital leases		10.3			11.1
Employee compensation		0.1			1.8
Rent equalization		2.9			3.6
Insurance Reserves		2.6
Other		6.5			3.1
Total deferred tax assets		33.4			28.6
Deferred tax liabilities:
Property and equipment		(22.7	)		(20.7	)
Intangibles		(47.2	)		(47.2	)
Favorable leasehold rights		(16.6	)		(20.3	)
Other					(0.2	)
Total deferred tax liabilities		(86.5	)		(88.4	)
Net deferred tax liabilities	$	(53.1	)	$	(59.8	)

Management believes that the Company will generate sufficient taxable income in future periods to fully realize deferred tax assets. Accordingly, no valuation reserve has been provided.

The activity related to the Company’s unrecognized tax benefits is as follows (in millions):

	Total Unrecognized Tax Benefits
Balance—February 2, 2008	$	1.8
Reductions for tax positions of prior years		(0.5	)
Balance—January 31, 2009		1.3
Increase in tax positions of prior years		0.4
Balance—January 30, 2010		1.7
Changes in tax positions
Balance—January 29, 2011	$	1.7

Recognition of these tax benefits would reduce the Company’s effective tax rate only through a reduction of the corresponding interest and penalties that are separately accrued. Total interest and penalties recognized in the consolidated statements of operations were $0, $0.4 million and $0.1 million for fiscal 2010, fiscal 2009 and fiscal 2008, respectively. As of January 29, 2011 and January 30, 2010, the total amount of interest recognized in the consolidated balance sheet was $0.1 million and $0.6 million, respectively. The unrecognized tax benefits include various federal issues dealing with the timing of when the Company should claim a deduction or recognize a component of income. The Company’s open tax years are fiscal 2007 through fiscal 2010 for federal and fiscal 2002 through fiscal 2010 for state income tax returns.

F-21

9. RELATED-PARTY AGREEMENTS

The Company purchases Sears’ exclusive brands such as Craftsman, Kenmore, Easy Living, and Weatherbeater directly from Sears and outside vendors. Purchases of these exclusive brands for fiscal 2010, fiscal 2009 and fiscal 2008, are as follows (in millions):

	2010		2009		2008
Craftsman	$	14.4	$	11.7	$	15.8
Kenmore		7.7		10.0		10.8
Easy Living		1.6		2.5		3.2
Weatherbeater		1.0		1.3		1.7
Total	$	24.7	$	25.5	$	31.5

For fiscal 2010, fiscal 2009 and fiscal 2008, the Company purchased approximately $12.2 million, $6.1 million and $9.4 million, respectively, of merchandise directly from Sears.

Concurrent with the Recapitalization, the Company and Sears entered into various agreements, including an appliance sales agreement (the “Appliance Sales Agreement”) and a brand sales agreement (the “Brand Sales Agreement”) (collectively, the “Agreements”). The salient terms of the Agreements between the Company and Sears, all of which have an effective date of November 23, 2005, are as follows:

Appliance Sales Agreement—The Company was granted the right to purchase from Sears and to sell certain major branded appliances, including major Kenmore-branded appliances (the “Products”). The Company is permitted to sell the Products at currently identified retail locations and if approved by Sears, at additional retail locations (the “Appliance Stores”). The price paid by the Company for Products purchased from Sears equals Sears’ cost for such Products. If the Appliance Sales Agreement is terminated by Sears, Sears has the right, but not an obligation, to purchase all Products held in the Company’s inventory at the last price such Products were sold to the Company. In addition, the Company is required to pay a monthly monitoring fee per Appliance Store to Sears, which currently approximates $0.1 million per year.

In accordance with Sears’ policy, the Company is entitled to receive from Sears an allocation of vendor subsidies earned from the purchase of appliances made on behalf of the Company. These vendor subsidies are based on contractual relationships established between Sears and the vendor and are applicable only to purchases made by Sears. For fiscal 2010, fiscal 2009 and fiscal 2008, the Company recognized approximately $0.5 million, $0.6 million and $0.6 million, respectively, in vendor subsidies.

Brand Sales Agreement—Sears granted the Company the right to purchase from Sears and its approved vendors, as well as to sell certain additional products, which include products marketed under Sears’ exclusive brands, such as Craftsman, Easy Living and Weatherbeater (the “Additional Products”). The price paid by the Company for the Additional Products purchased from Sears equals Sears’s cost for such Products.

Sears and the Company have agreed that, pending completion of a new agreement or an end date yet to be determined, the Company can continue to sell the products contemplated under the Appliance Sales Agreement and the Brand Sales Agreement with royalties being paid by the Company to Sears subsequent to November 23, 2008.

Royalty expenses for fiscal 2010, fiscal 2009 and fiscal 2008, were $1.2 million, $0.4 million and $0.2 million, respectively.

10. COMMITMENTS AND CONTINGENCIES

On April 1, 2011, the Company received a Notice of Judgment filed in the Fresno County California Superior Court in connection with a dispute over a 2007 new store lease that was terminated in 2009 prior to construction. The Company is preparing post trial motions and if not successful, intends to file an appeal.

F-22

The Company has accrued approximately $5.6 million related to this judgment and estimated legal fees incurred by the plaintiff. We do not believe it is reasonably possible that additional amounts will be paid above the amounts that we had accrued. This amount is included in selling and administrative costs in the consolidated statement of operations, and in accrued expenses and other liabilities in the Company’s consolidated balance sheet at January 29, 2011.

The Company is also subject to various legal and governmental proceedings arising out of the ordinary course of business, the outcome of which, individually or in the aggregate, in the opinion of management, would not have a material adverse effect on the Company’s business, financial position, or results of operations.

At January 29, 2011 and January 30, 2010, the Company had non-cancelable commitments of $0.2 million and $1.5 million, respectively, related to merchandise purchase contracts and capital projects.

*  *  *  *  *  *

F-23

INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND ITS SUBSIDIARIES

	Page
Unaudited Interim Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of July 30, 2011, January 29, 2011, and July 31, 2010		F-25
Condensed Consolidated Statements of Income for the 13 and 26 weeks ended July 30, 2011 and July  31, 2010		F-26
Condensed Consolidated Statements of Cash Flows for the 26 weeks ended July 30, 2011 and July  31, 2010		F-27
Notes to Condensed Consolidated Financial Statements		F-28

F-24

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 30, 2011, JANUARY 29, 2011 AND JULY 31, 2010
(In thousands, unaudited)
	As of July 30, 2011			As of January 29, 2011			As of July 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	10,596		$	15,604		$	39,301
Restricted cash		554			556
Merchandise inventories		162,326			172,050			147,185
Deferred income taxes		17,221			16,444			13,842
Prepaid expenses and other current assets		12,199			11,253			11,655
Total current assets		202,896			215,907			211,983
PROPERTY AND EQUIPMENT — Net		263,588			262,968			268,538
OTHER INTANGIBLE ASSETS		141,744			145,451			149,771
DEFERRED FINANCING COSTS		4,803			5,666			2,475
TOTAL	$	613,031		$	629,992		$	632,767
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Merchandise payables	$	54,041		$	55,325		$	34,324
Accrued expenses and other liabilities		48,443			40,116			47,528
Current portion of long-term debt and capital lease obligations		11,711			19,292			126,837
Payable to Sears		1,696			12,458			636
Total current liabilities		115,891			127,191			209,325
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS		310,532			318,928			236,846
OTHER LONG-TERM LIABILITIES		18,029			16,338			15,162
DEFERRED INCOME TAXES		67,490			69,503			69,672
COMMITMENTS AND CONTIGENCIES
Total liabilities		511,942			531,960			531,005
STOCKHOLDERS’ EQUITY
Series A common stock		10			10			10
Series B common stock
Additional paid in capital		262,981			262,825			262,698
Accumulated losses		(161,902	)		(164,803	)		(160,946	)
Total stockholders’ equity		101,089			98,032			101,762
TOTAL	$	613,031		$	629,992		$	632,767

See notes to condensed consolidated financial statements.

F-25

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE 13 AND 26 WEEKS ENDED JULY 30, 2011 AND JULY 31, 2010

(In thousands, except for share amounts, unaudited)

	13 Weeks Ended				26 Weeks Ended
	July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010
NET SALES	$	196,437	$	195,032	$	360,205	$	364,683
COST OF SALES AND EXPENSES:
Cost of sales (excluding depreciation and amortization)		130,596		127,056		239,237		235,221
Selling and administrative		46,257		43,203		90,256		85,075
Depreciation and amortization		7,504		7,247		14,667		15,316
Total cost of sales and expenses		184,357		177,506		344,160		335,612
OPERATING INCOME		12,080		17,526		16,045		29,071
INTEREST EXPENSE, net		5,517		4,236		11,071		8,458
INCOME BEFORE INCOME TAXES		6,563		13,290		4,974		20,613
INCOME TAX EXPENSE		2,672		5,150		2,073		8,039
NET INCOME	$	3,891	$	8,140	$	2,901	$	12,574
INCOME PER COMMON SHARE ATTRIBUTABLE TO STOCKHOLDERS
Basic and diluted income per share	$	3.88	$	8.12	$	2.90	$	12.55
Basic and diluted weighted average common shares outstanding		1,002		1,002		1,002		1,002

See notes to condensed consolidated financial statements.

F-26

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED JULY 30, 2011 AND JULY 31, 2010

(In thousands, unaudited)

	26 Weeks Ended
	July 30, 2011			July 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,901		$	12,574
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,667			15,316
Amortization of deferred financing costs		1,150			485
Loss on sale and impairment of property and equipment		97			145
Stock-based compensation		210			202
Deferred income taxes		(2,790	)		(3,949	)
Deferred rent		(4	)		(1,044	)
Change in operating assets and liabilities:
Merchandise inventories		9,724			14,081
Prepaid expenses and other assets		(946	)		498
Merchandise payables		(1,284	)		(1,955	)
Payable to Sears		(10,762	)		(4,263	)
Accrued expenses and other liabilities		8,356			7,556
Net cash provided by operating activities		21,319			39,646
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(6,220	)		(4,809	)
Proceeds from sale of property and equipment		162			—
Net cash used in investing activities		(6,058	)		(4,809	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on Senior Secured Credit Facility		35,900
Repayments on Senior Secured Credit Facility		(51,900	)
Principal payments on Senior Secured Term Loan		(1,000	)		(1,000	)
Principal payments on Real Estate Secured Term Loan		(250	)
Repurchase of treasury stock		(54	)
Payment of deferred financing costs		(287	)		(303	)
Payments of capital lease obligations		(2,678	)		(3,194	)
Net cash used in financing activities		(20,269	)		(4,497	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(5,008	)		30,340
CASH AND CASH EQUIVALENTS — Beginning of period		15,604			8,961
CASH AND CASH EQUIVALENTS — End of period	$	10,596		$	39,301

See notes to condensed consolidated financial statements.

F-27

ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE 26 WEEKS ENDED JULY 30, 2011 AND JULY 31, 2010 (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The accompanying unaudited interim condensed consolidated financial statements have been prepared from the records of Orchard Supply Hardware Stores Corporation (the “Company”) and its subsidiaries, Orchard Supply Hardware LLC (“OSH LLC”), OSH Properties LLC (“OSH Properties”), and OSH Finance Corporation. Unless otherwise specified, all references to the “Company” refer to Orchard Supply Hardware Stores Corporation and subsidiaries without audit and, in the opinion of management, include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the Company’s financial position as of July 30, 2011 and July 31, 2010, the results of operations for the 13 and 26 weeks then ended, and cash flows for the 26 weeks then ended. The condensed consolidated balance sheet as of January 29, 2011, presented herein, has been derived from the Company’s audited consolidated financial statements for the fiscal year then ended.

Accounting policies followed by the Company are described in Note 1 to the audited consolidated financial statements for the fiscal year ended January 29, 2011 appearing elsewhere in this Prospectus. Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of these unaudited interim condensed consolidated financial statements. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, contained in the Company’s Prospectus.

As a subsidiary of Sears, the Company does not maintain all of its own legal, tax, and certain other corporate support functions. In connection with the Recapitalization, Sears and the Company entered into a shared services agreement to provide the Company with certain corporate support services while the Company builds its own stand-alone corporate infrastructure. The costs and allocations charged to the Company by Sears do not necessarily reflect the costs of obtaining the services from unaffiliated third parties or of the Company providing the applicable services itself. The methods by which Sears allocates its costs are reasonable and are based on a prorated estimate of costs expected to be incurred by Sears. The consolidated financial statements contained herein may not be indicative of the Company’s consolidated financial position, operating results and cash flows in the future, or what they would have been if it had been a stand-alone company during all periods presented. The Company has not included an estimate of what these costs would have been on a stand-alone basis because it is not practicable to do so, however, the Company does not expect the allocated expenses for these functions on a stand-alone basis to be materially different from what is reflected in its historical financial statements. In August 2008, the Company completed the transition of the majority of its significant accounting functions from Sears and converted its accounting system to be independently operated by the Company.

The results of operations for the 13 and 26 weeks ended July 30, 2011 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

Segment Reporting—The Company has one reportable segment. The Company’s operations include activities related to its retail stores that are all operated in California, United States.

F-28

The following table presents the Company’s Net sales by product categories for the 13 and 26 weeks ended July 30, 2011 and July 31, 2010 (in thousands):

	13 Weeks Ended				26 Weeks Ended
	July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010
Repair and maintenance	$	87,861	$	88,884	$	165,447	$	168,953
Lawn and garden		86,946		85,999		153,066		156,454
In-home		21,630		20,149		41,692		39,276
Total	$	196,437	$	195,032	$	360,205	$	364,683

Vendor Rebates and Allowances—The Company receives various vendor-funded rebates and allowances through a variety of programs and arrangements intended to offset the Company’s costs of promoting and selling certain vendor products. These vendor payments are recorded as a reduction to the cost of merchandise inventories when earned and, thereafter, as a reduction of cost of sales, as the merchandise is sold. Up-front consideration received from vendors linked to purchases or other commitments is deferred until performance of the specified activity is deemed to be complete. For the 13 and 26 weeks ended July 30, 2011, the Company earned vendor rebates and allowances of $7.8 million and $15.1 million, respectively. For the 13 and 26 weeks ended July 31, 2010, the Company earned vendor rebates and allowances of $7.0 million and $14.0 million, respectively. Vendor rebates and allowances deferred at July 30, 2011, January 29, 2011 and July 31, 2010 were $11.8 million, $11.8 million and $11.4 million, respectively, and are included as a reduction to merchandise inventories in the condensed consolidated balance sheets.

Leases—The Company leases certain stores, office facilities, computers, and transportation equipment. The determination of operating and capital lease obligations is based upon the expected terms of the lease, and the contractual minimum lease payments as defined within the lease agreements. The Company occasionally enters into sale-leaseback agreements to sell certain facilities and lease it back consistent with its current operational use. If the lease under the new agreement is determined to be a capital lease, and any gain or loss on the sale would be amortized in proportion to the amortization of the leased asset over the life of the lease. If the new lease is an operating lease, any gain would be amortized in proportion to the gross rental charged to expense over the lease term and any loss would be recognized immediately.

On October 24, 2011, a subsidiary of the Company entered into a Purchase and Sale Agreement pursuant to which a subsidiary of the Company sold for $21.3 million, all of its interest in its distribution center located in Tracy, California, which is comprised of a building containing approximately 458,360 square feet and the underlying land. In connection with the closing of the sale of the distribution center, a subsidiary of the Company entered into a lease agreement with respect to the distribution center. The commencement date of the lease was October 28, 2011. The lease is a 20-year lease and provides for three five-year extension options. The initial base rent under the lease is $1.7 million per year with 10% increases every five years. The Company will record a loss in the amount of approximately $14 million on the sale of the distribution center in the third quarter of fiscal 2011. The Company will continue to operate the facility consistent with its existing use throughout the term.

Earnings Per Share (“EPS”)—The Company computes and reports both basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity plan awards, including unexercised stock options.

There are no dilutive common stock equivalents, and therefore basic and dilutive EPS are the same for all periods presented.

F-29

Fair Value of Financial Instruments—Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, (“ASC 820”) defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. Under ASC 820, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities;

Level 2—Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;

Level 3—Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Due to their short-term nature, the carrying value of the Company’s cash and cash equivalents, customer and other receivables, merchandise payables, accrued expenses, and other current liabilities approximate their fair value. Based on borrowing rates available to the Company, the carrying value of the Company’s debt obligations approximated their fair value at July 30, 2011, January 29, 2011, and July 31, 2010.

The Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis. The Company did not record any impairment for the 13 and 26 weeks ended July 30, 2011 and July 31, 2010.

The Company was not required to measure any other significant non-financial assets and liabilities at fair value as of July 30, 2011 and July 31, 2010.

Comprehensive Income—In June 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update to revise the manner in which entities present comprehensive income in their financial statements. This guidance requires entities to present each component of net income along with total net income, each component of other comprehensive income (“OCI”) along with a total for OCI, and a total amount for comprehensive income, either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This accounting standards update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company will adopt the provisions of this accounting standards update in the first quarter of fiscal 2012.

Fair Value Measurements—In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance will be effective for the Company beginning January 29, 2012. The Company does not anticipate material impacts on its financial statements upon adoption.

Subsequent Event—The consolidated financial statements of the Company were approved by the management and available for issuance on November 17, 2011. Management has evaluated subsequent events through this date.

F-30

2. DEBT AND CAPITAL LEASE OBLIGATIONS

The components of the Company’s debt and capital lease obligations as of July 30, 2011, January 29, 2011 and July 31, 2010, are as follows (in millions):

	July 30, 2011			January 29, 2011			July 31, 2010
Senior Secured Credit Facility	$	32.0		$	48.0		$	—
Real Estate Secured Term Loan		49.7			50.0
Senior Secured Term Loan		172.5			173.5			174.5
Commercial Mortgage-backed Loan								120.0
Capital lease obligations		68.0			66.7			69.2
Total debt and capital lease obligations		322.2			338.2			363.7
Less portion to be paid within one year:
Senior Secured Credit Facility		(3.0	)		(11.0	)
Real Estate Secured Term Loan		(0.5	)		(0.5	)
Senior Secured Term Loan		(2.0	)		(2.0	)		(2.0	)
Commercial Mortgage-backed Loan								(120.0	)
Capital lease obligations		(6.2	)		(5.8	)		(4.9	)
Total long-term debt and capital lease obligations	$	310.5		$	318.9		$	236.8

Senior Secured Credit Facility—On December 21, 2006, OSH LLC entered into an Amended and Restated Senior Secured Credit Agreement (the “Senior Secured Credit Facility”) with a syndicate of lenders. The Senior Secured Credit Facility provided revolving availability of up to $130 million (subject to borrowing base limits and fixed charge coverage ratio) for a period of five years, maturing on December 21, 2011. On January 29, 2010, OSH LLC amended and extended the Senior Secured Credit Facility (the “New Facility”) and reduced the revolving availability down to $120 million (subject to borrowing base limits and fixed charge coverage ratio). The amendment bifurcated the facility into a $20.0 million tranche maturing December 2011 with lenders who elected not to extend and a $100.0 million tranche maturing December 2013 with lenders who elected to extend.

The Senior Secured Credit Facility and New Facility also permit the ability to obtain letters of credit. As of July 30, 2011, January 29, 2011 and July 31, 2010, there were $8.2 million, $7.3 million and $8.6 million of outstanding letters of credit, respectively. The Company anticipates repaying $3.0 million on the Senior Secured Credit Facility within the next 12 months.

The Senior Secured Credit Facility and New Facility places various restrictions on OSH LLC and Guarantors, including, but not limited to, limitations on their ability to incur additional debt, pay dividends, or make distributions, sell assets, or make investments.

The Senior Secured Credit Facility required OSH LLC and Guarantors to meet specific covenants, including a fixed charge coverage ratio that is triggered when availability reaches a minimum threshold for three consecutive days.

Borrowings under the New Facility are subject to a borrowing base consisting of the sum of (i) 90% of eligible credit card accounts receivable plus (ii) 80% of other eligible accounts receivable (iii) the lesser of (x) up to 70% of eligible inventory or (y) 85% of the appraised net ordinary liquidation value of eligible inventory. The Company must deliver borrowing base certificates and reports at least monthly. The borrowing base also may be subject to certain other adjustments and reserves to be determined by the agent. As of July 30, 2011, there was $74.1 million available to borrow under the New Facility.

Borrowings under the New Facility are also subject to a Fixed Charge Coverage Ratio of 1.1:1. At any time the fixed charge coverage ratio falls below 1.1, the Company can only borrow up to 90% of the available borrowing base. The Company was in compliance with these covenants as of July 30, 2011, January 29, 2011 and July 31, 2010.

F-31

Senior Secured Term Loan—On December 21, 2006, OSH LLC entered into a $200 million senior secured term loan agreement (the “Senior Secured Term Loan”), which requires quarterly principal pay-downs (the “Mandatory Payments”) of $0.5 million and has a seven-year term, maturing on December 21, 2013. On January 28, 2011, OSH LLC entered into the first amendment to the Senior Secured Term Loan (the “Senior Secured Term Loan First Amendment”), which resulted in changes to the maximum adjusted leverage ratio covenant (the “Leverage Covenant”), applicable interest rates, definition of EBITDA and excess cash flow prepayment percentage rate.

In addition to the Mandatory Payments, the Company is required to make annual repayments on the Senior Secured Term Loan equal to a defined percentage rate (determined based on the Company’s leverage ratio) of excess cash flows. In accordance with the Senior Secured Term Loan First Amendment, the defined percentage rate of excess cash flows was increased to 75% from the current rate of 50%. The Company does not anticipate paying any additional prepayments in fiscal 2011.

The Senior Secured Term Loan places various restrictions on OSH LLC and the Guarantors, including, but not limited to, limitations on their ability to incur additional debt, pay dividends, or make distributions, sell assets, or make investments. If, following the Distribution, one or both of ESL and ACOF dispose of all or part of their shareholding in the Company such that their combined total voting power drops below 50%, this may trigger a Change in Control event of default under the Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan. An event of default could trigger certain acceleration clauses and cause those and the Company’s other obligations to become immediately due and payable and The Company may not have sufficient cash funds available to repay the Company’s debt obligations upon such a Change in Control. As of July 30, 2011, January 29, 2011 and July 31, 2010, all of the Company’s earnings and net assets were free of restrictions. The Senior Secured Term Loan requires OSH LLC and the Guarantors to meet specific covenants, including the Leverage Covenant. In accordance with the Senior Secured Term Loan First Amendment, the maximum thresholds, as defined by the Senior Secured Term Loan, on the Leverage Covenant were raised for certain periods and the definition for EBITDA was amended. The Company was in compliance with the Senior Secured Term Loan Leverage Covenants during the first and second quarter of fiscal 2011 and fiscal 2010.

Real Estate Secured Term Loan—In October 2010, OSH Properties entered into a $50 million real estate secured loan (the “Real Estate Secured Term Loan”) with a group of lenders that required quarterly payments of $0.1 million and matures in December 2013.

The Real Estate Secured Term Loan requires the Company to meet the Leverage Covenant, subject to maximum thresholds established by the Real Estate Secured Term Loan. The Company was in compliance with these covenants during the first and second quarter of fiscal 2011 and fiscal 2010.

On February 17, 2011, OSH Properties entered into the first amendment to the Real Estate Secured Term Loan, which raised the maximum thresholds, as defined by the Real Estate Secured Term Loan, on the Leverage Covenant for certain periods and amended the definition of EBITDA.

The Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan contain an event of default resulting from a change of control default, which includes the following: (i) certain mergers, consolidations, sales or transfers of all or substantially all of the assets of OSH LLC and OSH LLC’s subsidiaries to persons other than ACOF, ESL and Sears Holdings; (ii) adoption of a plan of liquidation of OSH LLC; (iii) prior to an initial underwritten public offering of common stock of the Company, Sears Holdings, ESL and ACOF ceasing to collectively hold directly or indirectly at least 50% of the total voting power of all shares of the Company and OSH LLC’s voting capital stock; (iv) following an initial underwritten public offering of common stock of the Company, a person or group, other than Sears Holdings, ESL and ACOF, collectively holding directly or indirectly at least 40% of the total voting power of all shares of the Company and OSH LLC’s voting capital stock and Sears Holdings, ESL and ACOF collectively holding less than such person or group; and (v) the Company’s board of directors not consisting of continuing directors (“Change in Control”).

F-32

Immediately following the Distribution:

• Sears Holdings will not own any capital stock of the Company;

• ESL will beneficially own approximately 61% of the Company’s outstanding shares of Class A Common Stock and approximately 49% of the general voting power of its capital stock; and

• ACOF will beneficially own 100% of the Company’s outstanding shares of Class C Common Stock and approximately 20% of the general voting power of its capital stock.

Neither ESL nor ACOF have agreed to maintain their shareholding in the Company following the Distribution. If, following the Distribution, one or both of ESL and ACOF dispose of all or part of their shareholding in the Company such that their combined total voting power drops below 50%, this may trigger a Change in Control event of default under the Senior Secured Credit Facility, Senior Secured Term Loan and Real Estate Secured Term Loan. An event of default could trigger certain acceleration clauses and cause those and the Company’s other obligations to become immediately due and payable and the Company may not have sufficient cash funds available to repay its debt obligations upon such a Change in Control.

3. LIQUIDITY

The Company’s liquidity is dependent upon the continued availability of borrowings under its current financing arrangements. As discussed in Note 2, the Senior Secured Term Loan and Real Estate Secured Term Loan are subject to certain financial and other covenants. As of July 30, 2011, the Company was in compliance with its financial covenants under its financing arrangements, and the Company currently believes that it will continue to be in compliance with these covenants through at least the end of the second quarter of fiscal 2012. However, the decline in the Company’s operating results for the first half of fiscal 2011, coupled with continued economic weakness in the market the Company operate in, has adversely impacted the Company’s prospective compliance with the financial covenants under the Senior Secured Term Loan and the Real Estate Term Loan. On October 24, 2011, in order to reduce the Company’s leverage, a subsidiary of the Company entered into a sale and lease-back transaction with respect to the Company’s distribution center located in Tracy, California for $21.3 million in cash, and on October 26, 2011, the Company entered into the Appliances Agreement with a subsidiary of Sears Holdings that the Company had planned to enter into at the Distribution, pursuant to which it transferred certain inventory purchased from Sears Holdings to a subsidiary of Sears Holdings, for $1.9 million in cash. The Company seeks to remain in compliance with its financing arrangements and generate sufficient liquidity by executing its sales growth strategy by, among other things, making improvements to its stores and store operations and upgrading and differentiating its product assortment. Notwithstanding the foregoing, the Company continues to examine a number of alternatives with respect to future compliance and liquidity, including asset sales and/or sale-leaseback transactions. In addition, if necessary or advisable, the Company may seek to renegotiate its financing arrangements in order to remain in compliance while continuing to follow its current business plan, which includes plans for store expansion. In such case, if such renegotiations were necessary but unsuccessful, the Company would expect to take certain actions that would allow it to remain in compliance. Such actions could include, among others, a reduction of capital expenditures by delaying or reducing new store openings and store remodels, a reduction in payroll and benefit costs, deferring certain maintenance and other expenditures, as well as generating additional cash through sale or sale leaseback of certain real estate assets in order to reduce leverage. However, the implementation of these actions could result in slower growth and could potentially reduce future sales.

Notwithstanding the Company’s expectations, if operating results were to continue to decline or if market conditions were to worsen, the Company may be unable to meet its financial covenants, and lenders could demand repayment of the amounts outstanding under its financing agreements. Under such circumstances, no assurances can be given that the Company’s financing arrangements could be renegotiated, or that alternative financing would be available on terms acceptable to the Company, if at all. In addition, any refinancing could be at higher interest rates and may require the Company to comply with more onerous covenants which could further restrict its business operations.

F-33

4. RELATED-PARTY AGREEMENTS

The Company purchases Sears Holdings Corporations’ (“Sears”) exclusive brands such as Craftsman, Kenmore, Easy Living, and Weatherbeater directly from Sears and outside vendors. Purchases of these exclusive brands for the 13 and 26 weeks ended July 30, 2011 and July 31, 2010 are as follows (in millions):

	13 Weeks Ended				26 Weeks Ended
	July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010
Craftsman	$	3.5	$	3.1	$	6.6	$	7.7
Kenmore		2.9		1.9		5.6		3.9
Easy Living		0.4		0.3		1.1		0.7
Weatherbeater		0.4		0.3		0.7		0.5
Total	$	7.2	$	5.6	$	14.0	$	12.8

For the 13 and 26 weeks ended July 30, 2011, the Company purchased approximately $4.2 million and $7.8 million, respectively. For the 13 and 26 weeks ended July 31, 2010, the Company purchased approximately $2.7 million and $5.3 million, respectively, of merchandise directly from Sears.

Concurrent with the Recapitalization, the Company and Sears entered into various agreements, including an appliance sales agreement (the “Appliance Sales Agreement”) and a brand sales agreement (the “Brand Sales Agreement”) (collectively, the “Agreements”). The salient terms of the Agreements between the Company and Sears, all of which have an effective date of November 23, 2005, are as follows:

Appliance Sales Agreement—In 2005, the Company entered into an Appliances Sales Agreement with Sears Holdings that granted the Company the right to purchase from Sears and to sell certain major branded appliances, including major Kenmore-branded appliances (the “Products”). The Company is permitted to sell the Products at currently identified retail locations and if approved by Sears, at additional retail locations (the “Appliance Stores”). The price paid by the Company for Products purchased from Sears equals Sears’ cost for such Products. If the Appliance Sales Agreement is terminated by Sears, Sears has the right, but not an obligation, to purchase all Products held in the Company’s inventory at the last price such Products were sold to the Company. In addition, the Company is required to pay a monthly monitoring fee per Appliance Store to Sears, which currently approximates $0.2 million per year.

In accordance with Sears’ policy, the Company is entitled to receive from Sears an allocation of vendor subsidies earned from the purchase of appliances made on behalf of the Company. These vendor subsidies are based on contractual relationships established between Sears and the vendor and are applicable only to purchases made by Sears. For the 13 and 26 weeks ended July 30, 2011, the Company recognized approximately $0.2 million and $0.3 million, respectively, in vendor subsidies. For the 13 and 26 weeks ended July 31, 2010, the Company recognized approximately $0.1 million and $0.2 million, respectively, in vendor subsidies.

The agreement from 2005 was terminated on October 26, 2011, when the Company entered into a new appliances agreement (the “Appliances Agreement”) with a subsidiary of Sears Holdings pursuant to which Sears Holdings has authorized the Company to sell the Products and related protection agreements on a consignment basis as a distributor through its designated retail locations. The Appliances Agreement requires that Sears Holdings pay the Company commissions on the Company’s net sales of the Products and the protection agreements for the Products. Commissions for Products varies by Product category and Sears Holdings may in its sole discretion modify from time to time the commission rate for each category of Product but the annual weighted-average aggregate commission rate for all categories of Products for each Sears Holdings fiscal year for the Sears Authorized Hometown Stores as a group, including the Company, will not be less than a specified rate. The products include specified categories of Kenmore, Bosch, Electrolux, GE, LG, Samsung and Whirlpool branded appliances. The agreement generally incorporates arm’s length terms and conditions, including market-based pricing and term of duration.

F-34

Under the Appliances Agreement, the Company transferred to Sears Holdings its entire inventory of major appliances purchased from Sears Holdings for $1.9 million in cash, which represented the Company’s cost of the purchased appliances, subject to adjustments based on, among other things, the results of a physical inventory of the purchased appliances and the cost of certain clearance markdowns realized by Sears Holdings during the 60-day period following the effective date of the Appliances Agreement.

The Appliances Agreement has a term of five years. The Company may terminate the Appliances Agreement early for convenience after the first 18 months of the Appliances Agreement or if Sears Holdings fails to comply with any of its material obligations in the Appliances Agreement and the failure remains uncured for 30 days or more following notice. Sears Holdings may terminate the Appliances Agreement early for its convenience by delivering six months’ prior written notice to the Company after the first anniversary of the effective date of the Appliances Agreement or if (a) with respect to a Sears Holdings’ fiscal quarter, the Company sales of Products during the fiscal quarter are not at least 70% of the Company sales of Products during the same fiscal quarter in the prior year or (b) the Company fails to comply with any of its material obligations in the Agreement and the failure remains uncured for 30 days or more following notice. The Appliances Agreement provides that during its term the Company will not be able to operate in California other businesses that sell merchandise similar to the Products. The Appliances Agreement also provides that for two years following the end of the term the Company will not be able to operate a business that competes with Sears Businesses at, or within ten miles of, its retail locations that sold Products at any time during the term.

Brand Sales Agreement—Sears granted the Company the right to purchase from Sears and its approved vendors, as well as to sell certain additional products, which include products marketed under Sears’ exclusive brands, such as Craftsman, Easy Living and Weatherbeater (the “Additional Products”). The price paid by the Company for the Additional Products purchased from Sears equals Sears’s cost for such Products.

The Company intends to enter into one or more new brands license agreement (the “Brands Agreements”) with a subsidiary of Sears Holdings effective at the Distribution pursuant to which Sears Holdings will allow the Company to purchase a limited assortment of Craftsman products, Easy Living and Weatherbeater paints, Kenmore-branded water heaters and consumer household products directly from vendors. Under the Brands Agreements, the Company will pay specified license fees to Sears Holdings. The agreements generally will incorporate arm’s length terms and conditions, including market-based pricing and term of duration. The agreements will have a three-year term and may be extended subject to the mutual agreement of the parties. For the Brands Agreement related to the license of the Craftsman brand, following the second anniversary, if the aggregate of the Company’s Craftsman product sales over any 12 month period falls by more than 25% below the preceding 12 month period, Sears Holdings will be permitted to terminate that Brands Agreement in its sole discretion with 60 days’ notice.

For the 13 and 26 weeks ended July 30, 2011, the Company recognized approximately $0.4 million and $0.7 million, respectively, in royalty expenses. For the 13 and 26 weeks ended July 31, 2010, the Company recognized approximately $0.3 million and $0.6 million, respectively, in royalty expenses.

5. COMMITMENTS AND CONTINGENCIES

Save Mart Supermarkets v. Orchard Supply Hardware LLC—On April 1, 2011, a judgment was entered against the Company in the case of the Save Mart Supermarkets v. Orchard Supply Hardware LLC, in California Superior Court in Fresno, California. Save Mart obtained a $5.1 million verdict on claims of breach of contract and breach of the implied covenant of good faith relating to the termination by Orchard Supply Hardware LLC of a contract for the lease of a store to be built by Save Mart. On August 24, 2011, the Company entered into a settlement agreement with Save Mart (the “Settlement Agreement”) to satisfy the $5.1 million judgment, release the Company of all liabilities, and waive all rights of appeals by both parties. The Settlement includes three parts: 1) a $0.5 million cash consideration paid to Save Mart, 2) the amendment and extension of an existing lease between Save Mart and the Company for a store unrelated to the one originally in dispute, and 3) the lease of a new property to the Company. As of July 30, 2011, the

F-35

Company had recorded a $5.1 million accrual for this matter. The Company estimates that this liability will be reduced by between $1.0 million to $2.0 million as a result of the settlement.

The Company is from time to time subject to class action claims of wage and hour violations. The Company is currently a party in two such lawsuits containing class-action allegations in which the plaintiffs are current and former hourly and salaried associates who allege various violations, including that they are misclassified as exempt employees and are owed overtime pay, that they are owed pay and penalties for missed meals and/or rest breaks, and that they are owed penalties for improper wage statements. The complaints generally seek unspecified monetary damages including back pay and statutory penalties, injunctive relief, or both. These wage and hour cases are early in the proceedings and it is not currently possible to evaluate the likelihood of an unfavorable outcome and not, therefore, possible to estimate with any degree of certainty any range of possible loss. If a class were certified in one or both cases, an unfavorable judgment or settlement might be material. However, based on the information currently available, the Company does not believe that any of these cases would have a material adverse effect on the consolidated financial position or results of operations of the Company.

The Company is also subject to various legal and governmental proceedings arising out of the ordinary course of business, the outcome of which, individually or in the aggregate, in the opinion of the Company’s management, would not have a material adverse effect on the Company’s business, financial position, or results of operations.

At July 30, 2011, January 29, 2011 and July 31, 2010, the Company had non-cancelable commitments of $0.8 million, $0.2 million and $1.1 million, respectively, related to merchandise purchase contracts and capital projects.

*  *  *  *  *  *

F-36

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following is a statement of the expenses (all of which are estimated other than the SEC registration fee and the NASDAQ Capital Market listing fee) to be incurred by the Registrant in connection with the distribution of the securities registered under this Registration Statement:

Item	Amount
SEC Registration Fee	$	9,520.20
Printing Fees and Expenses
NASDAQ Listing Fee
Legal Fees and Expenses
Accounting Fees and Expenses
Miscellaneous
Total	$

Item 14. Indemnification of Directors and Officers

Delaware General Corporate Law

Pursuant to the Delaware General Corporation Law (the “DGCL”), a corporation may indemnify any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than a derivative action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or serving at the request of such corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of such corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

The DGCL also permits indemnification by a corporation under similar circumstances for expenses (including attorneys’ fees) actually and reasonably incurred by such persons in connection with the defense or settlement of an action or suit by or in the right of the corporation to procure a judgment in its favor, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to such corporation unless the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

To the extent a present or former director or officer is successful in the defense of such an action, suit or proceeding, the corporation is required by the DGCL to indemnify such person for actual and reasonable expenses incurred thereby. Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it is ultimately determined that such person is not entitled to be so indemnified. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents of the corporation or by persons serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the corporation deems appropriate.

II-1

The DGCL provides that the indemnification described above shall not be deemed exclusive of other indemnification that may be granted by a corporation pursuant to its by-laws, disinterested directors’ vote, shareholders’ vote, agreement or otherwise.

The DGCL also provides corporations with the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation in a similar capacity for another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability as described above.

Orchard Supply Hardware Stores Corporation

Our proposed Amended and Restated Certificate of Incorporation of Orchard requires Orchard to indemnify and hold harmless any current or former director of Orchard to the fullest extent permitted by Delaware law. Such indemnification rights include the right to be paid by Orchard the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition. However, except for proceedings to enforce indemnification or advancement rights, Orchard will indemnify such a director who initiates an action, suit or proceeding (or part thereof) only if such action, suit or proceeding (or part thereof) was authorized by the board of directors of Orchard.

Orchard’s Amended and Restated Bylaws extend the above-described indemnification and advancement rights to current and former officers of Orchard and to persons who are or were serving at the request of Orchard as a director, officer or trustee of another corporation or entity. The Amended and Restated Bylaws also contain certain procedures and presumptions that will govern any action brought by a person granted advancement or indemnification rights in Orchard’s Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws to enforce those rights.

The indemnification and advancement rights conferred by Orchard are not exclusive of any other right to which persons seeking indemnification or advancement may be entitled under any statute, Orchard’s Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws, any agreement, vote of shareholders or disinterested directors or otherwise.

We have also entered into indemnification agreements with certain of our officers and directors, substantially in the form of the indemnification agreement filed as an exhibit to the Registration Statement on Form S-1. These indemnification agreements provide contractual indemnification to officers and directors in addition to the indemnification provided in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws. We also maintain directors and officers insurance to insure such persons against certain liabilities.

Item 15. Recent Sales of Unregistered Securities

On November 23, 2005, we entered into a stockholders’ agreement with Sears Roebuck and ACOF I LLC (“ACOF”) that was amended and restated as of January 8, 2008 (the “Stockholders’ Agreement”), whereby ACOF invested $58.7 million in cash in exchange for 19.9% of the Class A Common Stock and a three-year option to acquire additional shares in the Company (the “Ares Option”).

Pursuant to the amended and restated Stockholders’ Agreement, as of January 8, 2008, the Ares Option was amended to allow Orchard to create and issue to Sears Roebuck 20,000 Preferred Shares, in the event the Ares Option expires without exercise. On November 23, 2008, the Ares Option was not exercised and expired. As a result, the Company expects to create and issue the 20,000 shares of Preferred Stock in the form described in this Prospectus prior to the Distribution and that Sears Holdings will thereafter distribute such Preferred Stock to its

II-2

shareholders in the Distribution. The issuance of the Preferred Stock to Sears Roebuck will be made in reliance on Section 4(2) under the Securities Act of 1933. During fiscal 2007, the Company recorded a $16.5 million increase to additional paid in capital and a corresponding decrease from retained earnings to reflect the fair value of the contingent forward to issue the Preferred Stock. We will not receive any proceeds from the distribution of the Preferred Stock to Sears Roebuck.

Item 16. Exhibits and Financial Statement Schedules

(a) See Exhibit Index.

(b) See the Consolidated Financial Statements.

Item 17. Undertakings

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act of 1933 if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

If the registrant is subject to Rule 430C under the Securities Act of 1933, each prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933 as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A under the Securities Act of 1933, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

II-3

(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 under the Securities Act of 1933;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

(6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in San Jose, California, on the 17th day of November, 2011.

ORCHARD SUPPLY HARDWARE STORES CORPORATION
By:	/s/ MARK R. BAKER
	Mark R. Baker
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on the 17th day of November, 2011.

Signature	Title
/s/ MARK R. BAKER Mark R. Baker	President, Chief Executive Officer and Director (Principal Executive Officer)
/s/ CHRIS D. NEWMAN Chris D. Newman	Senior Vice President, Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer)
* William C. Crowley	Director
* Matthew D. Cwiertnia	Director
* William R. Harker	Director
* David B. Kaplan	Director
* Jeffrey Stollenwerck	Director

*	By:	/s/ MARK R. BAKER
		Mark R. Baker

II-5

EXHIBIT INDEX

Exhibit Number	Exhibit Description
2.1*	Form of Distribution Agreement between Sears Holdings Corporation and Orchard Supply Hardware Stores Corporation.
3.1(a)*	Form of Amended and Restated Certificate of Incorporation of Orchard Supply Hardware Stores Corporation.
3.1(b)*	Form of Amended and Restated Bylaws of Orchard Supply Hardware Stores Corporation.
3.2#	Form of Certificate of Designation for the Series A Preferred Stock of Orchard Supply Hardware Stores Corporation.
4.1*	Form of Second Amended and Restated Stockholders’ Agreement among ESL Investments, Inc., Edward S. Lampert, William C. Crowley, ACOF I LLC and Orchard Supply Hardware Stores Corporation.
4.2*	Specimen Class A Common Stock Certificate of Orchard Supply Hardware Stores Corporation.
5.1#	Form of Opinion of Simpson Thacher & Bartlett LLP regarding the legality of the securities being issued.
8.1#	Form of Opinion of Simpson Thacher & Bartlett LLP regarding tax matters.
10.1*	Form of Transition Services Agreement between Sears Holdings Management Corporation and Orchard Supply Hardware Stores Corporation.
10.2#	Tax Sharing Agreement between Sears Holdings Corporation and Orchard Supply Hardware Stores Corporation, dated November 23, 2005.
10.3	Second Amended and Restated Senior Secured Credit Agreement, dated as of January 29, 2010, among Orchard Supply Hardware LLC, as Borrower, Orchard Supply Hardware Stores Corporation, those certain Subsidiaries of the Borrower parties thereto, the Lenders from time to time party thereto, Wells Fargo Retail Finance, LLC, as ABL Administrative Agent and Collateral Agent for the Lenders.
10.4(a)	Senior Secured Term Loan Agreement, dated as of December 21, 2006, by and among Orchard Supply Hardware LLC, as Borrower, Orchard Supply Hardware Stores Corporation, certain other Subsidiaries of Orchard Supply Hardware Stores Corporation, the Lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent for the Term Lenders.
10.4(b)#	Amendment No. 1, dated as of January 28, 2011, to the Senior Secured Term Loan Agreement, dated as of December 21, 2006, by and among Orchard Supply Hardware LLC, as Borrower, Orchard Supply Hardware Stores Corporation, certain other Subsidiaries of Orchard Supply Hardware Stores Corporation, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent for the Term Lenders.
10.5#	Loan Agreement, dated as of October 27, 2010, among OSH Properties LLC, each Lender from time to time party thereto, and Wells Fargo Bank, N.A., as Administrative Agent for the Lenders thereunder.
10.6#	Offer Letter by and between Orchard Supply Hardware Stores Corporation and Mark R. Baker, dated March 7, 2011.
10.7#	Offer Letter by and between Orchard Supply Hardware Stores Corporation and William C. Robertson, dated February 1, 2007.
10.8#	Revised Offer Letter by and between Orchard Supply Hardware Stores Corporation and Thomas J. Carey, dated May 30, 2007.

Exhibit Number	Exhibit Description
10.9#	Offer Letter by and between Orchard Supply Hardware Stores Corporation and Stephen W. Olsen, dated May 21, 2010.
10.10#	Offer Letter by and between Orchard Supply Hardware Stores Corporation and Steven L. Mahurin, dated April 15, 2011.
10.11#	Offer Letter by and between Orchard Supply Hardware Stores Corporation and Mark Bussard, dated June 1, 2011.
10.12#	Offer Letter by and between Orchard Supply Hardware Stores Corporation and David I. Bogage, dated April 4, 2011.
10.13#	Offer Letter by and between Orchard Supply Hardware Stores Corporation and Roger L. Smith, dated September 24, 2007.
10.14	Offer Letter by and between Orchard Supply Hardware Stores Corporation and Michael W. Fox, dated September 9, 2011.
10.15	Offer Letter by and between Orchard Supply Hardware Stores Corporation and Chris D. Newman, dated November 7, 2011.
10.16#	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and Mark R. Baker, dated March 7, 2011.
10.17#	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and William C. Robertson, dated January 8, 2009.
10.18	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and Steven L. Mahurin, dated November 3, 2011.
10.19#	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and Stephen W. Olsen, dated July 16, 2010.
10.20#	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and Thomas J. Carey, dated July 23, 2007.
10.21#	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and David I. Bogage, dated April 11, 2011.
10.22	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and Mark A. Bussard, dated June 13, 2011.
10.23#	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and Roger L. Smith, dated January 8, 2009.
10.24	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and Michael W. Fox, dated October 3, 2011.
10.25(a)#	Employment Agreement by and between Orchard Supply Hardware, LLC, Orchard Supply Hardware Stores Corporation and Robert M. Lynch, dated November 23, 2005.
10.25(b)#	Amendment No. 1 to the Employment Agreement by and between Orchard Supply Hardware, LLC, Orchard Supply Hardware Stores Corporation and Robert M. Lynch, dated March 20, 2007.
10.25(c)#	Amendment No. 2 to the Employment Agreement by and between Orchard Supply Hardware, LLC, Orchard Supply Hardware Stores Corporation and Robert M. Lynch, dated February 1, 2009.
10.26#	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and Allen R. Ravas, dated February 7, 2011.
10.27#	Severance Agreement by and between Orchard Supply Hardware Stores Corporation and John S. Beasley, III, dated January 8, 2009.
10.28#	2010 Stock Incentive Plan of Orchard Supply Hardware Stores Corporation and related agreements.

Exhibit Number	Exhibit Description
10.29*	Non-Employee Director Compensation Policy of Orchard Supply Hardware Stores Corporation.
10.30	Form of Indemnification Agreement between Orchard Supply Hardware Stores Corporation and certain officers and directors.
10.31	Purchase and Sale Agreement between OSH Properties LLC and LBA Realty LLC, dated October 24, 2011.
10.32	Single-Tenant Commercial/Industrial Lease by and between LBA RIV-Company XVII, LLC and Orchard Supply Hardware LLC, dated October 28, 2011.
21.1#	List of Subsidiaries of Orchard Supply Hardware Stores Corporation.
23.1*	Consents of Simpson Thacher & Bartlett LLP (included in Exhibits 5.1 and 8.1).
23.2	Consent of Deloitte & Touche LLP, an independent registered public accounting firm.
24.1#	Power of Attorney.

* To be filed by amendment.

# Previously filed.

EX-10.3

Exhibit 10.3

EXECUTION COPY

SECOND AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT

by and among

ORCHARD SUPPLY HARDWARE LLC,

as Borrower,

and

ORCHARD SUPPLY HARDWARE STORES CORPORATION,

and certain other Subsidiaries of Orchard Supply Hardware LLC

as Guarantors

and

THE LENDERS AND ISSUING BANKS FROM TIME TO TIME PARTY HERETO

WELLS FARGO RETAIL FINANCE, LLC,

as ABL Administrative Agent and Collateral Agent

Dated: January 29, 2010

TABLE OF CONTENTS

		Page
ARTICLE I Definitions			1
SECTION 1.01	Defined Terms		1
SECTION 1.02	Classification of Loans and Borrowings		40
SECTION 1.03	Terms Generally		40
SECTION 1.04	Accounting Terms; GAAP		40
SECTION 1.05	Letter of Credit Amounts		41
SECTION 1.06	Times of Day		41
ARTICLE II The Credits			41
SECTION 2.01	Revolving Commitments		41
SECTION 2.02	Loans and Borrowings		41
SECTION 2.03	Requests for Revolving Borrowings		42
SECTION 2.04	Protective Advances		43
SECTION 2.05	Swingline Loans		44
SECTION 2.06	Letters of Credit		45
SECTION 2.07	Funding of Borrowings		56
SECTION 2.08	Interest Elections		56
SECTION 2.09	Termination and Reduction of Revolving Commitments		57
SECTION 2.10	Repayment of Loans; Evidence of Debt		59
SECTION 2.11	Prepayment of Loans		60
SECTION 2.12	Fees		61
SECTION 2.13	Interest		62
SECTION 2.14	Alternate Rate of Interest		63
SECTION 2.15	Increased Costs		64
SECTION 2.16	Break Funding Payments		65
SECTION 2.17	Taxes		65
SECTION 2.18	Payments Generally; Allocation of Proceeds; Sharing of Set-offs		67
SECTION 2.19	Mitigation Obligations; Replacement of Lenders		69
SECTION 2.20	Returned Payments		69
SECTION 2.21	Effective Date Adjustments		70
ARTICLE III Representation and Warranties			70
SECTION 3.01	Organization; Powers		70
SECTION 3.02	Authorization; Enforceability		71
SECTION 3.03	Governmental Approvals; No Conflicts		71
SECTION 3.04	Financial Condition; No Material Adverse Change		71
SECTION 3.05	Properties		71
SECTION 3.06	Litigation and Environmental Matters		72
SECTION 3.07	Compliance with Laws and Agreements		72
SECTION 3.08	Investment and Holding Company Status		73

i

TABLE OF CONTENTS

(continued)

		Page
SECTION 3.09	Taxes		73
SECTION 3.10	ERISA		73
SECTION 3.11	Disclosure		73
SECTION 3.12	Solvency		73
SECTION 3.13	Insurance		74
SECTION 3.14	Capitalization and Subsidiaries		74
SECTION 3.15	Security Interest in Collateral		74
SECTION 3.16	Labor Disputes		75
SECTION 3.17	Margin Regulations		75
SECTION 3.18	Use of Proceeds		75
SECTION 3.19	Collateral Locations		75
SECTION 3.20	Corporate Names; Prior Transactions		75
SECTION 3.21	Credit Card Agreements		75
SECTION 3.22	Related Documents		76
SECTION 3.23	Survival of Warranties; Cumulative		76
ARTICLE IV Conditions			76
SECTION 4.01	Effective Date		76
SECTION 4.02	Each Credit Event		78
ARTICLE V Affirmative Covenants			79
SECTION 5.01	Financial Statements; Borrowing Base and Other Information		79
SECTION 5.02	Notices of Material Events		81
SECTION 5.03	Existence; Conduct of Business		82
SECTION 5.04	Payment of Obligations		82
SECTION 5.05	Maintenance of Properties		82
SECTION 5.06	Books and Records; Inspection Rights		82
SECTION 5.07	Compliance with Laws		83
SECTION 5.08	Use of Proceeds		83
SECTION 5.09	Insurance		83
SECTION 5.10	Appraisals and Field Examinations		83
SECTION 5.11	Additional Collateral; Further Assurances		84
SECTION 5.12	Cash Management		85
SECTION 5.13	Real Property		85
SECTION 5.14	Post-Closing Matters		86
ARTICLE VI Negative Covenants			87
SECTION 6.01	Indebtedness		87
SECTION 6.02	Liens		89
SECTION 6.03	Fundamental Changes		90

ii

TABLE OF CONTENTS

(continued)

		Page
SECTION 6.04	Investments, Loans, Advances, Guarantees and Acquisitions		91
SECTION 6.05	Asset Sales		94
SECTION 6.06	Sale and Leaseback Transactions		95
SECTION 6.07	Swap Agreements		95
SECTION 6.08	Restricted Payments; Certain Payments of Indebtedness		95
SECTION 6.09	Transactions with Affiliates		96
SECTION 6.10	Restrictive Agreements		97
SECTION 6.11	Amendment of Material Documents		97
SECTION 6.12	Accounting; Fiscal Year		98
SECTION 6.13	Margin Regulations		98
SECTION 6.14	Fixed Charge Coverage Ratio		98
ARTICLE VII Events of Default			98
ARTICLE VIII The Administrative Agent			101
SECTION 8.01	Resignation of Original Agent		101
SECTION 8.02	Appointment of ABL Administrative Agent and Collateral Agent		102
SECTION 8.03	Limited Duties		102
SECTION 8.04	Reliance		103
SECTION 8.05	Delegation of Rights and Duties		103
SECTION 8.06	Resignation of ABL Administrative Agent		103
SECTION 8.07	Lender Credit Decision		103
SECTION 8.08	Reports		104
SECTION 8.09	Agents Generally		104
SECTION 8.10	Defaulting Lenders		104
SECTION 8.11	Indemnification of Agents		105
ARTICLE IX Miscellaneous			105
SECTION 9.01	Notices		105
SECTION 9.02	Waivers; Amendments		107
SECTION 9.03	Expenses; Indemnity; Damage Waiver		109
SECTION 9.04	Successors and Assigns		111
SECTION 9.05	Survival		115
SECTION 9.06	Counterparts; Integration; Effectiveness		115
SECTION 9.07	Severability		115
SECTION 9.08	Right of Setoff		116
SECTION 9.09	Governing Law; Jurisdiction; Consent to Service of Process		116
SECTION 9.10	WAIVER OF JURY TRIAL		117
SECTION 9.11	Headings		117
SECTION 9.12	Confidentiality		117

iii

TABLE OF CONTENTS

(continued)

		Page
SECTION 9.13	Several Obligations; Nonreliance; Violation of Law		118
SECTION 9.14	USA PATRIOT ACT		118
SECTION 9.15	Disclosure		118
SECTION 9.16	Appointment for Perfection		119
SECTION 9.17	Interest Rate Limitation		119
SECTION 9.18	Amendment and Restatement		119
SECTION 9.19	Intercreditor Agreement		120
ARTICLE X Loan Guaranty			120
SECTION 10.01	Guaranty		120
SECTION 10.02	Guaranty of Payment		120
SECTION 10.03	No Discharge or Diminishment of Loan Guaranty		121
SECTION 10.04	Defenses Waived		121
SECTION 10.05	Rights of Subrogation		122
SECTION 10.06	Reinstatement; Stay of Acceleration		122
SECTION 10.07	Information		122
SECTION 10.08	Termination		122
SECTION 10.09	Taxes		123
SECTION 10.10	Maximum Liability		123
SECTION 10.11	Contribution		123
SECTION 10.12	Liability Cumulative		124
SECTION 10.13	Common Enterprise		124

iv

TABLE OF CONTENTS

(continued)

	Page
SCHEDULES:
Commitment Schedule
Schedule 2.06 — Existing Letters of Credit
Schedule 3.05 — Properties / Intellectual Property
Schedule 3.06 — Disclosed Matters
Schedule 3.13 — Insurance
Schedule 3.14 — Capitalization and Subsidiaries
Schedule 3.15 — Security Interest in Collateral
Schedule 3.20 — Corporate Names
Schedule 3.21 — Existing Credit Card Agreements
Schedule 6.01 — Existing Indebtedness
Schedule 6.02 — Existing Liens
Schedule 6.04 — Existing Investments
Schedule 6.10 — Existing Restrictions
EXHIBITS:
Exhibit A — Form of Assignment and Assumption
Exhibit B — Form of Borrowing Base Certificate
Exhibit C — Form of Compliance Certificate
Exhibit D — Joinder Agreement

v

This SECOND AMENDED AND RESTATED SENIOR SECURED CREDIT AGREEMENT, dated as of January 29, 2010 (as it may be amended or modified from time to time, this “Agreement”), among ORCHARD SUPPLY HARDWARE LLC, a Delaware limited liability company (“Borrower”), ORCHARD SUPPLY HARDWARE STORES CORPORATION, a Delaware corporation (“Holdings”), those certain Subsidiaries of the Borrower parties hereto (together with Holdings, collectively, the “Loan Guarantors”), the Lenders party hereto, and WELLS FARGO RETAIL FINANCE, LLC, as ABL Administrative Agent, and WELLS FARGO RETAIL FINANCE, LLC, as collateral agent for the Lenders (in such capacity, the “Collateral Agent”), amends and restates in its entirety the Amended and Restated Senior Secured Credit Agreement (as amended to the date hereof, without giving effect to the amendments and restatements set forth herein, the “Existing Credit Agreement”), dated as of December 21, 2006, among the Borrower, the Loan Guarantors, the lenders and issuing banks from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (the “Original Agent”).

W I T N E S S E T H:

WHEREAS, in accordance with Article VIII of the Existing Credit Agreement, (i) the Original Agent desires to resign as ABL Administrative Agent and Collateral Agent under the Existing Credit Agreement and the other Loan Documents, (ii) the Required Lenders desire to appoint Wells Fargo Retail Finance, LLC as successor ABL Administrative Agent and Collateral Agent, and (iii) the Borrower desires to approve WFRF’s appointment as successor ABL Administrative Agent and Collateral Agent, each as provided herein; and

WHEREAS, in accordance with Section 9.02 of the Existing Credit Agreement, the Borrower, the Guarantors, the Required Lenders (as defined in the Existing Credit Agreement) and the ABL Administrative Agent desire to amend and restate the Existing Credit Agreement as provided herein.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree that the Existing Credit Agreement shall be amended and restated in its entirety to read as follows:

ARTICLE I

Definitions

SECTION 1.01 Defined Terms. As used in this Agreement, the following terms have the meanings specified below:

“ABL Administrative Agent” means Wells Fargo Retail Finance, LLC, in its capacity as administrative agent for the Lenders hereunder, or any successor.

“ABL Facility” means the Loans and Letters of Credit under this Agreement.

“ABL Facility Primary Collateral” has the meaning assigned to such term in the Intercreditor Agreement.

“ABL Loan Security Agreement” means that certain Second Amended and Restated Pledge and Security Agreement, dated as of the Effective Date, between the Loan Parties and the Collateral Agent, for the benefit of the Collateral Agent, the ABL Administrative Agent and the Lenders, and any other pledge or security agreement entered into after the date of this Agreement by any other Loan Party (as required by this Agreement or any other Loan Document), or any other Person, granting a Lien on any property to secure the obligations and liabilities of any Loan Party under any Loan Document, as the same may be amended, restated or otherwise modified from time to time.

“Accelerated Reporting Event” means either (a) notice from the ABL Administrative Agent of the occurrence and continuance of any Event of Default, or (b) the failure of the Borrower to maintain Availability at all times of not less than twenty percent (20%) of the aggregate Revolving Commitments. For purposes of this Agreement, the occurrence of an Accelerated Reporting Event shall be deemed continuing at the ABL Administrative Agent’s option (i) so long as such Default has not been cured or waived or such Event of Default has not been waived, and/or (ii) if the Accelerated Reporting Event arises as a result of the Borrower’s failure to maintain Availability as required under clause (b) of the immediately preceding sentence, until Availability has equaled or exceeded twenty five percent (25%) of the aggregate Revolving Commitments for thirty (30) consecutive Business Days, in which case an Accelerated Reporting Event shall no longer be deemed continuing for purposes of this Agreement. The termination of an Accelerated Reporting Event as provided herein shall in no way limit, waive or delay the occurrence of a subsequent Accelerated Reporting Event in the event that the conditions set forth in this definition again arise.

“Account” has the meaning assigned to such term in the ABL Loan Security Agreement.

“Account Debtor” means any Person obligated on an Account.

“Adjusted LIBO Rate” means:

(a) for any Interest Period with respect to any LIBO Borrowing, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of one percent) equal to (i) the LIBO Rate for such Interest Period multiplied by (ii) the Statutory Reserve Rate; and

(b) for any interest rate calculation with respect to any Base Rate Loan, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of one percent) equal to (i) the LIBO Rate for an Interest Period commencing on the date of such calculation and ending on the date that is thirty (30) days thereafter multiplied by (ii) the Statutory Reserve Rate.

The Adjusted LIBO Rate will be adjusted automatically as of the effective date of any change in the Statutory Reserve Rate.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the ABL Administrative Agent.

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

2

“Agents” means, collectively, the ABL Administrative Agent and the Collateral Agent.

“Appliance Sales Agreement” means the Amended and Restated Appliance Sales Agreement, dated as of December 21, 2006, between the Borrower and Sears, as modified by that certain letter agreement, dated as of October 30, 2009, among Sears, Sears Brands Management Corporation, Sears Protection Company and the Borrower.

“Applicable Percentage” means, with respect to any Lender, with respect to Revolving Loans, LC Exposure, Swingline Loans or Protective Advances, a percentage equal to a fraction the numerator of which is such Lender’s Revolving Commitment and the denominator of which is the aggregate Revolving Commitment of all Lenders; provided, however, that if the Revolving Commitments have terminated or expired, the Applicable Percentages shall be determined based upon such Lender’s share of the aggregate Revolving Exposure at that time.

“Applicable Rate” means, for any day, with respect to any Base Rate Loan, Eurodollar Revolving Loan, Trade Letter of Credit or Standby Letter of Credit made, or participated in, by the Non-Extending Lenders, or with respect to the commitment fees payable hereunder to the Non-Extending Lenders, as the case may be, the applicable rate per annum set forth below under the caption “Base Rate Spread”, “Eurodollar Spread” “Trade Letter of Credit Fee Rate,” “Standby Letter of Credit Fee Rate” or “Revolving Commitment Fee Rate”, as the case may be, based upon the Borrower’s Leverage Ratio as of the most recent determination date; provided that, until the first Business Day following the completion of the first full fiscal quarter after the Effective Date with respect to which the Borrower shall have delivered to the ABL Administrative Agent, pursuant to Section 5.01, the Borrower’s consolidated financial information, the “Applicable Rate” shall be the applicable rate per annum set forth below in Category 4:

Leverage Ratio	Base Rate Spread			Eurodollar Spread			Trade Letter of Credit Fee Rate			Standby Letter of Credit Fee  Rate			Revolving Commitment Fee Rate
Category 1 ³ 5.25 to 1.0		0.75	%		1.75	%		0.875	%		1.75	%		0.375	%
Category 2 <5.25 to 1.0 but ³ to 5.00 to 1.0		0.50	%		1.50	%		0.75	%		1.50	%		0.350	%

3

Category 3 < 5.00 to 1.0 but > 4.75 to 1.0	0.25	%	1.25	%	0.625	%	1.25	%	0.300	%
Category 4 < 4.75 to 1.0	0.0	%	1.00	%	0.50	%	1.00	%	0.250	%

For purposes of the foregoing, (a) the Applicable Rate shall be determined as of the end of each fiscal quarter of the Borrower based upon the Borrower’s annual or quarterly, as applicable, consolidated financial statements delivered pursuant to Section 5.01 and (b) each change in the Applicable Rate resulting from a change in the Leverage Ratio shall be effective during the period commencing on and including the date of delivery to the ABL Administrative Agent of such consolidated financial statements and certificate of a Financial Officer of the Borrower indicating such change and ending on the date immediately preceding the effective date of the next such change; provided that the Leverage Ratio shall be deemed to be in Category 1 (A) at any time that an Event of Default has occurred and is continuing or (B) at the option of the ABL Administrative Agent or at the request of the Required Lenders if the Borrower fails to deliver the annual, quarterly or monthly (if applicable) consolidated financial statements required to be delivered by it pursuant to Section 5.01, during the period from the expiration of the time for delivery thereof until such consolidated financial statements and certificate of a Financial Officer of the Borrower are delivered.

“Approved Fund” has the meaning assigned to such term in Section 9.04.

“Ares Capital Markets Group” means any collateralized loan obligation fund, any collateralized debt obligation fund, any collateralized bond obligation fund, any distressed asset fund, any hedge fund or any other similar fund managed by Ares Management LLC or one of its Affiliates.

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the ABL Administrative Agent, in the form of Exhibit A or any other form approved by the ABL Administrative Agent.

“Authorized Seller Agreement” means the Authorized Seller Agreement, dated as of November 23, 2005, between the Borrower and Sears, as modified by that certain letter agreement, dated as of October 30, 2009, among Sears, Sears Brands Management Corporation, Sears Protection Company and the Borrower.

“Auto-Extension Letter of Credit” has the meaning assigned to such term in Section 2.06(b)(ii).

“Availability” means, at any time, an amount equal to (a) Maximum Availability at such time minus (b) the aggregate amount of Revolving Exposure of all Lenders at such time.

4

“Availability Period” means the period from and including the Effective Date to but excluding the Revolving Credit Termination Date.

“Availability Reserve” means (a) as of three (3) Business Days after the date of written notice of any determination thereof to the Borrower by the ABL Administrative Agent, such amounts as the ABL Administrative Agent may from time to time establish against the facility in the ABL Administrative Agent’s Permitted Discretion in order either (i) to preserve the value of the Collateral or the ABL Administrative Agent’s or Collateral Agent’s Lien thereon or (ii) to provide for the payment of unanticipated liabilities of any Loan Party arising after the Effective Date, and (b) as of five (5) Business Days after the date of written notice of any determination thereof to the Borrower by the ABL Administrative Agent, such other reserves which the ABL Administrative Agent deems necessary, in its Permitted Discretion, to maintain (including, without limitation, reserves for accrued and unpaid interest on the Secured Obligations, reserves for consignee’s, warehousemen’s and bailee’s charges, reserves for Swap Obligations, reserves for contingent liabilities of any Loan Party, reserves for uninsured losses of any Loan Party, reserves for uninsured, underinsured, un-indemnified or under-indemnified liabilities or potential liabilities with respect to any litigation and reserves for taxes, fees, assessments, and other governmental charges) with respect to the Collateral or any Loan Party.

“Available Credit Condition” means, as at any date of determination after giving effect to an investment or loan pursuant to Section 6.04 or a Restricted Payment or payment of Indebtedness pursuant to Section 6.08, (a) Availability is greater than 20% of the Maximum Availability at such time, (b) average Availability over the preceding twelve calendar months, determined for each month by reference to and as of the last day of the month covered by each Borrowing Base Certificate delivered to the ABL Administrative Agent pursuant to Section 5.01(g)(i), is greater than 20% of the average Maximum Availability over the preceding twelve calendar months, determined for each month by reference to and as of the last day of the month covered by each Borrowing Base Certificate delivered to the ABL Administrative Agent pursuant to Section 5.01(g)(i) (provided that the conditions set forth in this clause (b) shall not apply in the case of a Real Estate Debt Funding (as defined herein)), (c) in the case of any such investment or loan pursuant to Section 6.04 or any such Restricted Payment or payment of Indebtedness pursuant to Section 6.08, the proceeds of which are used to refinance or repay the Real Estate Debt (a “Real Estate Debt Funding”), average Availability is projected by the Borrower on a pro forma basis for each of the twelve (12) calendar months immediately following such Real Estate Debt Funding to be greater than 20% of the average Maximum Availability over the preceding twelve calendar months, determined for each month by reference to and as of the last day of the month covered by each Borrowing Base Certificate delivered to the ABL Administrative Agent pursuant to Section 5.01(g)(i) and (d) no Event of Default has occurred and is continuing or would result from such investment or loan pursuant to Section 6.04 or such Restricted Payment or payment of Indebtedness pursuant to Section 6.08. Prior to making an investment or loan pursuant to Section 6.04 or a Restricted Payment or payment of Indebtedness pursuant to Section 6.08, in each case in connection with a Real Estate Debt Funding, the Borrower shall deliver to the ABL Administrative Agent forecasts prepared in good faith by management of the Borrower, including a consolidated balance sheet, income statement and statement of cash flows, and Availability projections on a monthly basis for the immediately following twelve (12) calendar months, which projected financial information shall give effect to

5

the Real Estate Debt Funding and shall be prepared in accordance with past practices and shall be in a form satisfactory to the ABL Administrative Agent in its Permitted Discretion.

“Available Revolving Commitment” means, at any time, the aggregate Revolving Commitments then in effect minus the aggregate Revolving Exposure of all Lenders at such time.

“Banking Services” means each and any of the following bank services provided to any Loan Party by any Lender or any of its Affiliates: (a) commercial credit cards and purchasing cards; (b) stored value cards; and (c) treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services).

“Banking Services Obligations” of the Loan Parties means any and all obligations of the Loan Parties, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with Banking Services.

“Base Rate” means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect for such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

“Base Rate Borrowing” means a Borrowing comprised of Loans that bear interest at a rate determined by reference to the Base Rate or the Extended Term Base Rate, as the case may be, in accordance with the terms of Section 2.13.

“Base Rate Loan” means a Loan that bears interest at a rate determined by reference to the Base Rate or the Extended Term Base Rate, as the case may be, in accordance with the terms of Section 2.13.

“Board” means the Board of Governors of the Federal Reserve System of the United States of America.

“Borrower” has the meaning assigned to such term in the preamble.

“Borrowing” means (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, (b) a Swingline Loan and (c) a Protective Advance.

“Borrowing Base” means, at any time, the sum of:

(a) the product of (i) 80% multiplied by (ii) the Borrower’s Eligible Accounts at such time minus the applicable Dilution Reserve, minus, without duplication, any other Reserve related to Eligible Accounts, plus

6

(b) the product of (i) 90% multiplied by (ii) the Borrower’s Eligible Credit Card Account Receivable at such time minus any Reserve related to Eligible Credit Card Account Receivable, plus

(c) the lesser of (i) an amount equal to (A) 70% of (x) the Borrower’s Eligible Inventory, valued at the lower of cost, determined on a first-in-first-out basis, or market value at such time, minus (y) Inventory Reserves, minus (B) Rent Reserves/and (ii) an amount equal to 85% of the Net Orderly Liquidation Value of the Borrower’s Eligible Inventory at such time, minus

(d) Gift Card Liability Reserve.

Any Reserve adjustment permitted to be made by the ABL Administrative Agent under this Agreement shall be effective five (5) Business Days after delivery of notice thereof to the Borrower and the Lenders. The Borrowing Base at any time shall be determined by reference to the most recent Borrowing Base Certificate delivered to the ABL Administrative Agent pursuant to Section 5.1(g) of this Agreement.

“Borrowing Base Certificate” means a certificate, signed and certified as accurate and complete by a Financial Officer of the Borrower, in substantially the form of Exhibit B or another form which is reasonably acceptable to the ABL Administrative Agent in its Permitted Discretion.

“Borrowing Base Proceeds Deposit Account” has the meaning assigned to such term in Section 5.12(a).

“Borrowing Request” means a request by the Borrower for a Revolving Borrowing in accordance with Section 2.03.

“Brand Sales Agreement” means the Amended and Restated Brand Sales Agreement, dated as of December 21, 2006, between the Borrower and Sears, as modified by that certain letter agreement, dated as of October 30, 2009, among Sears, Sears Brands Management Corporation, Sears Protection Company and the Borrower.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in the state in which the ABL Administrative Agent’s offices are located or in San Jose, California are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

“Capital Expenditures” means, for any period, without duplication, any expenditure or other acquisition of any asset, including capitalized leasehold improvements, which would be classified as a fixed or capital asset on a consolidated balance sheet of the Borrower and its Restricted Subsidiaries prepared in accordance with GAAP; provided that the term “Capital Expenditures” shall not include (i) expenditures made in connection with the replacement, substitution, restoration or repair of assets to the extent financed with (x) insurance proceeds paid on account of the loss of or damage to the assets being replaced, restored or repaired or (y) awards of compensation arising from the taking by eminent domain or condemnation of the

7

assets being replaced, (ii) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller for such equipment being traded in at such time, or (iii) the purchase of plant, property or equipment to the extent financed with the proceeds of a Prepayment Event that are not required to be applied to prepay the Obligations pursuant to Section 2.11(c).

“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“Cash Collateralize” has the meaning assigned to such term in Section 2.06(g).

“Cash Dominion Period” means each of the following: (a) each period beginning on the date on which an Event of Default has occurred and ending on the date on which such Event of Default has been waived in accordance with the terms of this Agreement; (b) when the Borrowing Base is less than $100,000,000, each period beginning on the date on which Availability is less than $10,000,000 and ending on the date on which Availability has equaled or exceeded $10,000,000 for thirty (30) consecutive calendar days; or (c) when the Borrowing Base is equal to or greater than $100,000,000, each period beginning on the date on which Availability is less than ten percent (10%) of the aggregate amount of the Revolving Commitments and ending on the date on which Availability has equaled or exceeded ten percent (10%) of the aggregate amount of the Revolving Commitments for thirty (30) consecutive calendar days; provided that a Cash Dominion Period shall be deemed continuing (even if even if an Event of Default is no longer continuing and/or Availability exceeds the required amount for thirty (30) consecutive calendar days) after a Cash Dominion Period has commenced on two (2) occasions during any twelve month period after the Effective Date if the first such Cash Dominion Period has been terminated and shall continue until the expiration of the twelve month period ending after the commencement of the second Cash Dominion Period. The termination of a Cash Dominion Period as provided herein shall in no way limit, waive or delay the commencement of a subsequent Cash Dominion Period in the event that the conditions set forth in this definition again arise.

“Change in Control” means the occurrence of any of the following:

(a) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Borrower and its Restricted Subsidiaries, taken as a whole, to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act), other than any one or more Permitted Holders;

(b) the adoption of a plan relating to the liquidation or dissolution of the Borrower;

8

(c) prior to the first Public Equity Offering, the Permitted Holders cease to be the “beneficial owners” (as defined in Rule 13d-3 under the Exchange Act, except that a Person will be deemed to have “beneficial ownership” of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of at least 50% of the total voting power of the Voting Stock of the Borrower or Holdings, whether as a result of the issuance of securities of the Borrower or Holdings, any merger, consolidation, liquidation or dissolution of the Borrower or Holdings, any direct or indirect transfer of securities by the Permitted Holders or otherwise (for purposes of this clause (c), the Permitted Holders will be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation so long as the Permitted Holders beneficially own, directly or indirectly, in the aggregate at least a majority of the total voting power of the Voting Stock of such parent corporation);

(d) on or after the first Public Equity Offering, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act or any successor provisions to either of the foregoing), including any group acting for the purpose of acquiring, holding, voting or disposing of securities within the meaning of Rule 13d-5(b)(l) under the Exchange Act, other than any one or more of the Permitted Holders, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, except that a person will be deemed to have “beneficial ownership” of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 40% or more of the total voting power of the Voting Stock of the Borrower or Holdings; provided, however, that the Permitted Holders are the “beneficial owners” (as defined in Rule 13d-3 under the Exchange Act, except that a person will be deemed to have “beneficial ownership” of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, in the aggregate of a lesser percentage of the total voting power of the Voting Stock of the Borrower or Holdings than such other person or group (for purposes of this clause (d), such person or group shall be deemed to beneficially own any Voting Stock of a corporation held by a parent corporation so long as such person or group beneficially owns, directly or indirectly, in the aggregate at least a majority of the total voting power of the Voting Stock of such parent corporation);

(e) the first day on which a majority of the members of the Board of Directors of Holdings are not Continuing Directors, other than pursuant to the right of a Permitted Holder to designate members of the Board of Directors of Holdings pursuant to the Stockholders’ Agreement; or

(f) the occurrence of a “Change in Control” (or any comparable term) under, and as defined in, (i) any document or instrument evidencing or governing any Material Indebtedness of the Borrower and its Subsidiaries, (ii) any Related Document and (iii) the Term Loan Agreement.

“Change in Law” means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or any Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender’s or such Issuing Bank’s holding company, if

9

any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Swingline Loans or Protective Advances.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Collateral” means any and all “Collateral” referred to in the Collateral Documents.

“Collateral Access Agreement” has the meaning assigned to such term in the ABL Loan Security Agreement.

“Collateral Agent” has the meaning assigned to such term in the preamble.

“Collateral Documents” means, collectively, the ABL Loan Security Agreement, the Leasehold Mortgages and any other documents granting, perfecting or evidencing a Lien upon the Collateral in favor of the Collateral Agent, on behalf of itself the ABL Administrative Agent and the Lenders, as security for payment of the Secured Obligations.

“Collection Account” has the meaning assigned to such term in Section 5.12(a).

“Commitment Schedule” means the Schedule attached hereto identified as such; provided that unless the Revolving Commitments of all Lenders shall have then expired or been terminated, after the Revolving Commitments of the Non-Extending Lenders shall have expired or been terminated and all Obligations owed to the Non-Extending Lenders shall have been paid in full, the Commitment Schedule shall be appropriately adjusted to reflect the expiration or termination of the Revolving Commitments of the Non-Extending Lenders.

“Continuing Directors” means, as of any date of determination, any member of the Board of Directors of Holdings who (a) was a member of such Board of Directors on the date of this Agreement; or (b) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Credit Card Account Receivable” means each “Account”, together with all income, payments and proceeds thereof, owed by any Credit Card Issuer or Credit Card Processor to a Loan Party resulting from charges by a customer of the Borrower or any of its Restricted Subsidiaries on credit cards issued by such Credit Card Issuer or processed by such Credit Card Processor in connection with the sale of goods by the Borrower or any of its Restricted Subsidiaries, or services performed by the Borrower or any of its Restricted Subsidiaries, in each case in the ordinary course of its business.

10

“Credit Card Agreements” means all agreements now or hereafter entered into by any Loan Party with any Credit Card Issuer or any Credit Card Processor, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, including, but not limited to, as to the Borrower, the agreements set forth on Schedule 3.21 hereto.

“Credit Card Issuer” shall mean any Person who issues or whose members issue credit cards, including, without limitation, MasterCard or VISA bank credit or debit cards or other bank credit or debit cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa International and American Express, Discover, Diners Club and other non-bank credit or debit cards, including, without limitation, credit or debit cards issued by or through American Express Travel Related Services Company, Inc.

“Credit Card Processor” shall mean any servicing or processing agent or any factor or financial intermediary who facilitates, services, processes or manages the credit authorization, billing transfer and/or payment procedures with respect to any sales transactions of any Loan Party involving credit card or debit card purchases by customers using credit cards or debit cards issued by any Credit Card Issuer.

“Customs Broker Agreement” means an agreement in form and substance satisfactory to the ABL Administrative Agent and the Collateral Agent among a Loan Party, a customs broker, freight forwarder or other carrier, and the Collateral Agent, pursuant to which the customs broker, freight forwarder or other carrier acknowledges that it has control over and holds the documents evidencing ownership of the Inventory of such Loan Party for the benefit of the Collateral Agent and agrees, upon notice from the Collateral Agent, to hold and dispose of the subject Inventory solely as directed by the Collateral Agent.

“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Loans, participations in LC Exposure or participations in Swingline Loans required to be funded by it hereunder within one (1) Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the ABL Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one (1) Business Day of the date when due, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

“Deteriorating Lender” means any Defaulting Lender or any Lender as to which (a) any Issuing Bank or the Swingline Lender has a good faith belief that such Lender has defaulted in fulfilling its obligations under one or more other syndicated credit facilities, or (b) a Person that Controls such Lender has been deemed insolvent or become the subject of a bankruptcy, insolvency or similar proceeding.

“Deposit Account Control Agreement” means an agreement, in form and substance reasonably satisfactory to the ABL Administrative Agent, among any Loan Party, a banking institution holding such Loan Party’s funds, and the Collateral Agent, with respect to collection

11

and control of all deposits and balances held in a deposit account maintained by any Loan Party with such banking institution.

“Dilution Factors” means, without duplication, with respect to any period, the aggregate amount of all deductions, credit memos, returns, adjustments, allowances, bad debt write-offs and other non-cash credits which are recorded to reduce accounts receivable in a manner consistent with current and historical accounting practices of the Borrower.

“Dilution Ratio” means, at any date, the amount (expressed as a percentage) equal to (a) the aggregate amount of the applicable Dilution Factors for the twelve (12) most recently ended fiscal months divided by (b) total gross sales for the twelve (12) most recently ended fiscal months.

“Dilution Reserve” means, at any date, in respect of Eligible Accounts: (i) the amount by which the Dilution Ratio exceeds five percent (5%) multiplied by (ii) the Eligible Accounts on such date.

“Disclosed Matters” means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06.

“Document” has the meaning assigned to such term in the ABL Loan Security Agreement.

“dollars” or “$” refers to lawful money of the United States of America.

“EBITDA” means, for any period, Net Income for such period plus (a) without duplication and to the extent deducted in determining Net Income for such period, the sum of (i) Interest Expense for such period, (ii) provision for income taxes or tax sharing distributions paid pursuant to Section 6.08(b)(iv) for such period, (iii) all amounts attributable to depreciation and amortization expense for such period, (iv) any extraordinary non-cash charges for such period, (v) any non-recurring fees, cash charges and other cash expenses made in connection with the Transactions for such period, (vi) any extraordinary non-recurring, non-cash restructuring charges for such period, (vii) any non-recurring fees, expenses or charges in respect of professional or financial advisory, investment banking, financing, underwriting, placement agent or other similar services (including fees and expenses of legal counsel, consultants and accountants) for such period to the extent related to any equity offering, investment, acquisition, divestiture or recapitalization permitted hereunder or any issuance of indebtedness permitted to be incurred hereunder (whether or not successful) up to a maximum aggregate amount of $15,000,000 during the term of this Agreement, (viii) non-cash charges for share-based payments (as defined in accordance with GAAP) to employees and directors for such period, (ix) any extraordinary losses for such period, and (x) any other non-cash charges for such period (including non-cash rental expense but excluding any non-cash charge in respect of an item that was included in Net Income in a prior period and any non-cash charge that relates to the write-down or write-off of inventory) minus (b) without duplication and to the extent included in Net Income, (i) any cash payments made during such period in respect of non-cash charges described in clause (a)(v) taken in a prior period and (ii) any extraordinary gains and any non-cash items of income for such period, all calculated for the Borrower and its Restricted Subsidiaries on a

12

consolidated basis in accordance with GAAP. For the purposes of calculating EBITDA for any period of four (4) consecutive fiscal quarters (each, a “Reference Period”), if during such Reference Period the Borrower or any Restricted Subsidiary shall have made a Material Acquisition or a Material Disposition, EBITDA for such Reference Period shall be calculated after giving pro forma effect thereto as if such Material. Acquisition or Material Disposition occurred on the first day of such Reference Period. As used in this definition, “Material Acquisition” and “Material Disposition” means any acquisition or disposal as applicable of property or series of related acquisitions or disposal as applicable of property that constitutes assets comprising all or substantially all of an operating unit of a business or constitutes all or substantially all of the Equity Interests of a Person.

“EBITDAR” means, for any period, the sum of (a) EBITDA for such period plus (b) Rent Expense for such period.

“Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02).

“Effective Date Loans” shall have the meaning assigned to such term in Section 2.21(a).

“Eligible Accounts” means each Account of a Loan Party that, at the time of creation and at all times thereafter is not ineligible for inclusion in the calculation of the Borrowing Base pursuant to any of clauses (a) through (x) below. Without limiting the ABL Administrative Agent’s Permitted Discretion provided herein, Eligible Accounts shall not include any Account:

(a) which is not subject to a first priority perfected Lien in favor of the ABL Administrative Agent;

(b) which is subject to any Lien other than (i) a Lien in favor of the ABL Administrative Agent and (ii) a Permitted Encumbrance which does not have priority over the Lien in favor of the ABL Administrative Agent;

(c) which is unpaid more than 30 days from the due date or more than 60 days after the statement date, or which has been written off the books of a Loan Party or otherwise designated as uncollectible (in determining the aggregate amount from the same Account Debtor that is unpaid hereunder there shall be excluded the amount of any net credit balances relating to Accounts due from an Account Debtor which are unpaid more than 30 days from the due date or more than 60 days after the statement date);

(d) which is owing by an Account Debtor for which more than fifty percent (50%) of the Accounts owing from such Account Debtor and its Affiliates are ineligible pursuant to clause (c) above;

(e) which is owing by an Account Debtor to the extent the aggregate amount of Accounts owing from such Account Debtor and its Affiliates to the Loan Parties exceeds twenty percent (20%) of the aggregate Eligible Accounts; provided that, with respect to any Account Debtor whose securities are rated BBB or worse by S&P or Baa3 or worse by Moody’s, to the extent the aggregate amount of Accounts owing from such Account Debtor and its Affiliates to the Loan Parties exceeds ten percent (10%) of the aggregate Eligible Accounts, the

13

ABL Administrative Agent, in its Permitted Discretion, may maintain a Reserve up to the amount of such excess;

(f) with respect to which any covenant, representation, or warranty contained in this Agreement or in the ABL Loan Security Agreement has been breached or is not true in any material respect;

(g) which (i) does not arise from the sale of goods or performance of services in the ordinary course of business, (ii) is not evidenced by an invoice or other documentation reasonably satisfactory to the ABL Administrative Agent which has been sent to the Account Debtor, (iii) represents a progress billing, (iv) is contingent upon any Loan Party’s completion of any further performance, (v) represents a sale on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment, cash-on-delivery or any other repurchase or return basis or (vi) relates to payments of interest;

(h) for which the goods giving rise to such Account have not been shipped to the Account Debtor or for which the services giving rise to such Account have not been performed by the relevant Loan Party or if such Account was invoiced more than once;

(i) with respect to which any check or other instrument of payment has been returned uncollected for any reason;

(j) which is owed by an Account Debtor which has (i) applied for, suffered, or consented to the appointment of any receiver, custodian, trustee, or liquidator of its assets, (ii) has had possession of all or a material part of its property taken by any receiver, custodian, trustee or liquidator, (iii) filed, or had filed against it, any request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as bankrupt, winding-up, or voluntary or involuntary case under any state or federal bankruptcy laws (other than post-petition accounts payable of an Account Debtor that is a debtor-in-possession under the Bankruptcy Code and reasonably acceptable to the ABL Administrative Agent), (iv) has admitted in writing its inability, or is generally unable to, pay its debts as they become due, (v) become insolvent, or (vi) ceased operation of its business;

(k) which is owed by an Account Debtor which (i) does not maintain its chief executive office in the U.S. or Canada or (ii) is not organized under applicable law of the U.S., any state of the U.S., Canada, or any province of Canada;

(1) which is owed in any currency other than U.S. dollars or Canadian dollars;

(m) which is owed by the government of the U.S., or any department, agency, public corporation, or instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as amended (31 U.S.C. § 3727 et seq. and 41 U.S.C. § 15 et seq.), and any other steps necessary to perfect the Lien of the ABL Administrative Agent in such Account have been complied with to the ABL Administrative Agent’s reasonable satisfaction;

(n) which is owed by any Affiliate, employee, officer, director, agent or stockholder of any Loan Party;

14

(o) which is owed by an Account Debtor or any Affiliate of such Account Debtor to which any Loan Party is indebted, but only to the extent of such indebtedness or is subject to any security, deposit, progress payment, retainage or other similar advance made by or for the benefit of an Account Debtor, in each case to the extent thereof;

(p) which is subject to any counterclaim, deduction, defense, setoff or dispute, but only to the extent of any such counterclaim, deduction, defense, setoff or dispute;

(q) which is evidenced by any promissory note, chattel paper, or instrument unless the same is in possession of the ABL Administrative Agent, and to the extent necessary or appropriate, endorsed to the ABL Administrative Agent;

(r) which is owed by an Account Debtor located in Minnesota, New Jersey or any other jurisdiction which the ABL Administrative Agent notifies you requires the filing of a “Notice of Business Activities Report” or other similar report in order to permit a Loan Party to seek judicial enforcement in such jurisdiction of payment of such Account, unless the relevant Loan Party has filed such report or qualified to do business in such jurisdiction;

(s) with respect to which a Loan Party has made any agreement with the Account Debtor for any reduction thereof, other than discounts and adjustments given in the ordinary course of business, or any Account which was partially paid and such Loan Party created a new receivable for the unpaid portion of such Account;

(t) which does not comply in all material respects with the requirements of all applicable laws and regulations, whether Federal, state or local, including without limitation the Federal Consumer Credit Protection Act, the Federal Truth in Lending Act and Regulation Z of the Board;

(u) which is for goods that have been sold under a purchase order or pursuant to the terms of a contract or other agreement or understanding (written or oral) that indicates or purports that any Person other than a Loan Party has or has had an ownership interest in such goods, or which indicates any party other than a Loan Party as payee or remittance party;

(v) which was created on cash on delivery terms;

(w) which the ABL Administrative Agent reasonably determines in its Permitted Discretion may not be paid by reason of the Account Debtor’s inability to pay; or

(x) which is a Credit Card Account Receivable.

In determining the amount of an Eligible Account, the face amount of an Account shall be reduced by, without duplication, to the extent not reflected in such face amount, (i) the amount of all accrued and actual discounts, claims, credits or credits pending, promotional program allowances, price adjustments, finance charges or other allowances (including any amount that any Loan Party may be obligated to rebate to an Account Debtor pursuant to the terms of any agreement or understanding (written or oral)) and (ii) the aggregate amount of all cash received in respect of such Account but not yet applied by the applicable Loan Party to reduce the amount of such Account. Standards of eligibility may be made more restrictive from time to time solely

15

by the ABL Administrative Agent in the exercise of its Permitted Discretion, with any such changes to be effective five (5) Business Days after delivery of notice thereof to the Borrower and the Lenders.

“Eligible Credit Card Account Receivable” means, at the time of any determination thereof, each Credit Card Account Receivable that satisfies the following criteria at the time of creation and continues to meet the same at the time of such determination: such Credit Card Account Receivable (i) has been earned and represents the bona fide amounts due to a Loan Party from a Credit Card Processor and/or Credit Card Issuer, and in each case originated in the ordinary course of business of the applicable Loan Party and (ii) is not ineligible for inclusion in the calculation of the Borrowing Base pursuant to any of the clauses (a) through (i) below. Without limiting the foregoing, to qualify as an Eligible Credit Card Account Receivable, a Credit Card Account Receivable shall indicate no person other than a Loan Party as payee or remittance party. Without limiting the ABL Administrative Agent’s Permitted Discretion provided herein, Eligible Credit Card Account Receivable shall not include any Credit Card Account Receivable if:

(a) such Credit Card Account Receivable is not owned by a Loan Party and such Loan Party does not have good or marketable title to such Credit Card Account Receivable;

(b) such Credit Card Account Receivable does not constitute an “Account” (as defined in the UCC) or such Credit Card Account Receivable has been outstanding more than seven (7) Business Days;

(c) the Credit Card Issuer or Credit Card Processor of the applicable credit card with respect to such Credit Card Account Receivable is the subject of any bankruptcy or insolvency proceedings;

(d) such Credit Card Account Receivable is not a valid, legally enforceable obligation of the applicable Credit Card Issuer with respect thereto;

(e) such Credit Card Account Receivable is not subject to a properly perfected security interest in favor of the ABL Administrative Agent, or is subject to any Lien whatsoever other than Permitted Encumbrances contemplated by the processor agreements and for which appropriate reserves (as reasonably determined by the ABL Administrative Agent) have been established or maintained by the Loan Parties;

(f) such Credit Card Account Receivable does not conform in all material respects to all representations, warranties or other provisions in the Loan Documents or in the Credit Card Agreements relating to Credit Card Account Receivable;

(g) such Credit Card Account Receivable is subject to risk of set-off, non- collection or not being processed due to unpaid and/or accrued credit card processor fee balances, limited to the lesser of the balance of Credit Card Account Receivable or unpaid credit card processor fees;

(h) such Credit Card Account Receivable is evidenced by “chattel paper” or an “instrument” of any kind unless such “chattel paper” or “instrument” is in the possession of

16

the ABL Administrative Agent, and to the extent necessary or appropriate, endorsed to the ABL Administrative Agent; or

(i) such Credit Card Account Receivable does not meet such other usual and customary eligibility criteria for Credit Card Account Receivable as the ABL Administrative Agent may determine from time to time in its Permitted Discretion.

In determining the amount to be so included in the calculation of value of an Eligible Credit Card Receivable, the face amount of a Credit Card Account Receivable shall be reduced by, without duplication, to the extent not reflected in such face amount, (i) the amount of all customary fees and expenses in connection with any credit card arrangements and (ii) the aggregate amount of all cash received in respect of such Credit Card Account Receivable but not yet applied by the Borrower to reduce the amount of such Credit Card Account Receivable.

“Eligible Inventory” means all Inventory of a Loan Party that is not ineligible for inclusion in the calculation of the Borrowing Base pursuant to any of clauses (a) through (1) below. Without limiting the ABL Administrative Agent’s Permitted Discretion provided herein, Eligible Inventory shall not include any Inventory:

(a) which is not subject to a first priority perfected Lien in favor of the ABL Administrative Agent;

(b) which is subject to any Lien other than (i) a Lien in favor of the ABL Administrative Agent and (ii) a Permitted Encumbrance;

(c) which is, in the ABL Administrative Agent’s reasonable opinion, unmerchantable, defective, used, unfit for sale, not salable at prices approximating at least the cost of such Inventory in the ordinary course of business or unacceptable due to age, type, category and/or quantity;

(d) with respect to which any covenant, representation, or warranty contained in this Agreement or the Security Agreement has been breached or is not true in all material respects and which does not conform in all material respects to all standards imposed by any Governmental Authority;

(e) in which any Person other than any Loan Party shall (i) have any direct or indirect ownership, interest or title to such Inventory or (ii) be indicated on any purchase order or invoice with respect to such Inventory as having or purporting to have an interest therein;

(f) which is operating supplies, packaging or shipping materials, cartons, labels or other such materials not considered used for sale in the ordinary course of business by the ABL Administrative Agent in its Permitted Discretion;

(g) which is not located in the U.S. or is in transit with a common carrier from vendors and suppliers and has not yet been received into a distribution center or store; provided that in-transit inventory purchased under Letters of Credit hereunder shall be deemed Eligible Inventory, subject to a twenty-five percent (25%) reserve, if (i) a Loan Party has sole title, (ii) a Loan Party has possession or control over title documents relating to such Inventory and a Loan

17

Party is named as the consignee of such title documents, (iii) the Collateral Agent has received a Customs Broker Agreement from each customs broker and freight forwarder acting on behalf of any Loan Party, (iv) the Inventory is fully insured, (v) the Inventory is not commingled with Inventory of any other third party (which, for the avoidance of doubt, shall include Sears), and (vi) the Inventory would not be deemed ineligible pursuant to any other provision of this definition;

(h) which is located in any third party warehouse or is in the possession of a bailee (other than a third party processor) and is not evidenced by a Document, unless (i) such warehouseman or bailee has delivered to the ABL Administrative Agent a Collateral Access Agreement and such other documentation as the ABL Administrative Agent may require or (ii) an appropriate Reserve has been established by the ABL Administrative Agent in its Permitted Discretion;

(i) which is the subject of a consignment by a Loan Party as consignor;

(j) which is perishable;

(k) which contains or bears any intellectual property rights licensed to a Loan Party unless the ABL Administrative Agent is reasonably satisfied that it may sell or otherwise dispose of such Inventory without (i) infringing the rights of such licensor, (ii) violating any contract with such licensor, or (iii) incurring any liability with respect to payment of royalties other than royalties incurred pursuant to sale of such Inventory under the then current licensing agreement; or

(l) which is not reflected in a current perpetual inventory report of a Loan Party.

Standards of eligibility may be made more restrictive from time to time solely by the ABL Administrative Agent in the exercise of its Permitted Discretion, with any such changes to be effective five (5) Business Days after delivery of notice thereof to the Borrower and the Lenders.

“Environmental Laws” means all applicable laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the protection of the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to the extent relating to the presence or exposure to Hazardous Materials, to health and safety matters.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

18

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.

“Event of Default” has the meaning assigned to such term in Article VII.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Excluded Taxes” means, with respect to the ABL Administrative Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.19(b)), any withholding tax that is imposed on amounts

19

payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender’s failure to comply with Section 2.17(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.17(a).

“Existing Credit Agreement” has the meaning assigned to such term in the preamble.

“Existing Letters of Credit” means each of the Letters of Credit described on Schedule 2.06 issued and outstanding under the Existing Credit Agreement immediately prior to the Effective Date.

“Extended Term Applicable Rate” means, for any day, with respect to any Base Rate Loan, Eurodollar Revolving Loan, Trade Letter of Credit or Standby Letter of Credit made, or participated in, by the Extending Lenders, or with respect to the commitment fees payable hereunder to the Extending Lenders, as the case may be, the applicable rate per annum set forth below under the caption “Base Rate Spread”, “Eurodollar Spread” “Trade Letter of Credit Fee Rate,” “Standby Letter of Credit Fee Rate” or “Revolving Commitment Fee Rate”, as the case may be, based upon the Borrower’s Leverage Ratio as of the most recent determination date; provided that until the first Business Day following the completion of the first full fiscal quarter after the Effective Date with respect to which the Borrower shall have delivered to the ABL Administrative Agent, pursuant to Section 5.01, the Borrower’s consolidated financial information, the “Extended Term Applicable Rate” shall be the applicable rate per annum set forth below in Category 4:

Leverage Ratio	Base Rate Spread			Eurodollar Spread			Trade Letter of Credit Fee Rate			Standby Letter of Credit Fee Rate			Revolving Commitment Fee Rate
Category 1 > 5.25 to 1.0		2.25	%		3.25	%		2.75	%		3.25	%		0.50	%
Category 2 <5.25 to 1.0 but > to 5.00 to 1.0		2.00	%		3.00	%		2.50	%		3.00	%		0.50	%
Category 3 < 5.00 to 1.0 but > 4.75 to 1.0		1.75	%		2.75	%		2.25	%		2.75	%		0.75	%
Category 4 < 4.75 to 1.0		1.50	%		2.50	%		2.00	%		2.50	%		0.75	%

For purposes of the foregoing, (a) the Extended Term Applicable Rate shall be determined as of the end of each fiscal quarter of the Borrower based upon the Borrower’s annual or quarterly, as applicable, consolidated financial statements delivered pursuant to

20

Section 5.01 and (b) each change in the Extended Term Applicable Rate resulting from a change in the Leverage Ratio shall be effective during the period commencing on and including the date of delivery to the ABL Administrative Agent of such consolidated financial statements and certificate of a Financial Officer of the Borrower indicating such change and ending on the date immediately preceding the effective date of the next such change, provided that the Leverage Ratio shall be deemed to be in Category 1 (A) at any time that an Event of Default has occurred and is continuing or (B) at the option of the ABL Administrative Agent or at the request of the Required Lenders if the Borrower fails to deliver the annual, quarterly or monthly (if applicable) consolidated financial statements required to be delivered by it pursuant to Section 5.01. during the period from the expiration of the time for delivery thereof until such consolidated financial statements and certificate of a Financial Officer of the Borrower are delivered.

“Extended Term Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate, as in effect from time to time, plus one-half of one percent (0.50%), (b) the Adjusted LIBO Rate (calculated utilizing a one-month Interest Period) plus one percent (1.00%), or (c) the Prime Rate in effect for such day. Any change in the Extended Term Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate, respectively.

“Extended Termination Date” means the earlier of (a) December 21, 2013 or (b) ninety (90) days prior to the maturity date of the Term Facility.

“Extending Lender” means each Lender listed on the Commitment Schedule under the heading “Extending Lenders”, whose Revolving Commitment shall terminate on the Extended Termination Date or such earlier date set forth in the definition of “Revolving Credit Termination Date”.

“Facilities” means, collectively, the Term Facility and the ABL Facility.

“Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the ABL Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“Fee Letter” means the letter agreement, dated as of January 29, 2010, between the Borrower and the ABL Administrative Agent, as amended, modified, supplemented or restated and in effect from time to time.

“Finance Corporation” means OSH Finance Corporation.

“Financial Officer” means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of a Loan Party or any of the other individuals designated in writing to the ABL Administrative Agent by an existing Financial Officer of a Loan Party as an

21

authorized signatory of any certificate or other document to be delivered hereunder. Any document delivered hereunder that is signed by a Financial Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Financial Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“Fixed Charges” means, with reference to any period, for the Borrower and its Restricted Subsidiaries on a consolidated basis, without duplication, the sum of cash Interest Expense for such period, plus cash Rent Expense for such period plus amounts paid in cash by the Borrower or any of its Restricted Subsidiaries on account of Capital Expenditures during such period (excluding the principal aggregate amount of indebtedness incurred in connection with such Capital Expenditures), plus scheduled principal payments on Indebtedness made during such period plus expense for income taxes or tax sharing distributions paid pursuant to Section 6.08(a)(iv) by the Borrower or any of its Restricted Subsidiaries in cash during such period, plus Restricted Payments paid by the Borrower or any of its Restricted Subsidiaries in cash during such period.

“Fixed Charge Coverage Ratio” means, for any period of twelve consecutive months, the ratio, determined as of the end of each fiscal month of the Borrower, of (a) EBITDAR for such period to (b) Fixed Charges for such period, all calculated for the Borrower and its Restricted Subsidiaries on a consolidated basis in accordance with GAAP.

“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“Fronting Fee” has the meaning assigned to such term in Section 2.06(j).

“Funding Account” means account number 1487602794 maintained by the Borrower with Bank of America, N.A. and designated as the “Main Concentration Account”.

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.

“Gift Card Liability Reserve” means, at any fiscal month end, as the case may be, a reserve equal to the total value of all gift cards outstanding.

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect,

22

(a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee of any guarantor shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made and (b) the maximum amount for which such guarantor may be liable pursuant to the terms of the instrument embodying such Guarantee, unless such primary obligation and the maximum amount for which such guarantor may be liable are not stated or determinable, in which case the amount of such Guarantee shall be such guarantor’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.

“Guaranteed Obligations” has the meaning assigned to such term in Section 10.01.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Holdings” has the meaning assigned to such term in the preamble.

“Home Services Agreement” means the Home Services Agreement, dated as of November 23, 2005, between the Borrower and Sears, as modified by that certain letter agreement, dated as of October 30, 2009, among Sears, Sears Brands Management Corporation, Sears Protection Company and the Borrower.

“Honor Notice Date” has the meaning assigned to such term in Section 2.06(c)(i).

“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business and any earn-out obligation until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP but including any liquidated earn-out), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and

23

letters of guaranty, (i) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Initial Loans” means the loans which, subject to the Borrowing Base, can be drawn on the Effective Date.

“Intercreditor Agreement” means the Amended and Restated Intercreditor Agreement, dated as of the Effective Date, among the Term Administrative Agent, the Term Collateral Agent, the ABL Administrative Agent, the Collateral Agent, the Borrower and the Loan Guarantors.

“Interest Election Request” means a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.08.

“Interest Expense” means, with reference to any period, total cash interest expense (including that attributable to Capital Lease Obligations) of the Borrower and its Restricted Subsidiaries for such period with respect to all outstanding Indebtedness of the Borrower and its Restricted Subsidiaries (including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Swap Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP), calculated on a consolidated basis for the Borrower and its Restricted Subsidiaries for such period in accordance with GAAP.

“Interest Payment Date” means: (a) with respect to any Base Rate Loan (including any Swingline Loan) the last day of each of March, June, September and December and the Revolving Credit Termination Date with respect to Non-Extending Lenders or Extending Lenders, as the case may be; and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Revolving Credit Termination Date with respect to Non-Extending Lenders and Extending Lenders, as the case may be. Notwithstanding the foregoing, upon the occurrence and during the continuance of an Event of Default, “Interest Payment Date” means, with respect to any Base Rate Loan (including any Swingline Loan), the last day of each month and the Revolving Credit Termination Date with respect to Non-Extending Lenders or Extending Lenders, as the case may be.

“Interest Period” means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, if available to all Lenders, nine or twelve months) thereafter, as the Borrower may elect; provided that (i) if any Interest Period

24

would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

“Inventory” has the meaning assigned to such term in the ABL Loan Security Agreement.

“Inventory Reserves” shall mean reserves against Inventory equal to the sum of the following:

(a) a reserve for shrink, or discrepancies between Inventory quantities on hand pursuant to the Borrower’s perpetual and physical counts of the Inventory had a full physical count been performed as of the date of the most recently delivered Borrowing Base Certificate; and

(b) a reserve reasonably determined by the ABL Administrative Agent in its Permitted Discretion for Inventory that is discontinued or slow-moving; and

(c) a reserve for Inventory which is designated to be returned to vendor or which is recognized as damaged or off quality or not to customer specifications by the Borrower; and

(d) any other reserve as deemed appropriate by the ABL Administrative Agent in its Permitted Discretion, from time to time.

“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).

“Issuer Documents” means, with respect to any Letter of Credit, the Letter Credit Application, and any other document, agreement and instrument entered into by any Issuing Bank and the Borrower (or any Subsidiary) and relating to any such Letter of Credit.

“Issuing Bank” means (a) Wells Fargo, in its capacity as the issuer of Letters of Credit hereunder, (b) Bank of America, N.A. or an Affiliate thereof, and (c) any other Lender designated as an Issuing Bank by the Borrower and the ABL Administrative Agent (such approval not to be unreasonably withheld) and their successors in such capacity as provided in Section 2.06(1). Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.

“Joinder Agreement” has the meaning assigned to such term in Section 5.11.

25

“LC Advance” means, with respect to each Lender, such Lender’s funding of its participation in any LC Borrowing in accordance with its Applicable Percentage.

“LC Borrowing” means an LC Disbursement which has not been reimbursed on the date when reimbursement is required pursuant to the terms of Section 2.06(c)(i) and which has not been refinanced as a Revolving Borrowing pursuant to the terms of Section 2.06(c)(i).

“LC Collateral Account” has the meaning assigned to such term in Section 2.06(g).

“LC Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.

“LC Disbursement” means a payment made by an Issuing Bank pursuant to a Letter of Credit.

“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Borrowings. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.

“Leasehold Mortgages” means the leasehold mortgages in favor of the Collateral Agent made by the Borrower or any other Loan Party, each in form and substance reasonably satisfactory to the Collateral Agent.

“Leasehold Mortgage Supporting Documents” means, with respect to a Leasehold Mortgage, each of the following:

(a) (i) evidence in form and substance reasonably satisfactory to the ABL Collateral Agent that the recording of counterparts of such Leasehold Mortgage in the recording offices specified in such Leasehold Mortgage will create a valid and enforceable first priority lien on the rights described therein in favor of the Collateral Agent, for its own benefit and the benefit of the ABL Administrative Agent and the Lenders (or in favor of such other trustee as may be required or desired under local law), subject only to (A) Liens permitted under Section 6.02 and (B) such other Liens as the ABL Administrative Agent may reasonably approve and (ii) an opinion of counsel in each state in which any such Leasehold Mortgage is to be recorded in form and substance and from counsel reasonably satisfactory to the ABL Administrative Agent; and

(b) such other agreements, documents and instruments (including, without limitation, (i) title searches (together with all documents referred to therein), (ii) maps, plats, as-built surveys, and environmental reports (in each case, to the extent existing) and (iii) evidence regarding recording and payment of all recording fees and stamp, documentation, intangible or mortgage taxes, if any), each in form and substance reasonably satisfactory to the Collateral Agent, as the Collateral Agent deems necessary or appropriate to create, register or otherwise perfect, maintain, evidence the existence, substance, form or validity of, or enforce a valid and enforceable first priority lien on such rights in favor of the Collateral Agent, for its own benefit and the benefit of the ABL Administrative Agent and the Lenders (or in favor of such other trustee as may be required or desired under local law), subject only to (A) Liens permitted under

26

Section 6.02 and (B) such other Liens as the ABL Administrative Agent may reasonably approve.

“Leases” means, with respect to any Person, all of those leasehold estates in real property of such Person, as lessee, as such may be amended, supplemented or otherwise modified from time to time.

“Lenders” means the Persons listed on the Commitment Schedule (including all Extending Lenders and Non-Extending Lenders) and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lender.

“Letter of Credit” means any Trade Letter of Credit or any Standby Letter of Credit issued pursuant to this Agreement. Without limiting the foregoing, the Existing Letters of Credit shall be deemed to be Letters of Credit issued under this Agreement.

“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by any Issuing Bank.

“Letter of Credit Expiration Date” means the day that is five (5) days prior to the Extended Termination Date (or, if such day is not a Business Day, the next preceding Business Day).

“Letter of Credit Fee” has the meaning assigned to such term in Section 2.06(i).

“Leverage Ratio” means, on the last day of any fiscal quarter, the ratio of (a) Total Funded Debt on such date to (b) EBITDA for the period of four fiscal quarters ended on such date.

“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the ABL Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the ABL Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset and (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title

27

retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset.

“Loan Documents” means this Agreement, any promissory notes issued pursuant to this Agreement, any Letter of Credit Applications, the Fee Letter, the Collateral Documents, the Loan Guaranty, the Intercreditor Agreement, and all other agreements, instruments, documents and certificates identified in Section 4.01 executed and delivered to, or in favor of, the ABL Administrative Agent or any Lenders and including, without limitation, all other pledges, powers of attorney, consents, assignments, contracts, notices, letter of credit agreements and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Loan Party, or any employee of any Loan Party, and delivered to the ABL Administrative Agent or any Lender in connection with the Agreement or the transactions contemplated thereby. Any reference in this Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to this Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes operative.

“Loan Guarantor” means Holdings, each Restricted Subsidiary of the Borrower party to this Agreement and any other Person who becomes a party to this Agreement pursuant to a Joinder Agreement and their successors and assigns.

“Loan Guaranty” means Article X of this Agreement.

“Loan Parties” means Holdings, the Borrower and the Loan Guarantors and their successors and assigns, but in no event including the Unrestricted Subsidiary.

“Loans” means the loans and advances made by the Lenders pursuant to this Agreement, including Swingline Loans and Protective Advances.

“Management Services Agreement” means the Management Services Agreement, dated as of November 23, 2005, among the Borrower, Holdings and ACOF Operating Manager, LP.

“Master Operating Lease” means the lease agreement, dated as of November 23, 2005, between Real Property Holding Company, as landlord, and the Borrower, as tenant, as amended by that certain First Amendment to Lease dated as of February 13, 2006.

“Material Adverse Effect” means a material adverse effect on: (a) the assets and liabilities (taken together), results of operations or condition (financial or otherwise) of (i) Holdings and its Subsidiaries taken as a whole or (ii) Holdings and the Restricted Subsidiaries taken as a whole; (b) the ability of any Loan Party to perform any of its obligations under the Loan Documents to which it is a party; or (c) the ability of the ABL Administrative Agent, the Issuing Banks and the Lenders to enforce any of the Loan Documents.

“Material Indebtedness” means (a) Indebtedness arising under the Term Loan Documents and (b) other Indebtedness (other than the Loans and Letters of Credit), and obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the “obligations” of the Borrower or any Subsidiary in

28

respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.

“Maximum Availability” means, at any time, (a) the lesser of (i) the aggregate Revolving Commitments in effect at such time and (ii) the Borrowing Base at such time minus (b) the aggregate amount of any Availability Reserves in effect at such time.

“Maximum Liability” has the meaning assigned to such term in Section 10.10.

“Moody’s” means Moody’s Investors Service, Inc.

“Multiemplover Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“Net Income” means, for any period, the consolidated net income (or loss) of the Borrower and its Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Restricted Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Restricted Subsidiaries, (b) the income (or deficit) of any Person (other than a Restricted Subsidiary of the Borrower) in which the Borrower or any of its Restricted Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Restricted Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Restricted Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary is not at the time permitted by the terms of any contractual obligation (other than under any Loan Document) or Requirement of Law applicable to such Restricted Subsidiary.

“Net Orderly Liquidation Value” means, at any time, the estimated net income, payments and proceeds (net of expenses) which could reasonably be realized in connection with an orderly liquidation of each Loan Party’s Inventory given a reasonable period of time for soliciting offers for the sale of such Inventory on an “as is, where is” basis (expressed as a percentage) based on an updated appraisal provided by an independent third party appraiser retained or approved by the ABL Administrative Agent in consultation with the Borrower.

“Net Proceeds” means, with respect to any Prepayment Event, (a) the cash proceeds received in respect of such event including (i) any cash received in respect of any non-cash proceeds (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but excluding any interest payments), but only as and when received, (ii) in the case of a casualty, insurance proceeds and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments, net of (b) the sum of (i) all reasonable attorneys’ fees, accountants’ fees, investment banking fees and other reasonable fees and out-of-pocket expenses paid to third parties (other than Affiliates) in connection with such event, (ii) in the case of a sale, transfer or other disposition of an asset (including pursuant to a sale and leaseback transaction or a casualty or a condemnation or similar proceeding), the amount of all payments

29

required to be made as a result of such event to repay Indebtedness (other than the Loans and the Term Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event and to pay any interest, premium or other amounts in connection therewith and (iii) the amount of all taxes paid (or reasonably estimated to be payable) as a result thereof and the amount of any reserves established to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding year and that are directly attributable to such event (as determined reasonably and in good faith by a Financial Officer).

“Non-Consenting Lender” has the meaning assigned to such term in Section 9.02(d).

“Non-Extending Lender” means each Lender listed on the Commitment Schedule under the heading “Non-Extending Lenders”, whose Revolving Commitment shall terminate on the Scheduled Termination Date or such earlier date set forth in the definition of “Revolving Credit Termination Date”.

“Non-Extension Notice Date” has the meaning assigned to such term in Section 2.06(b)(ii).

“Non-Paying Guarantor” has the meaning assigned to such term in Section 10.11.

“Obligated Party” has the meaning assigned to such term in Section 10.02.

“Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all LC Exposure, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Loan Parties to each Lender, the ABL Administrative Agent, each Issuing Bank or any indemnified party arising under the Loan Documents.

“Original Agent” has the meaning assigned to such term in the preamble.

“Other Taxes” means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of this Agreement.

“Participant” has the meaning assigned to such term in Section 9.04.

“Patriot Act” has the meaning assigned to such term in Section 9.14.

“Paying Guarantor” has the meaning assigned to such term in Section 10.11.

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

“Permitted Discretion” means a determination made in good faith and in the exercise of reasonable (from the perspective of secured asset-based lenders in similar financings) commercial judgment in accordance with customary business practices for comparable asset-based loans.

30

“Permitted Encumbrances” means:

(a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04;

(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04;

(c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations or to secure public or statutory obligations;

(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (j) of Article VII;

(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Restricted Subsidiary;

(g) pledges and deposits in the ordinary course of business securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to the Borrower or any of its Restricted Subsidiaries;

(h) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;

(i) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale of goods entered into by the Borrower or any of its Restricted Subsidiaries in the ordinary course of business permitted by this Agreement;

(j) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Borrower or any of its Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of Borrower and its Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Borrower or any of its Restricted Subsidiaries in the ordinary course of business;

31

(k) Liens solely on any cash earnest money deposits made by the Borrower or any of its Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder; and

(1) Liens in favor of Credit Card Issuers arising in the ordinary course of business securing the obligation to pay customary fees and expenses in connection with credit card arrangements,

provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.

“Permitted Holders” means (a) Sears Holding Corporation, (b) ACOF I LLC and (c) ESL Investments, Inc. and their respective Related Parties and Affiliates.

“Permitted Investments” means:

(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;

(b) investments in commercial paper maturing within 12 months from the date of acquisition thereof and having, at such date of acquisition, a rating of at least A-2 (or the then equivalent grade) from S&P or P-2 (or the then equivalent grade) from Moody’s;

(c) investments in certificates of deposit, banker’s acceptances and time deposits maturing within 12 months from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $250,000,000;

(d) repurchase agreements with a term of not more than 30 days for securities issued or fully guaranteed by the United States government entered into with a financial institution satisfying the criteria described in clause (c) above; and

(e) securities issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s;

(f) securities backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (c) of this definition;

(g) money market mutual or similar funds that invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition; and

32

(h) money market funds that (i) comply with the criteria set forth in Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Pledged Collateral” has the meaning assigned to such term in the ABL Loan Security Agreement.

“Prepayment Event” means:

(a) any sale, transfer or other disposition (including pursuant to a sale and leaseback transaction) of any property or asset of any Loan Party which constitutes Collateral, other than dispositions described in Sections 6.05(a) through (d), (f), (g) and (h); or

(b) any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of any Loan Party which constitutes Collateral.

“Primary Collateral Access Agreement” means the Primary Collateral Access Agreement, dated as of January 17, 2007, among (a) the Original Agent, (b) Wells Fargo Bank, N.A., as trustee for the benefit of the holders of J.P. Morgan Chase Commercial Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2006-FL 1 and as administrative agent for itself and certain co-lenders under the Real Estate Credit Agreement, (b) the Borrower, (c) Holdings, (d) the Real Property Holding Company and (e) certain subsidiaries of the Borrower, as amended, amended and restated, replaced, supplemented or modified from time to time.

“Prime Rate” means the rate of interest as publicly announced from time to time by Wells Fargo as its “prime rate.” The “prime rate” is a rate set by Wells Fargo based upon various factors including Wells Fargo’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Wells Fargo shall take effect at the opening of business on the day specified in the public announcement of such change.

“Projections” has the meaning assigned to such term in Section 5.01(f).

“Protective Advance” has the meaning assigned to such term in Section 2.04.

“Public Equity Offering” means any underwritten public offering of common stock of Holdings.

33

“Real Estate Credit Agreement” means the Real Estate Loan Agreement, dated as of November 23, 2005, between the Real Property Holding Company, as borrower, and Citigroup Global Markets Realty Corp., as administrative agent and lender, as amended from time to time.

“Real Estate Debt” means secured Indebtedness in a principal amount of $120,000,000 of OSH Properties LLC pursuant to the Real Estate Credit Agreement.

“Real Property” means all now owned and hereafter acquired real property of the Borrower and the Restricted Subsidiaries, including leasehold interests, together with all buildings, structures, and other improvements located thereon and all licenses, easements and appurtenances relating thereto, wherever located.

“Real Property Holding Company” means OSH Properties LLC, which is a Special Purpose Vehicle.

“Real Property Holding Company Collateral Access Agreement” means the Amended and Restated Collateral Access Agreement, dated as of December 21, 2006, by OSH Properties LLC in favor of the Original Agent, as amended, amended and restated, replaced, supplemented or modified from time to time.

“Register” has the meaning set forth in Section 9.04.

“Reimbursement Date” has the meaning assigned to such term in Section 2.06(c)(i).

“Related Documents” means the Master Operating Lease, the Brand Sales Agreement, the Transition Services Agreement, the Tax Sharing Agreement, the Appliance Sales Agreement, the Authorized Seller Agreement, the Home Services Agreement, the Management Services Agreement, the Real Estate Credit Agreement, the Stockholders’ Agreement and each other material document executed or issued in connection therewith, in each case as amended, amended and restated, replaced, supplemented or modified and in effect from time to time in accordance with the terms of Section 6.11.

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

“Rent Expense” means, for any period, the aggregate amount of cash rental and lease charges payable by Borrower and its Restricted Subsidiaries, including, for the avoidance of doubt, rental payments to the Unrestricted Subsidiary, for such period with respect to operating leases of Real Property, determined on a consolidated basis in accordance with GAAP.

“Rent Reserve” with respect to any store, warehouse distribution center, regional distribution center or depot where any Inventory subject to Liens arising by operation of law is located or with respect to which a Collateral Access Agreement has not been delivered, a reserve equal to two (2) month’s rent at such store, warehouse distribution center, regional distribution center or depot.

34

“Report” means reports prepared by the ABL Administrative Agent or another Person showing the results of appraisals, field examinations or audits pertaining to the Borrower’s assets from information furnished by or on behalf of the Borrower, after the ABL Administrative Agent has exercised its rights of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the ABL Administrative Agent.

“Required Lenders” means, at any time, Lenders having Revolving Exposure and unused Revolving Commitments representing more than 50% of the sum of the total Revolving Exposure and unused Revolving Commitments at such time; provided that, if Ares Capital Markets Group shall at any time hold more than 15% of the total Revolving Exposure and unused Revolving Commitments, “Required Lenders” shall mean Lenders holding more than 50% of (i) the sum of the total Revolving Exposure and unused Revolving Commitments minus (ii) any amount of such Revolving Exposure and unused Revolving Commitments held by Ares Capital Markets Group (the “Disqualified Ares Loans”) in excess of 15% of the total amount of such Revolving Exposure and unused Revolving Commitments; provided further that, with respect to any amendment, waiver or modification of this Agreement or any Loan Document requiring the consent of the Required Lenders or of all affected Lenders, Ares Capital Markets Group shall not be entitled to vote with respect to any such Disqualified Ares Loans.

“Requirement of Law” as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Reserves” means Dilution Reserves, Inventory Reserves, Rent Reserves, Gift Card Liability Reserves and Availability Reserves.

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower or any Restricted Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any Restricted Subsidiary or any option, warrant or other right to acquire any such Equity Interests in the Borrower or any Restricted Subsidiary.

“Restricted Subsidiary” means any Subsidiary of Holdings and the Borrower other than the Unrestricted Subsidiary.

“Revolving Commitment” means, with respect to each Lender, the commitment, if any, of such Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum possible aggregate amount of such Lender’s Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.09, and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04 together with the commitment of such lender to acquire participations in Protective Advances hereunder. The initial amount of each Lender’s Revolving Commitment is set forth on the Commitment

35

Schedule, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. The initial aggregate amount of the Lenders’ Revolving Commitments is $120,000,000.

“Revolving Credit Termination Date” means (a) with respect to the Revolving Commitments of the Non-Extending Lenders, the Scheduled Termination Date or any earlier date on which the Revolving Commitments of the Non-Extending Lenders are permanently reduced to zero or otherwise terminated pursuant to the terms hereof and (b) with respect to the Revolving Commitments of the Extending Lenders, the Extended Termination Date or any earlier date on which the Revolving Commitments of the Extending Lenders are permanently reduced to zero or otherwise terminated pursuant to the terms hereof.

“Revolving Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Revolving Loans and its LC Exposure and an amount equal to its Applicable Percentage of the aggregate principal amount of Swingline Loans at such time, plus an amount equal to its Applicable Percentage of the aggregate principal amount of Protective Advances outstanding at such time.

“Revolving Loan” means a Loan made pursuant to Section 2.02(a).

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc.

“Scheduled Termination Date” means December 21, 2011.

“Sears” means Sears, Roebuck and Co.

“Secured Obligations” means all Obligations, together with all (i) Banking Services Obligations and (ii) Swap Obligations owing to one or more Lenders or their respective Affiliates; provided that, at or prior to the time that any transaction relating to such Swap Obligation is executed, the Lender party thereto (other than WFRF) shall have delivered written notice to the ABL Administrative Agent that such a transaction has been entered into and that it constitutes a Secured Obligation entitled to the benefits of the Collateral Documents.

“Security Agreements” means, collectively, the ABL Loan Security Agreement and the Term Loan Security Agreement.

“Special Purpose Vehicle” means a trust, partnership or other special purpose Person established by Holdings or the Borrower in a manner that is intended to legally isolate the assets of such Person from Holdings and its other Subsidiaries as a consolidated group.

“Standby Letter of Credit” means any letter of credit (other than a Trade Letter of Credit) issued by an Issuing Bank for the account of a Loan Party pursuant to this Agreement and all amendments, renewals, extensions and replacements thereof.

“Stated Amount” means, at any time, the maximum amount for which a Letter of Credit may be honored.

36

“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the ABL Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“Stockholders’ Agreement” means the Amended and Restated Stockholders’ Agreement, dated as of January 8, 2009, among Holdings, ACOF I LLC and Sears.

“Subordinated Indebtedness” of a Person means any Indebtedness of such Person the payment of which is subordinated to payment of the Obligations, the Swap Obligations and the Banking Services Obligations to the written satisfaction of the ABL Administrative Agent.

“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

“Subsidiary” means any subsidiary of the Borrower or a Loan Party, as applicable.

“Supermajority Lenders” means, at any time, Lenders having Revolving Exposure and unused Revolving Commitments representing more than 66 ²/3% of the sum of the total Revolving Exposure and unused Revolving Commitments at such time.

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

37

“Swap Obligations” of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Swap Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Swap Agreement transaction.

“Swingline Lender” means Wells Fargo Retail Finance, LLC, in its capacity as lender of Swingline Loans hereunder.

“Swingline Loan” means a Loan made pursuant to Section 2.05.

“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“Tax Sharing Agreement” means the Tax Sharing Agreement, dated as of November 23, 2005, among Holdings, Sears Holdings Corporation and all direct and indirect subsidiaries of Holdings.

“Term Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Term Lenders under the Term Loan Agreement, or its successors.

“Term Collateral Agent” means JPMorgan Chase Bank, N.A., in its capacity as collateral agent for the Term Lenders under the Term Loan Agreement, or its successors.

“Term Facility” means the term loans under the Term Loan Agreement.

“Term Facility Primary Collateral” has the meaning assigned to such term in the Intercreditor Agreement.

“Term Lenders” means the lenders under the Term Loan Agreement.

“Term Loan Agreement” means the Term Loan Agreement dated as of December 21, 2006 among the Borrower, the Loan Guarantors, the Term Lenders and the Term Administrative Agent.

“Term Loan Documents” means the “Loan Documents” (as such term is defined in the Term Loan Agreement).

“Term Loan Security Agreement” means that certain Pledge and Security Agreement, dated as of December 21, 2006, between the Loan Parties and the Term Collateral Agent, for the benefit of the Term Administrative Agent and the Term Lenders, and any other pledge or security agreement entered into after the date of the Term Loan Agreement by any other Loan Party (as required by the Term Loan Agreement or any other Term Loan Document), or any other Person, granting a Lien on any property to secure the obligations and liabilities of any Loan Party under any Term Loan Document, as the same may be amended, restated or otherwise modified from time to time.

38

“Total Funded Debt” means, at any date, the aggregate principal amount of all Indebtedness described in clauses (a), (b), (e), (f) (to the extent that such Person has become obligated to make payment in respect of such Guarantee) and (g) of the definition of “Indebtedness” of the Borrower and its Restricted Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP, but excluding (i) issued but undrawn letters of credit, (ii) reimbursement obligations which are characterized as trade payables and are not overdue with respect to trade letters of credit (other than Letters of Credit) and (iii) contingent obligations.

“Trade Letter of Credit” means any letter of credit that is drawable upon presentation of documents evidencing the sale or shipment of goods purchased by the Borrower or any of its Restricted Subsidiaries that are Loan Parties in the ordinary course of business that is issued by an Issuing Bank under this Agreement for the account of any Loan Party and all amendments, renewals, extensions or replacements thereof.

“Transactions” means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and other credit extensions, the use of the proceeds thereof, and the issuance of Letters of Credit hereunder, in each case on the Effective Date.

“Transition Period” means a period of sixty (60) days after the Effective Date (or such longer period as to which the ABL Administrative Agent and the Original Agent may mutually agree in advance in writing), during which period the Original Agent shall continue to act as “Collateral Agent” under, and as defined in, the Primary Collateral Access Agreement, the Real Property Holding Company Collateral Access Agreement and the existing Amended and Restated Deposit Account Control Agreement described in Section 5.14(b).

“Transition Services Agreement” means the Services Agreement, dated as of November 23, 2005, between the Borrower and Sears, as amended by that certain First Amendment dated as of January 1,2009.

“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Base Rate or the Extended Term Base Rate.

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York or any other state the laws of which are required to be applied in connection with the issue of perfection of security interests.

“Unliquidated Obligations” means, at any time, any Secured Obligations (or portion thereof) that are contingent in nature or unliquidated at such time, including any Secured Obligation that is: (i) an obligation to reimburse a bank for drawings not yet made under a letter of credit issued by it; (ii) any other obligation (including any guarantee) that is contingent in nature at such time; or (iii) an obligation to provide collateral to secure any of the foregoing types of obligations.

“Unreimbursed Amount” has the meaning assigned to such term in Section 2.06(c)(i).

39

“Unrestricted Subsidiary” means the Real Property Holding Company and its subsidiaries, if any.

“Voting Stock” of any Person as of any date means the Equity Interests of such Person that are at the time entitled to vote in the election of the Board of Directors (or equivalent body) of such Person.

“Wells Fargo” means Wells Fargo Bank, N.A. and its successors. “WFRF” means Wells Fargo Retail Finance, LLC and its successors.

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

SECTION 1.02 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan”) or by Type (e.g., a “Eurodollar Loan”) or by Class and Type (e.g., a “Eurodollar Revolving Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Revolving Borrowing”) or by Type (e.g., a “Eurodollar Borrowing”) or by Class and Type (e.g., a “Eurodollar Revolving Borrowing”).

SECTION 1.03 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.04 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the ABL Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the ABL Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such

40

purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then the Borrower, the ABL Administrative Agent and the Lenders shall negotiate in good faith to amend such provision to preserve the original intent in light of such change in GAAP, and such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

SECTION 1.05 Letter of Credit Amounts. Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to be the Stated Amount of such Letter of Credit in effect at such time; provided, however, that, except as otherwise provided in Sections SECTION 2.06(i) and 2.06(j). with respect to any Letter of Credit that, by its terms of any Issuer Documents related thereto, provides for one or more automatic increases in the Stated Amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum Stated Amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum Stated Amount is in effect at such time.

SECTION 1.06 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

ARTICLE II

The Credits

SECTION 2.01 Revolving Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such Lender’s Revolving Exposure exceeding such Lender’s Revolving Commitment and (ii) the total Revolving Exposure of all Lenders exceeding the Maximum Availability, subject to the ABL Administrative Agent’s authority, in its Permitted Discretion, to make Protective Advances pursuant to the terms of Section 2.04. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.

SECTION 2.02 Loans and Borrowings.

(a) Each Loan (other than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Lenders ratably in accordance with their respective Revolving Commitments of the applicable Class. Any Protective Advance and any Swingline Loan shall be made in accordance with the procedures set forth in Section 2.04 and Section 2.05, respectively.

(b) Subject to Section 2.14, each Revolving Borrowing shall be comprised entirely of Base Rate Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Swingline Loan shall be a Base Rate Loan. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.

41

(c) Each Revolving Borrowing shall be in an aggregate amount of $1,000,000 or an integral multiple of $100,000 in excess thereof; provided that a Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Revolving Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(c). Each Swingline Loan shall be in an amount of $250,000 or an integral multiple of $100,000 in excess thereof. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of 10 Eurodollar Borrowings outstanding.

(d) Notwithstanding any other provision of this Agreement, (i) until such time as the Revolving Commitments of the Non-Extending Lenders shall have expired or been terminated and all Obligations owed to the Non-Extending Lenders shall have been paid in full, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Scheduled Termination Date, except with respect to Borrowings which, in the aggregate, do not exceed the amount of the Revolving Commitments of the Extending Lenders (provided that, in the event that, as of the Scheduled Termination Date, such Borrowings exceed either (A) Availability or (B) the Revolving Commitments of the Extending Lenders at such time, then the Borrower shall repay any Borrowings in an aggregate amount equal to such excess, together with any breakage costs, fees, and similar charges owing under this Agreement, on the Scheduled Termination Date), and (ii) thereafter, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Extended Termination Date.

SECTION 2.03 Requests for Revolving Borrowings. To request a Revolving Borrowing, the Borrower shall notify the ABL Administrative Agent of such request either in writing (delivered by hand or facsimile) in a form reasonably approved by the ABL Administrative Agent and signed by the Borrower or by telephone (a) in the case of a Eurodollar Borrowing, not later than 1:00 p.m., New York time, three Business Days before the date of the proposed Borrowing or (b) in the case of a Base Rate Borrowing, not later than 12:00 p.m., New York time, on the date of the proposed Borrowing; provided that any such notice of a Base Rate Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(c) may be given not later than 12:00 p.m., New York time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the ABL Administrative Agent of a written Borrowing Request in a form reasonably approved by the ABL Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:

(a) the aggregate amount of the requested Borrowing and a breakdown of the separate wires comprising such Borrowing;

(b) the date of such Borrowing, which shall be a Business Day;

(c) whether such Borrowing is to be a Base Rate Borrowing or a Eurodollar Borrowing; and

42

(d) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period.”

If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be a Base Rate Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the ABL Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.

SECTION 2.04 Protective Advances.

(a) Subject to the limitations set forth below, the ABL Administrative Agent is authorized by the Borrower and the Lenders, from time to time in the ABL Administrative Agent’s sole discretion (but shall have absolutely no obligation), to make Loans to the Borrower, on behalf of all Lenders, which the ABL Administrative Agent, in its Permitted Discretion, deems necessary or desirable (i) to preserve or protect the Collateral, or any portion thereof, (ii) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, or (iii) to pay any other amount chargeable to or required to be paid by the Borrower pursuant to the terms of this Agreement, including payments of reimbursable expenses (including costs, fees, and expenses as described in Section 9.03) and other sums payable under the Loan Documents (any of such Loans are herein referred to as “Protective Advances”); provided that, the aggregate amount of Protective Advances outstanding at any time shall not at any time exceed 5% of Maximum Availability at such time; provided further that, the aggregate amount of outstanding Protective Advances plus the aggregate Revolving Exposure shall not exceed the aggregate unused Revolving Commitments and provided further that no Protective Advance may remain outstanding for more than ninety (90) days. Protective Advances may be made even if the conditions precedent set forth in Section 4.02 have not been satisfied. The Protective Advances shall be secured by the Liens in favor of the ABL Administrative Agent in and to the Collateral and shall constitute Obligations hereunder. All Protective Advances shall be Base Rate Borrowings. The ABL Administrative Agent’s authorization to make Protective Advances may be revoked at any time by the Required Lenders. Any such revocation must be in writing and shall become effective prospectively upon the ABL Administrative Agent’s receipt thereof. At any time that there is sufficient Availability and the conditions precedent set forth in Section 4.02 have been satisfied, the ABL Administrative Agent may request the Lenders to make a Revolving Loan to repay a Protective Advance. At any other time the ABL Administrative Agent may require the Lenders to fund their risk participations described in Section 2.04(b).

(b) Upon the making of a Protective Advance by the ABL Administrative Agent (whether before or after the occurrence of a Default), each Lender shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from the ABL Administrative Agent without recourse or warranty, an undivided interest and participation in such Protective Advance in proportion to its Applicable Percentage. From and after the date, if any, on which any Lender is required to fund its participation in any Protective

43

Advance purchased hereunder, the ABL Administrative Agent shall promptly distribute to such Lender, such Lender’s Applicable Percentage of all payments of principal and interest and all proceeds of Collateral received by the ABL Administrative Agent in respect of such Protective Advance.

SECTION 2.05 Swingline Loans.

(a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Borrower from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $10,000,000 or (ii) the sum of the total Revolving Exposures exceeding the Maximum Availability; provided that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan; provided further that the Swingline Lender shall not be obligated to make any Swingline Loan at any time when any Lender is at such time a Defaulting Lender or Deteriorating Lender hereunder, unless the Swingline Lender has entered into satisfactory arrangements with the Borrower or such Lender to eliminate the Swingline Lender’s risk with respect to such Lender. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans. To request a Swingline Loan, the Borrower shall notify the ABL Administrative Agent of such request by telephone (confirmed by facsimile), not later than 1:00 p.m., New York time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. All Swingline Loans shall be Base Rate Borrowings. The ABL Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to the Funding Account (or, in the case of repayment of another Loan or fees or expenses as provided by Section 2.10(b), by remittance to the ABL Administrative Agent to be distributed to the Lenders) by 2:00 p.m., New York time, on the requested date of such Swingline Loan.

(b) Upon the making of a Swingline Loan (whether before or after the occurrence of a Default and regardless of whether a Settlement (as defined below) has been requested with respect to such Swingline Loan, each Lender shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from the Swingline Lender, without recourse or warranty, an undivided interest and participation in such Swingline Loan in proportion to its Applicable Percentage of the Revolving Commitment. The Swingline Lender may, at any time, require the Lenders to fund their participations. Each Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this clause is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or the subsequent termination of the Revolving Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation under this clause by wire transfer of immediately available funds, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the ABL Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. The ABL Administrative Agent shall notify the Borrower of any

44

participations in any Swingline Loan acquired pursuant to this clause, and thereafter payments in respect of such Swingline Loan shall be made to the ABL Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the ABL Administrative Agent; any such amounts received by the ABL Administrative Agent shall be promptly remitted by the ABL Administrative Agent to the Lenders that shall have made their payments pursuant to this clause and to the Swingline Lender, as their interests may appear; provided that any such payment so remitted shall be repaid to the Swingline Lender or to the ABL Administrative Agent, as applicable, if and to the extent such payment is required to be refunded to the Borrower for any reason. The purchase of participations in a Swingline Loan pursuant to this clause shall not relieve the Borrower of any default in the payment thereof.

(c) The ABL Administrative Agent, on behalf of the Swingline Lender, shall request settlement (a “Settlement”) with the Lenders on at least a weekly basis or on any date that the ABL Administrative Agent elects, by notifying the Lenders of such requested Settlement by facsimile, telephone or e-mail no later than 12:00 p.m. New York time on the date of such requested Settlement (the “Settlement Date”). Each Lender (other than the Swingline Lender, in the case of the Swingline Loans) shall transfer the amount of such Lender’s Applicable Percentage of the outstanding principal amount of the applicable Loan with respect to which Settlement is requested to the ABL Administrative Agent, to such account of the ABL Administrative Agent as the ABL Administrative Agent may designate not later than 2:00 p.m., New York time, on such Settlement Date. Settlements may occur during the existence of a Default and whether or not the applicable conditions precedent set forth in Section 4.02 have then been satisfied. Such amounts transferred to the ABL Administrative Agent shall be applied against the amounts of the Swingline Lender’s Swingline Loans and together with the Swingline Lender’s Applicable Percentage of such Swingline Loan, shall constitute Revolving Loans of such Lenders, respectively. If any such amount is not transferred to the ABL Administrative Agent by any Lender on such Settlement Date, the Swingline Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon as specified in Section 2.07.

SECTION 2.06 Letters of Credit.

(a) The Letter of Credit Commitment.

(i) Subject to the terms and conditions set forth herein, (A) each Issuing Bank agrees, in reliance upon the agreements of the Lenders set forth in this Section 2.06, from time to time on any Business Day during the period from the Effective Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of the Borrower, and to amend Letters of Credit previously issued by it, in accordance with Section 2.06(b) below; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower and any drawings thereunder; provided that, after giving effect to any LC Credit Extension with respect to any Letter of Credit, (x) the total Revolving Exposure of all Lenders shall not exceed the Maximum Availability, (y) the Revolving Exposure of any Lender shall not exceed such Lender’s Revolving Commitment, and (z) the total LC Exposure shall not exceed $25,000,000;

45

provided further that at no time prior to the Scheduled Termination Date may the sum of (x) the aggregate undrawn Stated Amount of Letters of Credit that expire after the fifth Business Day prior to the Scheduled Termination Date plus (y) the aggregate amount of the Extending Lenders’ Applicable Percentage of all Loans exceed the aggregate amount of the Revolving Commitments of the Extending Lenders. Each request by the Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the LC Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower’s ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. Each Issuing Bank (other than Wells Fargo or any of its Affiliates) shall notify the ABL Administrative Agent in writing on each Business Day of all Letters of Credit issued on the prior Business Day by such Issuing Bank; provided that (A) until the ABL Administrative Agent advises any such Issuing Bank that the provisions of Section 4.02 are not satisfied, or (B) the aggregate amount of the Letters of Credit issued in any such week exceeds such amount as shall be agreed by the ABL Administrative Agent and such Issuing Bank, such Issuing Bank shall be required to so notify the ABL Administrative Agent in writing only once each week of the Letters of Credit issued by such Issuing Bank during the immediately preceding week as well as the daily amounts outstanding for the prior week, such notice to be furnished on such day of the week as the ABL Administrative Agent and such Issuing Bank may agree. On the Effective Date, the parties hereto agree that the Existing Letters of Credit shall be deemed to be Letters of Credit pursuant to the terms and conditions, and entitled to the benefits, of this Agreement and the other Loan Documents, without any further action by the Borrower or any other Person.

(ii) No Letter of Credit shall be issued if:

(A) subject to Section 2.06(b)(ii), the expiry date of any such requested Standby Letter of Credit would occur more than twelve months after the date of issuance, unless the Required Lenders have approved such expiry date; or

(B) subject to Section 2.06(b)(ii), the expiry date of any such requested Trade Letter of Credit would occur more than 120 days after the date of issuance, unless the Required Lenders have approved such expiry date; or

(C) the expiry date of any such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless either such Letter of Credit is Cash Collateralized on or prior to the Letter of Credit Expiration Date or all the Lenders have approved such expiry date.

(iii) No Letter of Credit shall be issued without the prior consent of the applicable Issuing Bank if:

(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such Issuing

46

Bank from issuing such Letter of Credit, or any law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Bank is not otherwise compensated hereunder) not in effect on the Effective Date, or shall impose upon such Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Effective Date and which such Issuing Bank in good faith deems material to it; or

(B) the issuance of such Letter of Credit would violate one or more policies of such Issuing Bank applicable to letters of credit generally; or

(C) except as otherwise agreed by such Issuing Bank, such Letter of Credit is in an initial Stated Amount less than $25,000, in the case of a Trade Letter of Credit, or $100,000, in the case of a Standby Letter of Credit; or

(D) such Letter of Credit is to be denominated in a currency other than dollars; provided that, if such Issuing Bank, in its discretion, approves the issuance of a Letter of Credit denominated in a currency other than dollars, all reimbursements by the Borrower of the honoring of any drawing under such Letter of Credit shall be paid in the currency in which such Letter of Credit was denominated, unless payment in dollars is approved by the ABL Administrative Agent and such Issuing Bank in their reasonable discretion.

(iv) The Borrower shall not permit any Letter of Credit to be amended if (A) the applicable Issuing Bank would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

(v) Each Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and each Issuing Bank shall have all of the benefits and immunities (A) provided to the ABL Administrative Agent in Article VIII with respect to any acts taken or omissions suffered by such Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “ABL Administrative Agent” as used in Article VIII included such Issuing Bank with respect to such acts or omissions, and (B) as additionally provided herein with respect to each Issuing Bank.

(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit.

(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to an Issuing Bank in the form of a Letter of Credit Application, appropriately completed and signed by a Financial Officer of the

47

Borrower. Such Letter of Credit Application must be received by such Issuing Bank not later than 11:00 a.m. at least two (2) Business Days (or such other date and time as such Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail reasonably satisfactory to such Issuing Bank: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; (G) the currency thereof, which shall be dollars unless otherwise approved by such Issuing Bank pursuant to Section 2,06(a)(iii); and (H) such other matters as such Issuing Bank may reasonably require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail reasonably satisfactory to such Issuing Bank: (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as such Issuing Bank may reasonably require. Additionally, the Borrower shall furnish to the applicable Issuing Bank and the ABL Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as such Issuing Bank or the ABL Administrative Agent may reasonably require.

(ii) Promptly after receipt of any Letter of Credit Application, the applicable Issuing Bank will provide the ABL Administrative Agent with a copy thereof. Unless an Issuing Bank has received written notice from any Lender, the ABL Administrative Agent or any Loan Party, at least one (1) Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, such Issuing Bank shall, on the requested date, issue a Letter of Credit for the account of the Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with such Issuing Bank’s usual and customary business practices. Immediately upon the issuance or amendment of each Letter of Credit, each Lender shall be deemed to (without any further action), and hereby irrevocably and unconditionally agrees to, purchase from such Issuing Bank, without recourse or warranty, a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Letter of Credit. Upon any change in the Commitments under this Agreement, it is hereby agreed that with respect to the total LC Exposure, there shall be an automatic adjustment to the participations hereby created to reflect the new Applicable Percentages of the assigning and assignee Lenders.

(iii) If the Borrower so requests in any applicable Letter of Credit Application, an Issuing Bank may, in its sole and absolute discretion, issue a Standby Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit such Issuing Bank to prevent any such extension at least once in each twelve-month period

48

(commencing with the date of issuance of such Standby Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such twelve-month period to be agreed upon at the time such Standby Letter of Credit is issued. Unless otherwise directed by such Issuing Bank, the Borrower shall not be required to make a specific request to such Issuing Bank for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) such Issuing Bank to permit the extension of such Standby Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that such Issuing Bank shall not permit any such extension if (A) such Issuing Bank has determined that it would not be permitted, or would have no obligation, at such time to issue such Standby Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.06(a) or otherwise), or (B) such Issuing Bank has received notice (which may be by telephone or in writing) on or before the day that is five (5) Business Days before the Non-Extension Notice Date from the ABL Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in Section 4.02 is not then satisfied, and in each such case setting forth in reasonable detail the circumstances surrounding the failure to satisfy one or more of the applicable conditions specified in Section 4.02 and directing such Issuing Bank not to permit such extension.

(iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, each Issuing Bank will also deliver to the Borrower and the ABL Administrative Agent a true and complete copy of such Letter of Credit or amendment.

(c) Drawings and Reimbursements; Funding of Participations.

(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the applicable Issuing Bank shall notify the Borrower and the ABL Administrative Agent thereof; provided, however, that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such payment. Not later than (A) 4:00 p.m. on the date the applicable Issuing Bank notifies the Borrower of any payment by any Issuing Bank under a Letter of Credit (each such date, an “Honor Notice Date”), if such Issuing Bank notifies the Borrower of such payment not later than 1:30 p.m. on the Honor Notice Date, or (B) 11:00 a.m. on the first Business Day immediately following the Honor Notice Date, if such Issuing Bank notifies the Borrower of such payment after 1:30 p.m. on the Honor Notice Date, the Borrower shall reimburse such Issuing Bank through the ABL Administrative Agent in an amount equal to the amount of such drawing. If the Borrower fails to so reimburse such Issuing Bank by the time required pursuant to the immediately preceding sentence (each such date, a “Reimbursement Date”), the Borrower shall be deemed to have requested a Revolving Borrowing of Base Rate Loans to be disbursed on the Reimbursement Date in an amount equal to the amount of the unreimbursed drawing (the “Unreimbursed Amount”), without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the aggregate Revolving Commitments and the conditions set

49

forth in Section 4.02 (other than the delivery of a Borrowing Request), and the ABL Administrative Agent shall promptly notify each Lender of the Reimbursement Date, the Unreimbursed Amount, and the amount of such Lender’s Applicable Percentage thereof. Any notice given by an Issuing Bank or the ABL Administrative Agent pursuant to this Section 2.06(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

(ii) Each Lender shall, upon any notice pursuant to Section 2.06(c)(i), make funds available to the ABL Administrative Agent for the account of the applicable Issuing Bank by wire transfer of immediately available funds to the account of the ABL Administrative Agent most recently designated by it for such purpose in an amount equal to its Applicable Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the ABL Administrative Agent, whereupon, subject to the provisions of Section 2.06(c)(iii), each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The ABL Administrative Agent shall remit the funds so received to the applicable Issuing Bank.

(iii) In the event that an Issuing Bank honors any drawing under a Letter of Credit, the amount of such drawing shall bear interest at the rate set forth in Sections 2.13(a) or 2.13(b), as applicable, from the date such drawing was honored through and including the Reimbursement Date pursuant to Section 2.06(c)(i). In the event that any drawing under a Letter of Credit is not reimbursed by the Reimbursement Date and the Unreimbursed Amount is not fully refinanced by a Revolving Borrowing of Base Rate Loans because the conditions set forth in Section 4.02 cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the applicable Issuing Bank an LC Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which LC Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the rate set forth in Section 2.13(g). In such event, each Lender’s payment to the ABL Administrative Agent for the account of such Issuing Bank pursuant to Section 2.06(c)(ii) shall be deemed payment in respect of its participation in such LC Borrowing and shall constitute an LC Advance from such Lender in satisfaction of its participation obligation under this Section 2.06.

(iv) Until each Lender funds its Revolving Loan or LC Advance pursuant to this Section 2.06(c) to reimburse any Issuing Bank for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Applicable Percentage of such amount shall be solely for the account of such Issuing Bank.

(v) Each Lender’s obligation to make Revolving Loans or LC Advances to reimburse an Issuing Bank for amounts drawn under Letters of Credit, as contemplated by this Section 2.06(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against such Issuing Bank, the Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not

50

similar to any of the foregoing; provided, however, that each Lender’s obligation to make Revolving Loans pursuant to this Section 2.06(c) is subject to the conditions set forth in Section 4.02 (other than delivery by the Borrower of a Borrowing Request). No such making of an LC Advance shall relieve or otherwise impair the obligation of the Borrower to reimburse an Issuing Bank for the amount of any payment made by such Issuing Bank under any Letter of Credit, together with interest as provided herein.

(vi) If any Lender fails to make available to the ABL Administrative Agent for the account of the applicable Issuing Bank any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.06(c) by the time specified in Section 2.06(c)(ii), such Issuing Bank (acting through the ABL Administrative Agent) shall be entitled to recover from such Lender, on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to such Issuing Bank at a rate per annum equal to the greater of the Federal Funds Effective Rate and a rate determined by such Issuing Bank in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by such Issuing Bank in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Revolving Loan included in the relevant Revolving Borrowing or LC Advance in respect of the relevant LC Borrowing, as the case may be. A certificate of such Issuing Bank submitted to any Lender (through the ABL Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.

(d) Repayment of Participations.

(i) At any time after an Issuing Bank has made a payment under any Letter of Credit and has received from any Lender such Lender’s LC Advance in respect of such payment in accordance with Section 2.06(c), if the ABL Administrative Agent receives for the account of such Issuing Bank any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the ABL Administrative Agent), the ABL Administrative Agent will distribute to such Lender its Applicable Percentage thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s LC Advance was outstanding) in the same funds as those received by the ABL Administrative Agent.

(ii) If any payment received by the ABL Administrative Agent for the account of an Issuing Bank pursuant to Section 2.06(c)(i) is required to be returned under any of the circumstances described in Section 2.20 (including pursuant to any settlement entered into by such Issuing Bank in its discretion), each Lender shall pay to the ABL Administrative Agent for the account of such Issuing Bank its Applicable Percentage thereof on demand of the ABL Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Effective Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

51

(e) Obligations Absolute. The obligation of the Borrower to reimburse each applicable Issuing Bank for each drawing under each Letter of Credit and to repay each LC Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:

(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;

(ii) the existence of any claim, counterclaim, setoff, defense or other right that the Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), such Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;

(iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;

(iv) any payment by such Issuing Bank under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by such Issuing Bank under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect;

(v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any of its Subsidiaries; or

(vi) the fact that any Event of Default shall have occurred and be continuing.

The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower’s instructions or other irregularity, the Borrower will promptly notify the ABL Administrative Agent and the applicable Issuing Bank. The Borrower shall be conclusively deemed to have waived any such claim against such Issuing Bank and its correspondents unless such notice is given within ten (10) days after the issuance or amendment, as applicable, of any Letter of Credit.

(f) Role of Issuing Bank. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, no Issuing Bank shall have any responsibility to

52

obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the Issuing Banks, the ABL Administrative Agent or any of their respective Related Parties nor any correspondent, participant or assignee of any Issuing Bank shall be liable to any Lender for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; (iii) any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit or any error in interpretation of technical terms; or (iv) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude the Borrower’s pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the Issuing Banks, the ABL Administrative Agent or any of their respective Related Parties nor any correspondent, participant or assignee of any Issuing Bank shall be liable or responsible for any of the matters described in clauses (i) through (vi) of Section 2.06(e): provided, however, that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against any such Issuing Bank, and any such Issuing Bank may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which were caused by such Issuing Bank’s willful misconduct or gross negligence or such Issuing Bank’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit, as determined in each case by a final and non-appealable judgment of a court of competent jurisdiction. In furtherance and not in limitation of the foregoing, any Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary (or such Issuing Bank may refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit), and such Issuing Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

(g) Cash Collateral. Upon the request of the ABL Administrative Agent, (i) if any Issuing Bank has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an LC Borrowing that remains outstanding, or (ii) if, as of the Letter of Credit Expiration Date, any LC Obligation for any reason remains outstanding, the Borrower shall, in each case, immediately Cash Collateralize the then outstanding amount of all LC Exposure. Sections 2.11 and 2.18(b) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this Section 2.06, Section 2.11 and Section 2.18(b), “Cash Collateralize” means to pledge and deposit with or deliver to the ABL Administrative Agent, for the benefit of each applicable Issuing Bank and the Lenders, as collateral for the LC Exposure, cash or deposit account balances in an amount equal to 103% of the outstanding amount of all LC Exposure, pursuant to documentation in form and substance satisfactory to the ABL Administrative Agent and such Issuing Bank (which documents are hereby consented to by the

53

Lenders). The Borrower hereby grants to the Collateral Agent a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in a blocked deposit account at Wells Fargo (the “LC Collateral Account”). If, at any time, the ABL Administrative Agent determines that any funds held as Cash Collateral are subject to any right or claim of any Person other than the ABL Administrative Agent or that the total amount of such funds is less than the aggregate outstanding amount of all LC Exposure, the Borrower will, forthwith upon demand by the ABL Administrative Agent, pay to the ABL Administrative Agent, as additional funds to be deposited as Cash Collateral, an amount equal to the excess of (x) such aggregate outstanding amount over (y) the total amount of funds, if any, then held as Cash Collateral that the ABL Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit as Cash Collateral, such funds shall be applied, to the extent permitted under applicable law, to reimburse the applicable Issuing Bank; to the extent not so applied, such funds shall thereafter be applied to satisfy other Obligations or, if no Cash Dominion Period has occurred and is continuing, such funds shall be paid to the Borrower.

(h) Applicability of ISP and UCP. Unless otherwise expressly agreed by an Issuing Bank and the Borrower when a Letter of Credit is issued, (i) the rules of the ISP shall apply to each Standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce at the time of issuance shall apply to each Trade Letter of Credit.

(i) Letter of Credit Fees. The Borrower shall pay to the ABL Administrative Agent (A) for the account of each Non-Extending Lender in accordance with its Applicable Percentage, a Letter of Credit fee (the “Letter of Credit Fee”) for each Letter of Credit equal to the Applicable Rate times the daily Stated Amount under each such Letter of Credit and (B) for the account of each Extending Lender in accordance with its Applicable Percentage, a Letter of Credit Fee for each Letter of Credit equal to the Extended Term Applicable Rate times the daily Stated Amount under each such Letter of Credit. For purposes of computing the daily Stated Amount available to be drawn under any Letter of Credit, the Stated Amount of such Letter of Credit shall be determined in accordance with Section 1.05; provided that, for purposes only of calculating the Letter of Credit Fee owing hereunder, the daily Stated Amount available to be drawn under any Letter of Credit that provides for one or more automatic increases in the Stated Amount thereof shall be deemed to be the maximum Stated Amount then in effect under such Letter of Credit (at the time of each such calculation of the Letter of Credit Fee), rather than the maximum Stated Amount for which such Letter of Credit may be honored. Letter of Credit Fees shall be (i) due and payable in arrears on the last day of each of March, June, September and December commencing with the first such date to occur after the issuance of such Letter of Credit) and on the Letter of Credit Expiration Date, and (ii) computed on a quarterly basis in arrears; provided that, upon the occurrence and during the continuance of an Event of Default, Letter of Credit Fees shall be (i) due and payable in arrears on the last day of each month (commencing with the first such date to occur after the issuance of such Letter of Credit) and on the Letter of Credit Expiration Date, and (ii) computed on a monthly basis in arrears. If there is any change in the Applicable Rate and/or the Extended Term Applicable Rate, as the case may be, during any month or quarter, as applicable, the daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by the Applicable Rate or the Extended Term Applicable Rate, as applicable, separately for each period during such month or quarter, as

54

applicable), that such Applicable Rate or such Extended Term Applicable Rate, as applicable, was in effect. Notwithstanding anything to the contrary contained herein, while any Event of Default exists, all Letter of Credit Fees shall accrue at the rate provided in Section 2.13(g) hereof.

(j) Fronting Fee and Documentary and Processing Charges Payable to Issuing Banks. The Borrower shall pay to the ABL Administrative Agent, for the account of each Issuing Bank, a fronting fee (the “Fronting Fee”) with respect to each Letter of Credit at a rate equal to 0.125% per annum, computed on the daily Stated Amount available to be drawn under such Letter of Credit. For purposes of computing the daily Stated Amount available to be drawn under any Letter of Credit, the Stated Amount of such Letter of Credit shall be determined in accordance with Section 1.05: provided that, for purposes only of calculating the Fronting Fee owing hereunder, the daily Stated Amount available to be drawn under any Letter of Credit that provides for one or more automatic increases in the Stated Amount thereof shall be deemed to be the maximum Stated Amount then in effect under such Letter of Credit (at the time of each such calculation of the Fronting Fee), rather than the maximum Stated Amount for which such Letter of Credit may be honored. Fronting Fees shall be due and payable on a quarterly basis in arrears on the last day of each of March, June, September and December (commencing with the first such date to occur after the issuance of such Standby Letter of Credit) and on the Letter of Credit Expiration Date; provided that, upon the occurrence and during the continuance of an Event of Default, Fronting Fees shall be due and payable on a monthly basis in arrears on the last day of each month (commencing with the first such date to occur after the issuance of such Standby Letter of Credit) and on the Letter of Credit Expiration Date. In addition, the Borrower shall pay to the ABL Administrative Agent, for the account of each Issuing Bank, the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such Issuing Bank relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

(k) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.

(1) Replacement of Issuing Banks. Any Issuing Bank may be replaced at any time by written agreement among the Borrower (the Borrower’s consent not to be unreasonably withheld), the ABL Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The ABL Administrative Agent shall notify the Lenders of any such replacement of any Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.06(j). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the replaced Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.

55

SECTION 2.07 Funding of Borrowings.

(a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 3:00 p.m., New York time, to the account of the ABL Administrative Agent most recently designated by it for such purpose by notice to the Lenders in an amount equal to such Lender’s Applicable Percentage; provided that Swingline Loans shall be made as provided in Section 2.05. The ABL Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to the Funding Account; provided that Base Rate Revolving Loans made to finance the reimbursement of (i) an LC Borrowing as provided in Section 2.06(c) shall be remitted by the ABL Administrative Agent to the applicable Issuing Bank and (ii) a Protective Advance shall be retained by the ABL Administrative Agent.

(b) Unless the ABL Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the ABL Administrative Agent such Lender’s share of such Borrowing, the ABL Administrative Agent may assume that such Lender has made such share available on such date in accordance with clause (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the ABL Administrative Agent, then the applicable Lender agrees to pay to the ABL Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the ABL Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the ABL Administrative Agent in accordance with banking industry rules on interbank compensation. In the event such Lender does not pay such amount to the ABL Administrative Agent promptly, the Borrower shall pay such amount to the ABL Administrative Agent with interest thereon for each day from and including the date such amount is made available to the Borrower to but excluding the date of such repayment to the ABL Administrative Agent at the interest rate applicable to Base Rate Loans. If such Lender pays such amount to the ABL Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.

SECTION 2.08 Interest Elections.

(a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing as the same Type and, in the case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings or Protective Advances, which may not be converted or continued.

56

(b) To make an election pursuant to this Section, the Borrower shall notify the ABL Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the ABL Administrative Agent of a written Interest Election Request in a form approved by the ABL Administrative Agent and signed by the Borrower.

(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:

(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii) whether the resulting Borrowing is to be a Base Rate Borrowing or a Eurodollar Borrowing; and

(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

(d) Promptly following receipt of an Interest Election Request, the ABL Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to a Base Rate Borrowing. Notwithstanding any contrary provision hereof, if a Default has occurred and is continuing and the ABL Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as a Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted to a Base Rate Borrowing at the end of the Interest Period applicable thereto.

SECTION 2.09 Termination and Reduction of Revolving Commitments.

57

(a) Unless previously terminated, all Revolving Commitments of the Non-Extending Lenders shall terminate on the Revolving Credit Termination Date with respect to Non-Extending Lenders, and the Borrower shall pay, in full and in cash, all outstanding Loans and all other outstanding Obligations then owing to the Non-Extending Lenders.

(b) Unless previously terminated, all Revolving Commitments of the Extending Lenders shall terminate on the Revolving Credit Termination Date with respect to Extending Lenders, and the Borrower shall pay, in full and in cash, all outstanding Loans and all other outstanding Obligations then owing to the Extending Lenders.

(c) The Borrower may, at any time, terminate in whole the Revolving Commitments upon (i) the payment in full of all outstanding Loans, together with accrued and unpaid interest thereon and any amounts payable pursuant to Section 2.16 in the case of a prepayment of any Eurodollar Loans other than on the last day of the relevant Interest Period, (ii) the cancellation and return of all outstanding Letters of Credit (or, alternatively, the Cash Collateralization (or, at the discretion of the ABL Administrative Agent, the furnishing to the ABL Administrative Agent of a back up standby letter of credit satisfactory to the ABL Administrative Agent) of each such Letter of Credit as of such date), (iii) the payment in full of the accrued and unpaid fees and (iv) the payment in full of all reimbursable expenses and other Obligations together with accrued and unpaid interest thereon.

(d) The Borrower may from time to time reduce the Revolving Commitments; provided that (i) each such reduction of the Revolving Commitments shall be in an aggregate amount of $1,000,000 or an integral multiple of $100,000 in excess thereof and (ii) the Borrower shall not reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.11, the total Revolving Exposure would exceed the Maximum Availability.

(e) The Borrower shall notify the ABL Administrative Agent of any election to terminate or reduce the Revolving Commitments under clauses (c) or (d) of this Section 2.09 at least three (3) Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the ABL Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section 2.09 shall be irrevocable; provided that a notice of termination of the Revolving Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the ABL Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Revolving Commitments shall be permanent. Each reduction of the Revolving Commitments shall first be applied ratably to the Revolving Commitments of each Non-Extending Lender and, after the Revolving Commitments of the Non-Extending Lenders have been terminated in full, shall be applied ratably to the Revolving Commitments of each Extending Lender; provided that any reduction of the Revolving Commitments made after the occurrence and during the continuance of an Event of Default shall be applied ratably to the Revolving Commitments of each Lender.

58

(f) The Revolving Commitments of the Non-Extending Lenders shall be non-ratably reduced on the Effective Date such that the Revolving Commitments of the Non-Extending Lenders as of the Effective Date are as set forth on the Commitment Schedule.

SECTION 2.10 Repayment of Loans; Evidence of Debt.

(a) The Borrower hereby unconditionally promises to pay (i) to the ABL Administrative Agent, for the account of each Non-Extending Lender, the then unpaid principal amount of each Revolving Loan and all other outstanding Obligations then owing to the Non-Extending Lenders on the Revolving Credit Termination Date with respect to Non-Extending Lenders, (ii) to the ABL Administrative Agent, for the account of each Extending Lender, the then unpaid principal amount of each Revolving Loan and all other outstanding Obligations then owing to the Extending Lenders on the Revolving Credit Termination Date with respect to Extending Lenders, (iii) to the ABL Administrative Agent the then unpaid amount of each Protective Advance on the earlier of (A) the applicable Revolving Credit Termination Date or (B) demand by the ABL Administrative Agent, and (iv) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Extended Revolving Credit Termination Date and the first date after such Swingline Loan is made that is the 15th or last day of a calendar month and is at least two Business Days after such Swingline Loan is made; provided that on each date that a Revolving Loan is made, the Borrower shall repay all Swingline Loans then outstanding.

(b) During any Cash Dominion Period, on each Business Day, at or before 11:00 a.m., New York time, the ABL Administrative Agent shall apply all immediately available funds credited to the Collection Account, first, to prepay any Protective Advances that may be outstanding and, second, to prepay the outstanding Obligations and to Cash Collateralize outstanding LC Exposure.

(c) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(d) The ABL Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the ABL Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

(e) The entries made in the accounts maintained pursuant to clause (c) or (d) of this Section 2.10 shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the ABL Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

59

(f) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the ABL Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

SECTION 2.11 Prepayment of Loans.

(a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with clause (e) of this Section 2.11.

(b) In the event and on such occasion that the total Revolving Exposure exceeds the Maximum Availability, the Borrower shall prepay the Loans, LC Exposure and/or Swingline Loans in an aggregate amount equal to such excess (or provide Cash Collateral in accordance with Section 2.06(g)).

(c) In the event and on each occasion that any Net Proceeds are received by or on behalf of Holdings or any Loan Party with respect to any Prepayment Event, the Borrower shall, promptly after such Net Proceeds are received by Holdings or any Loan Party, prepay the Obligations as set forth in Section 2.11(d) below in an aggregate amount equal to: (x) if at the time of receipt of such Net Proceeds, a Cash Dominion Period shall have occurred and be continuing, 100% of such Net Proceeds and (y) if at the time of receipt of such Net Proceeds, no Cash Dominion Period is occurring, (i) in the case of a prepayment event described in clause (a) of the definition of the term “Prepayment Event”, 50% of such Net Proceeds if the relevant property or asset would not be included in any determination of Eligible Accounts, Eligible Credit Card Account Receivable or Eligible Inventory and 100% of such Net Proceeds if the relevant property or asset would be included in the determination of Eligible Accounts, Eligible Credit Card Account Receivable or Eligible Inventory, and (ii) in the case of a prepayment event described in clause (b) of the definition of the term “Prepayment Event”, 100% of such Net Proceeds, provided that, in the case of (y) above, if the Borrower shall deliver to the ABL Administrative Agent a certificate of a Financial Officer to the effect that the Loan Parties intend to apply the Net Proceeds from such event (or a portion thereof specified in such certificate), within 270 days after receipt of such Net Proceeds, to acquire (or replace) equipment or other tangible assets (excluding inventory) to be used in the business of the Loan Parties, and certifying that no Default has occurred and is continuing, then no prepayment shall be required pursuant to this clause in respect of the Net Proceeds specified in such certificate; provided further that to the extent that any such Net Proceeds therefrom have not been so reinvested by the end of such 270-day period, a prepayment shall be required at such time in an amount equal to such Net Proceeds that have not been so reinvested; and provided, further, that (A) if a Cash Dominion Period shall commence prior to the reinvestment of all or any portion of such Net Proceeds during such 270-day period, the ABL Administrative Agent may require that an amount equal to such Net Proceeds (or the amount of such Net Proceeds not then reinvested, as the case may be) be promptly applied to reduce the outstanding principal balance of the Loans

60

(without a permanent reduction of the Revolving Commitment) and (B) for the avoidance of doubt, if a Cash Dominion Period shall commence during such 270-day period but after the reinvestment of all or a portion of such Net Proceeds, no prepayment shall be required pursuant to this clause in respect of such Net Proceeds (or the amount of such Net Proceeds so reinvested, as the case may be).

(d) All Net Proceeds to be applied to the Obligations pursuant to Section2.11(c) shall be applied, first to prepay any Protective Advances that may be outstanding, second to prepay the Loans (including Swing Line Loans) without a corresponding reduction in the Revolving Commitment and to Cash Collateralize outstanding LC Exposure (if required pursuant to any term of this Agreement); provided that allocation of such prepayments as between the Lenders and the Term Lenders shall be subject to the terms of the Intercreditor Agreement.

(e) The Borrower shall notify the ABL Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by facsimile) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 1:00 p.m., New York time, three Business Days before the date of prepayment, or (ii) in the case of prepayment of a Base Rate Revolving Borrowing, not later than 1:00 p.m., New York time, one Business Day before the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 1:00 p.m., New York time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Revolving Commitments as contemplated by Section 2.09, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.09. Promptly following receipt of any such notice relating to a Revolving Borrowing, the ABL Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13.

SECTION 2.12 Fees.

(a) The Borrower agrees to pay to the ABL Administrative Agent for the account of each Non-Extending Lender a commitment fee, which shall accrue at the Applicable Rate on the average daily amount of the Available Revolving Commitment of such Lender during the period from and including the Effective Date to but excluding the date on which the Non-Extending Lenders’ Revolving Commitments terminate. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December and on the Revolving Credit Termination Date with respect to Non-Extending Lenders, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). No commitment fee shall accrue with respect to the Revolving Commitment of any Non-Extending Lender that defaults in its obligation to fund Loans hereunder for so long as such default is occurring.

61

(b) The Borrower agrees to pay to the ABL Administrative Agent for the account of each Extending Lender a commitment fee, which shall accrue at the Extended Term Applicable Rate on the average daily amount of the Available Revolving Commitment of such Lender during the period from and including the Effective Date to but excluding the date on which the Extending Lenders’ Revolving Commitments terminate. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December and on the Revolving Credit Termination Date with respect to Extending Lenders, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). No commitment fee shall accrue with respect to the Revolving Commitment of any Extending Lender that defaults in its obligation to fund Loans hereunder for so long as such default is occurring.

(c) The Borrower agrees to pay to the ABL Administrative Agent, for its own account and for the account of the Lenders, as applicable, fees payable in the amounts and at the times separately agreed upon in the Fee Letter.

(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the ABL Administrative Agent for distribution to the Lenders and each Issuing Bank, as appropriate. Fees paid shall not be refundable under any circumstances except where paid in error.

SECTION 2.13 Interest.

(a) The Loans comprising each Base Rate Borrowing (including each Swingline Loan) made by, and owing to, each Non-Extending Lender shall bear interest at the Base Rate plus the Applicable Rate.

(b) The Loans comprising each Base Rate Borrowing (including each Swingline Loan) made by, and owing to, each Extending Lender shall bear interest at the Extended Term Base Rate plus the Extended Term Applicable Rate.

(c) The Loans comprising each Eurodollar Borrowing made by, and owing to, each Non-Extending Lender shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.

(d) The Loans comprising each Eurodollar Borrowing made by, and owing to, each Extending Lender shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Extended Term Applicable Rate.

(e) Each Protective Advance made by, and owing to, a Non-Extending Lender shall bear interest at the Base Rate plus the Applicable Rate for Revolving Loans plus 2%.

(f) Each Protective Advance made by, and owing to, an Extending Lender shall bear interest at the Extended Term Base Rate plus the Extended Term Applicable Rate for Revolving Loans plus 2%.

62

(g) Notwithstanding the foregoing, during the occurrence and continuance of an Event of Default pursuant to clauses (a), (b), (d) (with respect to Section 6.14), (g), (h) or (i) of Article VII, the ABL Administrative Agent or the Required Lenders may, at their option, declare that (i) all Loans shall bear interest at 2% plus the rate otherwise applicable to such Loans as provided in the preceding clauses of this Section 2.13 or (ii) any fee payable pursuant to Section 2.06(i) shall accrue at 2% plus the rate applicable to such fee or other obligation as provided hereunder; provided that such declaration may be revoked at the option of the Required Lenders notwithstanding any provision of Section 9.02 requiring the consent of “each Lender affected thereby” for reductions in interest rates.

(h) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Revolving Commitments; provided that (i) interest accrued pursuant to clause (g) of this Section 2.13 shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of a Base Rate Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(i) All interest hereunder shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the ABL Administrative Agent, and such determination shall be conclusive absent manifest error. All Letter of Credit Fees and Fronting Fees payable pursuant to Sections 2.06(i) and 2.06(j) shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

SECTION 2.14 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing:

(a) the ABL Administrative Agent determines (which determination shall be conclusive absent manifest error) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or

(b) the ABL Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period;

then the ABL Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or facsimile as promptly as practicable thereafter and, until the ABL Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be

63

ineffective, and (ii) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as a Base Rate Borrowing.

SECTION 2.15 Increased Costs.

(a) If any Change in Law made after the date hereof shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or any Issuing Bank; or

(ii) impose on any Lender or any Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be, by an amount that such Lender deems to be material, to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or such Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or such Issuing Bank hereunder (whether of principal, interest or otherwise) (in each case, other than with respect to any Taxes), then the Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered.

(b) If any Lender or any Issuing Bank determines that any Change in Law made after the date hereof regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or such Issuing Bank’s capital or on the capital of such Lender’s or such Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of such Lender’s or such Issuing Bank’s holding company with respect to capital adequacy), by an amount that such Lender deems to be material, then from time to time the Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any such reduction suffered.

(c) A certificate of a Lender or an Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or such Issuing Bank or its holding company, as the case may be, as specified in clause (a) or (b) of this Section 2.15 shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.

64

(d) Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to this Section 2.15 shall not constitute a waiver of such Lender’s or such Issuing Bank’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section 2.15 for any increased costs or reductions incurred more than 270 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or such Issuing Bank’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.

SECTION 2.16 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.09(d) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

SECTION 2.17 Taxes.

(a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the ABL Administrative Agent, a Lender or an Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

65

(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) The Borrower shall indemnify the ABL Administrative Agent, each Lender and each Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the ABL Administrative Agent, such Lender or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or an Issuing Bank, or by the ABL Administrative Agent on its own behalf or on behalf of such Lender or such Issuing Bank, shall be conclusive absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the ABL Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the ABL Administrative Agent.

(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the ABL Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate.

(f) If any Lender or the ABL Administrative Agent shall become aware that it is entitled to receive a refund in respect of amounts paid by the Borrower pursuant to this Section 2.17, which refund in the sole good faith judgment of such Lender or ABL Administrative Agent is allocable to such payment, it shall promptly notify the Borrower of the availability of such refund and shall, within thirty (30) days after the receipt of a request by the Borrower, apply for such refund. If the ABL Administrative Agent or a Lender determines, in its sole good faith discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.17, it shall pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.17 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the ABL Administrative Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that the Borrower, upon the request of the ABL Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the ABL Administrative Agent or such Lender in the event the ABL Administrative Agent or such Lender is required to repay such

66

refund to such Governmental Authority. This Section shall not be construed to require the ABL Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.

SECTION 2.18 Payments Generally; Allocation of Proceeds; Sharing of Set-offs.

(a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 1:00 p.m., New York time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the ABL Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the ABL Administrative Agent at its offices at 270 Park Avenue, New York, New York, except payments to be made directly to either an Issuing Bank or the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The ABL Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars.

(b) Any proceeds of Collateral received by the ABL Administrative Agent pursuant to the Collateral Documents (i) not constituting either (A) a specific payment of principal, interest, fees or other sum payable under the Loan Documents (which shall be applied as specified by the Borrower), (B) a mandatory prepayment (which shall be applied in accordance with Section 2.11) or (C) amounts to be applied from the Collection Account during a Cash Dominion Period (which shall be applied in accordance with Section 2.10(b)) or (ii) after an Event of Default has occurred and is continuing and the ABL Administrative Agent so elects or the Required Lenders so direct, shall be applied ratably first, to pay any fees, indemnities, or expense reimbursements including amounts then due to the ABL Administrative Agent and any Issuing Bank from the Borrower (other than in connection with Banking Services or Swap Obligations), second, to pay any fees or expense reimbursements then due to the Lenders from the Borrower (other than in connection with Banking Services or Swap Obligations), third, to pay interest due in respect of the Protective Advances, fourth, to pay the principal of the Protective Advances, fifth, to pay interest then due and payable on the Loans (other than the Protective Advances) ratably, sixth, to prepay principal on the Loans (other than the Protective Advances) and LC Borrowings ratably, seventh, to pay an amount to the ABL Administrative Agent to Cash Collateralize the aggregate undrawn face amount of all outstanding Letters of Credit and the aggregate amount of any unpaid LC Borrowings, eighth, to payment of any amounts owing with respect to Banking Services and Swap Obligations, and ninth, to the payment of any other Secured Obligation due to the ABL Administrative Agent or any Lender by the Borrower. Notwithstanding anything to the contrary contained in this Agreement, unless so directed by the Borrower, or unless a Default is in existence, neither the ABL Administrative Agent nor any Lender shall apply any payment which it receives to any Eurodollar Loan of a

67

Class, except (a) on the expiration date of the Interest Period applicable to any such Eurodollar Loan or (b) in the event, and only to the extent, that there are no outstanding Base Rate Loans of the same Class and, in any event, the Borrower shall pay the break funding payment required in accordance with Section 2.16. The ABL Administrative Agent and the Lenders shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Secured Obligations. Notwithstanding the foregoing, the proceeds of Term Facility Primary Collateral and ABL Facility Primary Collateral shall be applied as between the Lenders and the Term Lenders, in the manner set forth in the Intercreditor Agreement.

(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this clause shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Restricted Subsidiary or Affiliate thereof (as to which the provisions of this clause shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(d) Unless the ABL Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the ABL Administrative Agent for the account of the Lenders or an Issuing Bank hereunder that the Borrower will not make such payment, the ABL Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or such Issuing Bank, as the case may be, on such due date the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or each Issuing Bank, as the case may be, severally agrees to repay to the ABL Administrative Agent forthwith on demand the amount so distributed to such Lender or such Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the ABL Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the ABL Administrative Agent in accordance with banking industry rules on interbank compensation.

68

(e) If any Lender shall fail to make any payment required to be made by it hereunder, then the ABL Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the ABL Administrative Agent for the account of such Lender to satisfy such Lender’s obligations hereunder until all such unsatisfied obligations are fully paid.

SECTION 2.19 Mitigation Obligations; Replacement of Lenders. If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then:

(a) such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Sections 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender (and the Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment);

(b) if any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender is a Defaulting Lender or a Deteriorating Lender, the Borrower may, at its sole expense and effort, upon notice to such Lender and the ABL Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the ABL Administrative Agent and each Issuing Bank, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

SECTION 2.20 Returned Payments. If after receipt of any payment which is applied to the payment of all or any part of the Obligations, the ABL Administrative Agent, any Issuing Bank or any Lender is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason, then the Obligations or part thereof intended to

69

be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment or proceeds had not been received by the ABL Administrative Agent or such Lender. The provisions of this Section 2.20 shall be and remain effective notwithstanding any contrary action which may have been taken by the ABL Administrative Agent, any Issuing Bank or any Lender in reliance upon such payment or application of proceeds. The provisions of this Section 2.20 shall survive the termination of this Agreement.

SECTION 2.21 Effective Date Adjustments.

(a) Revolving Loans. On the Effective Date, the Borrower shall prepay, or shall be deemed to prepay, any Revolving Loans outstanding immediately prior to the occurrence of the Effective Date (the “Effective Date Loans”), and pay any additional amounts required pursuant to Section 2.16, to all Lenders under the Existing Credit Agreement in accordance with their “Applicable Percentages” under the Existing Credit Agreement. Simultaneously, the Borrower may draw, or be deemed to draw, in an amount up to the principal amount of the Effective Date Loans, upon the Revolving Commitments of all Lenders hereunder in accordance with their respective Applicable Percentages hereunder. The ABL Administrative Agent, in consultation with the Borrower, shall determine the manner in which the foregoing shall be effected, including, without limitation, by non-ratable paydowns to Lenders whose Applicable Percentages decline on the Effective Date and non-ratable advances from Lenders whose Applicable Percentages rise on the Effective Date.

(b) Letters of Credit. On the Effective Date, (i) each Lender hereunder irrevocably agrees to accept and purchase and hereby accepts and purchases from each Issuing Bank and from each Lender with an interest in an Existing Letter of Credit immediately prior to the Effective Date pursuant to Section 2.06(d) of the Existing Credit Agreement, on the terms and conditions set forth in Section 2.06 of this Agreement, for such Lender’s own account and risk, an undivided interest equal to such Lender’s Applicable Percentage in such Issuing Bank’s obligations and rights under and in respect of each Existing Letter of Credit and the amount of each draft paid by such Issuing Bank thereunder and (ii) each Issuing Bank and each Lender with an interest in an Existing Letter of Credit immediately prior to the Effective Date pursuant to Section 2.06(d) of the Existing Credit Agreement hereby irrevocably agrees to sell and assign and hereby sells and assigns an undivided interest in such Issuing Bank’s obligations and rights under and in respect of each Existing Letter of Credit, as necessary to achieve ratable interests in the Existing Letters of Credit for each Lender in accordance with its Applicable Percentage hereunder, giving effect to the amendment and restatement of the Existing Credit Agreement.

ARTICLE III

Representations and Warranties

Each Loan Party jointly and severally represents and warrants to the ABL Administrative Agent, the Issuing Banks and the Lenders that:

SECTION 3.01 Organization; Powers. Each of the Loan Parties and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as

70

now conducted and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required (except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect).

SECTION 3.02 Authorization; Enforceability. Execution, delivery and performance of this Agreement and the other Loan Documents and the Related Documents are within each Loan Party’s corporate or limited liability company powers and have been duly authorized by all necessary corporate or limited liability company and, if required, stockholder action. The Loan Documents to which each Loan Party is a party have been duly executed and delivered by such Loan Party and constitute a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

SECTION 3.03 Governmental Approvals; No Conflicts. Execution, delivery and performance of this Agreement, the other Loan Documents and the Related Documents and the consummation of the Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other Person, except such as have been obtained or made and are in full force and effect and except for filings necessary to perfect Liens created pursuant to the Loan Documents, (b) will not violate any Requirement of Law applicable to any Loan Party or any of its Subsidiaries, (c) do not conflict with or will not violate or result in a default under any material indenture, material agreement or other material instrument binding upon any Loan Party or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by any Loan Party or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of any Loan Party or any of its Subsidiaries, except Liens created pursuant to the Loan Documents.

SECTION 3.04 Financial Condition; No Material Adverse Change.

(a) Holdings has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended January 31, 2009, reported on by Deloitte & Touche, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended October 31, 2009, certified by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of Holdings and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above.

(b) No event, change or condition has occurred that has had, or could reasonably be expected to have, a Material Adverse Effect, since January 31, 2009.

SECTION 3.05 Properties.

(a) As of the date of this Agreement, Schedule 3.05 sets forth the address of each parcel of real property that is owned or leased by each Loan Party. Each of the Loan Parties

71

and its Subsidiaries has good and indefeasible title to, or valid and enforceable leasehold interests in, all real and personal property necessary for the conduct of its business, free of all Liens other than those permitted by Section 6.02 of this Agreement.

(b) Each Loan Party and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property necessary to its business as currently conducted, a correct and complete list of which, as of the date of this Agreement, is set forth on Schedule 3.05, and the use thereof by the Loan Parties and its Subsidiaries does not infringe in any material respect upon the rights of any other Person, and the Loan Parties’ rights thereto are not subject to any licensing agreement or similar arrangement affecting any material portion of the Collateral.

SECTION 3.06 Litigation and Environmental Matters.

(a) There are no actions, investigations, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Loan Party, threatened against or affecting the Loan Parties or any of their Subsidiaries (i) that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that could reasonably be expected to have a material adverse effect on the ability of the parties to consummate the Transactions or the funding of the Loans.

(b) Except for the Disclosed Matters and, except for matters that both could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect and could not reasonably be expected to have a material adverse effect on the ability of the parties to consummate the Transactions or the funding of the Loans, (i) no Loan Party nor any of its Subsidiaries has received notice of any claim with respect to any Environmental Liability or knows of any basis for any Environmental Liability and (ii) no Loan Party nor any of its Subsidiaries (1) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law or (2) has become subject to any Environmental Liability.

(c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in a Material Adverse Effect.

SECTION 3.07 Compliance with Laws and Agreements. Each Loan Party and its Subsidiaries is in compliance with all Requirements of Law applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing under this Agreement. No default has occurred and is continuing under any indenture, agreement or other instrument binding upon any Loan Party or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect.

72

SECTION 3.08 Investment and Holding Company Status. No Loan Party nor any of its Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

SECTION 3.09 Taxes. Each Loan Party and its Subsidiaries has timely filed or caused to be filed all material Tax returns and reports required to have been filed and has paid or caused to be paid all material Taxes required to have been paid by it, except Taxes that are being contested in good faith by appropriate proceedings and for which such Loan Party or such Subsidiary, as applicable, has set aside on its books adequate reserves. No tax liens have been filed and no claims are being asserted with respect to any such taxes.

SECTION 3.10 ERISA.

(a) No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect.

(b) Each employee benefit plan of Holdings, the Borrower or any of the Borrower’s Subsidiaries intended to qualify under Section 401 of the Code does so qualify, and any trust created thereunder is exempt from tax under the provisions of Section 501 of the Code, except where such failures, in the aggregate, would not have a Material Adverse Effect.

(c) Each Plan is in compliance in all material respects with applicable provisions of ERISA, the Code and other Requirements of Law except for non-compliances that, in the aggregate, would not have a Material Adverse Effect.

SECTION 3.11 Disclosure. The Borrower and Holdings have disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any Subsidiary is subject, and all other matters known to it, in relation to the Transactions that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the written reports, financial statements, certificates or other written information furnished by or on behalf of the any Loan Party to the ABL Administrative Agent or any Lender in connection with the negotiation of this Agreement or any other Loan Document (as modified or supplemented by other written information so furnished) contained as of the date such report, statement, certificate or information was so furnished any material misstatement of fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading; provided that, with respect to projected financial information, the Borrower and Holdings represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time delivered and, if such projected financial information was delivered prior to the Effective Date, as of the Effective Date, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount.

SECTION 3.12 Solvency. Immediately after the consummation of the Transactions to occur on the Effective Date, (i) the fair value of the assets of each Loan Party, at

73

a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) each Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted after the Effective Date.

SECTION 3.13 Insurance. Schedule 3.13 sets forth a description of all insurance maintained by or on behalf of the Loan Parties and the Subsidiaries as of the Effective Date. As of the Effective Date, all premiums in respect of such material insurance have been paid. The Borrower and Holdings believe that the insurance maintained by or on behalf of the Borrower and the Subsidiaries is adequate.

SECTION 3.14 Capitalization and Subsidiaries.

(a) All of the outstanding Equity Interests of the Borrower are owned beneficially and of record by Holdings, free and clear of all Liens other than the Liens in favor of the Collateral Agent, the Lenders and the Term Lenders created by the Security Agreements and non-consensual Liens created by operation of law. No Equity Interest of the Borrower is subject to any option, warrant, right of conversion or purchase or any similar right. Other than the Borrower’s LLC agreement, there are no agreements or understandings to which the Borrower is a party with respect to the voting, sale or transfer of any Equity Interest of the Borrower or any agreement restricting the transfer or hypothecation of any such shares.

(b) Schedule 3.14 sets forth as of the date of this Agreement, (i) a correct and complete list showing, the name and relationship to the Borrower of each and all of the Borrower’s Subsidiaries, (ii) a true and complete listing of each class of each of such Subsidiaries’ authorized Equity Interests, of which all of such issued shares are validly issued, outstanding, fully paid and non-assessable, and owned beneficially and of record by the Persons identified on Schedule 3.14, and (iii) the type of entity of the Borrower and each of its Subsidiaries.

SECTION 3.15 Security Interest in Collateral. The provisions of this Agreement and the other Loan Documents create legal and valid Liens on all the Collateral in favor of the Collateral Agent, for the benefit of the Collateral Agent, the ABL Administrative Agent and the Lenders. In the case of the Pledged Collateral described in the ABL Loan Security Agreement which is required to be delivered to the Collateral Agent, when stock certificates representing such Pledged Collateral are delivered to the Collateral Agent together with appropriate instruments of transfer duly executed in blank, and in the case of the other Collateral described in the ABL Loan Security Agreement, when financing statements and other filings specified on Schedule 3.15 in appropriate form are filed in the offices specified on Schedule 3.15, the ABL Loan Security Agreement shall constitute a fully perfected and continuing Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, securing the Secured Obligations, enforceable against the

74

applicable Loan Party and all third parties, and having priority over all other Liens on the Collateral except in the case of (a) Permitted Encumbrances, to the extent any such Permitted Encumbrances would have priority over the Liens in favor of the Collateral Agent pursuant to any applicable law or agreement, (b) Liens permitted by Section 6.02 other than pursuant to clauses (g) or (j) thereof and (c) Liens perfected only by possession (including possession of any certificate of title) to the extent the Collateral Agent has not obtained or does not maintain possession of such Collateral.

SECTION 3.16 Labor Disputes. As of the Effective Date, there are no strikes, lockouts or slowdowns against any Loan Party or any Subsidiary pending or, to the knowledge of the Borrower, threatened. All payments due from any Loan Party or any Subsidiary or for which any claim may be made against any Loan Party or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of such Loan Party or such Subsidiary, except as in the aggregate would not reasonably be expected to have a Material Adverse Effect.

SECTION 3.17 Margin Regulations. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Federal Reserve Board), and no proceeds of any Loan will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock in contravention of Regulation T, U or X of the Federal Reserve Board

SECTION 3.18 Use of Proceeds. The proceeds of the Initial Loans (a) are being used by the Borrower on the Effective Date for the payment of costs, fees and expenses incurred in connection with the Transactions and (b) may be used by the Borrower on the Effective Date for working capital of the Borrower and its Subsidiaries and general corporate purposes. After the Effective Date, the proceeds of the Loans and the Letters of Credit are being used by the Borrower solely for working capital of the Borrower and its Subsidiaries and general corporate purposes.

SECTION 3.19 Collateral Locations. As of the Effective Date, each Loan Party and each Loan Party’s records concerning Accounts and Credit Card Account Receivables are located only at the addresses set forth for such Loan Party on Schedule 3.05 hereto. Schedule 3.05 hereto correctly identifies as of the date hereof any of such locations which are not owned by Loan Party and sets forth the owners and/or operators thereof.

SECTION 3.20 Corporate Names; Prior Transactions. As of the date hereof, no Loan Party has, during the past five years, been known by or used any other corporate or fictitious name (other than as set forth in Schedule 3.20 hereto) or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or acquired any of its property or assets out of the ordinary course of business.

SECTION 3.21 Credit Card Agreements. Except as could not reasonably be expected to have a Material Adverse Effect, (a) each of the Credit Card Agreements constitutes the legal, valid and binding obligations of the Loan Party that is party thereto and to the best of Borrower’s knowledge, the other parties thereto, enforceable in accordance with their

75

respective terms and is in full force and effect, and (b) each Loan Party has complied with all of the material terms and conditions of the Credit Card Agreements to the extent necessary for such Loan Party to be entitled to receive payments thereunder.

SECTION 3.22 Related Documents. None of the Related Documents has been amended or modified in any respect and no provision therein has been waived, except in each case where a copy of such amendment or waiver has been provided by the Borrower to the ABL Administrative Agent.

SECTION 3.23 Survival of Warranties: Cumulative. All representations and warranties contained in this Agreement or any of the other Loan Documents shall survive the execution and delivery of this Agreement and shall be conclusively presumed to have been relied on by the ABL Administrative Agent regardless of any investigation made or information possessed by the ABL Administrative Agent or any Lender.

ARTICLE IV

Conditions

SECTION 4.01 Effective Date. The obligations of the Lenders to make Loans and of the Issuing Banks to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):

(a) Credit Agreement and Loan Documents. The ABL Administrative Agent (or its counsel) shall have received (i) from each party hereto either (A) a counterpart of this Agreement signed on behalf of such party or (B) written evidence satisfactory to the ABL Administrative Agent (which may include facsimile transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (ii) duly executed copies of the Loan Documents and such other certificates, documents, instruments and agreements as the ABL Administrative Agent shall reasonably request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including any promissory notes requested by a Lender pursuant to Section 2.10 payable to the order of each such requesting Lender and a written opinion of the Loan Parties’ counsel, addressed to the ABL Administrative Agent, the Issuing Banks and the Lenders in form and substance reasonably satisfactory to the ABL Administrative Agent.

(b) Closing Certificates; Certified Certificate of Incorporation; Good Standing Certificates. The ABL Administrative Agent shall have received (i) a certificate of each Loan Party, dated the Effective Date and executed by its Secretary or Assistant Secretary, which shall (A) certify the resolutions of its Board of Directors, members or other body authorizing the execution, delivery and performance of the Loan Documents to which it is a party, (B) identify by name and title and bear the signatures of the Financial Officers and any other officers of such Loan Party authorized to sign the Loan Documents to which it is a party, and (C) contain appropriate attachments, including the certificate or articles of incorporation or organization of each Loan Party certified by the relevant authority of the jurisdiction of organization of such Loan Party and a true and correct copy of its by-laws or operating,

76

management or partnership agreement, and (ii) a long form good standing certificate for each Loan Party from its jurisdiction of organization.

(c) No Default Certificate. The ABL Administrative Agent shall have received a certificate, signed by a Secretary or Assistant Secretary of the Borrower, on behalf of itself and the other Loan Parties, (i) stating that no Default or Event of Default has occurred and is continuing, (ii) stating that the representations and warranties contained in Article III are true and correct as of such date, and (iii) certifying any other factual matters as may be reasonably requested by the ABL Administrative Agent.

(d) Fees. The Lenders and the ABL Administrative Agent shall have received all fees required to be paid, and all expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel), on or before the Effective Date. All such amounts may be paid with proceeds of Loans made on the Effective Date and, if such amounts are paid with proceeds of Loans, such amounts will be reflected in the funding instructions given by the Borrower to the ABL Administrative Agent on or before the Effective Date.

(e) Lien Searches. The ABL Administrative Agent shall have received the results of a recent lien search in the jurisdictions where each of the Loan Parties are incorporated or organized, and such search shall reveal no liens on any of the assets of the Loan Parties except for liens permitted by Section 6.02 or discharged on or prior to the Effective Date pursuant to a pay-off letter or other documentation satisfactory to the ABL Administrative Agent.

(f) Borrowing Base Certificate. The ABL Administrative Agent shall have received a Borrowing Base Certificate which calculates the Borrowing Base as of the end of the month immediately preceding the Effective Date.

(g) Filings. Registrations and Recordings. Each document (including any Uniform Commercial Code financing statement) required by the Collateral Documents or under law or reasonably requested by the ABL Administrative Agent to be filed, registered or recorded in order to create in favor of the ABL Administrative Agent, for the benefit of the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 6.02), shall be in proper form for filing, registration or recordation.

(h) Opinions. The Lenders and the ABL Administrative Agent shall have received a favorable legal opinion of Simpson Thacher & Bartlett LLP, counsel to the Loan Parties, in form and substance reasonably satisfactory to the ABL Administrative Agent.

(i) Intercreditor Agreement. The Intercreditor Agreement shall have been duly executed and delivered by the parties thereto.

(j) Appraisals. The ABL Administrative Agent shall have received an inventory appraisal by a third party appraiser acceptable to the ABL Administrative.

77

(k) Opening Day Availability. After giving effect to (i) the first funding under the Loans, and (ii) all Letters of Credit to be issued at, or immediately subsequent to, the Effective Date, Availability shall be not less than $70,000,000.

(1) Extending Lenders. Lenders having Revolving Exposure and unused Revolving Commitments representing more than fifty percent (50%) of the sum of the total Revolving Exposure and unused Revolving Commitments as of the Effective Date shall have become Extending Lenders.

(m) Know Your Customer Requirements. The ABL Administrative Agent shall have received all documentation and other information about the Loan Parties requested by the ABL Administrative Agent not less than ten (10) Business Days prior to the Effective Date that the ABL Administrative Agent reasonably determines is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including, without limitation, the Patriot Act.

(n) Other Documents. The ABL Administrative Agent shall have received such other documents as the ABL Administrative Agent, any Issuing Bank, any Lender or their respective counsel may have reasonably requested.

The ABL Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Banks to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 2:00 p.m. on February 5, 2010 (and, in the event such conditions are not so satisfied or waived, the Revolving Commitments shall terminate at such time).

SECTION 4.02 Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Banks to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:

(a) The representations and warranties of the Loan Parties set forth in this Agreement shall be true and correct in all material respects on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable as if made on and as of such date (except that representations and warranties which relate to a specific earlier date shall be true and correct in all material respects as of such earlier date).

(b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default or Event of Default shall have occurred and be continuing.

Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in clauses (a) and (b) of this Section 4.02.

78

ARTICLE V

Affirmative Covenants

Until the Revolving Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated or been cash collateralized and all LC Disbursements shall have been reimbursed, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the Loan Parties, with the Lenders that:

SECTION 5.01 Financial Statements; Borrowing Base and Other Information. The Borrower or Holdings will furnish to the ABL Administrative Agent and each Lender:

(a) as soon as available and in any event within 95 days after the end of each fiscal year of Holdings, its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by independent public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of Holdings and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;

(b) as soon as available and in any event within 50 days after the end of each of the first three fiscal quarters of Holdings, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of Holdings and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied subject to normal year-end audit adjustments and the absence of footnotes; provided that, upon the occurrence and during the continuance of an Accelerated Reporting Event, the Loan Parties shall be required to deliver the financial statements described herein to the ABL Administrative Agent and each Lender on a monthly basis, within twenty (20) days after the end of each fiscal month of Holdings (commencing with the first fiscal month immediately following the occurrence of such Accelerated Reporting Event) in accordance with the terms of this clause (b);

(c) concurrently with the delivery of each set of consolidated financial statements referred to in Section 5.0 (a) and (b) above, a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of Holdings and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiary of Holdings;

79

(d) concurrently with any delivery of financial statements under clause (a) or (b) or (c) above, a certificate of a Financial Officer of the Borrower in substantially the form of Exhibit C (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 6.14, and (iii) in the case of quarterly or annual financial statements, setting forth reasonably detailed calculations for the Leverage Ratio and stating whether any change in the Applicable Rates has occurred;

(e) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines);

(f) as soon as available but in any event not later than 30 days after the end of each fiscal year of the Borrower, and containing substantially the types of financial information contained in the projections, (i) the annual business plan of the Borrower and its Subsidiaries for the next succeeding fiscal year approved by the board of directors or equivalent of the Borrower, (ii) forecasts prepared by management of the Borrower for each fiscal quarter in the next succeeding fiscal year and (iii) forecasts prepared by management of the Borrower for each fiscal year subsequent to the next succeeding fiscal year through the fiscal year in which the Extended Termination Date is scheduled to occur, including, in each instance described in clauses (ii) and (iii) above, (x) a projected year-end consolidated balance sheet and income statement and statement of cash flows and (y) a statement of all of the material assumptions on which such forecasts are based (the “Projections”):

(g) as soon as available but in any event: (i) not later than fifteen (15) days after the end of each fiscal month, a monthly Borrowing Base Certificate, which monthly Borrowing Base Certificate shall reflect (A) the updated Eligible Accounts and Eligible Credit Card Account Receivables as of the last day of the then most recently ended month and (B) Eligible Inventory as of the last day of the then most recently ended month; (ii) upon the occurrence and during the continuance of any Accelerated Reporting Event, within three (3) Business Days after the end of each calendar week (each calendar week deemed, for purposes hereof, to end on a Friday), a weekly Borrowing Base Certificate, which shall reflect (A) the updated Eligible Accounts and Eligible Credit Card Account Receivables as of the end of such week and (B) Eligible Inventory as stated in the immediately preceding monthly Borrowing Base Certificate; and (iii) if requested by the ABL Administrative Agent at any other time when the ABL Administrative Agent reasonably believes that the then existing Borrowing Base Certificate is materially inaccurate, as soon as reasonably available but in no event later than five (5) Business Days after such request, a completed Borrowing Base Certificate showing the Borrowing Base as of the date so requested, in each case with supporting documentation and additional reports with respect to the Borrowing Base as the ABL Administrative Agent may reasonably request;

(h) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Holdings or any Subsidiary with

80

the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or, after a Public Equity Offering, distributed by the Borrower to its shareholders generally, as the case may be; and

(i) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, as the ABL Administrative Agent or any Lender may reasonably request.

SECTION 5.02 Notices of Material Events. The Borrower and Holdings will furnish to the ABL Administrative Agent and each Lender prompt written notice of the following:

(a) the occurrence of any Default promptly upon becoming aware of it;

(b) the occurrence of any event that would trigger a Cash Dominion Period promptly upon becoming aware of it;

(c) receipt of any notice of any governmental investigation or any litigation or proceeding commenced or threatened against any Loan Party that (i) seeks damages in excess of $10,000,000 and is not covered by insurance, (ii) seeks injunctive relief which, if granted, would reasonably be expected to have a Material Adverse Effect;

(d) (i) any Lien (other than Liens permitted under Section 6.02) or claim made or asserted against any of the Collateral, (ii) any loss, damage, or destruction to the Collateral whether or not covered by insurance or the commencement of any action or proceeding for the taking of any material portion of the Collateral or interest therein under power of eminent domain or by condemnation or similar proceeding and (iii) any and all default notices received under or with respect to any leased location or public warehouse where Collateral is located (which shall be delivered within two Business Days after receipt thereof), in each case in relation to Collateral in the aggregate amount of $10,000,000 or more;

(e) any Credit Card Agreement entered into by such Loan Party after the date hereof, together with a true, correct and complete copy thereof and such other information with respect thereto as the ABL Administrative Agent may reasonably request;

(f) the receipt by any Loan Party of any written notice of violation of or potential liability under, or knowledge by such Loan Party that there exists a condition that could reasonably be expected to result in a violation of or liability under, any Environmental Law, except for violations and liabilities the consequence of which would not be reasonably likely to subject the Loan Parties to liabilities exceeding $5,000,000 individually or in the aggregate;

(g) obtaining knowledge of the commencement of any judicial or administrative proceeding or investigation alleging a violation of or liability under any Environmental Law, that has a reasonable likelihood of being adversely determined and that, in the aggregate, if adversely determined, would have a reasonable likelihood of subjecting the Loan Party to liabilities exceeding $5,000,000 individually or in the aggregate;

81

(h) upon written request by any Lender through the ABL Administrative Agent, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any notice or report delivered pursuant to this Agreement; and

(i) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

SECTION 5.03 Existence: Conduct of Business. Each Loan Party will, and will cause each Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect (i) its legal existence and (ii) the rights, qualifications, licenses, permits, franchises, governmental authorizations, intellectual property rights, licenses and permits material to the conduct of its business, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03 and, in the case of clause (ii) above, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

SECTION 5.04 Payment of Obligations. Each Loan Party will, and will cause each Subsidiary to, pay or discharge all Material Indebtedness and all other material liabilities and obligations, including Taxes, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, and (b) such Loan Party or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP.

SECTION 5.05 Maintenance of Properties. Each Loan Party will, and will cause each Subsidiary to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted.

SECTION 5.06 Books and Records: Inspection Rights. Each Loan Party will, and will cause each Restricted Subsidiary to, (i) keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities and (ii) permit any representatives designated by the ABL Administrative Agent or any Lender (including employees of the ABL Administrative Agent, any Lender or any consultants, accountants, lawyers and appraisers retained by the ABL Administrative Agent), upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, including environmental assessment reports and Phase I or Phase II studies, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. The Loan Parties acknowledge that the ABL Administrative Agent, after exercising its rights of inspection, may prepare and distribute to the Lenders certain Reports pertaining to the Loan Parties’ assets for internal use by the ABL Administrative Agent and the Lenders.

82

SECTION 5.07 Compliance with Laws. Each Loan Party will, and will cause each Subsidiary to, comply with all Requirements of Law applicable to it or its property except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

SECTION 5.08 Use of Proceeds. The proceeds of the Loans will be used only as described in Section 3.18. No part of the proceeds of any Loan and no Letter of Credit will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X.

SECTION 5.09 Insurance.

(a) Each Loan Party will, and will cause each Subsidiary to, maintain insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is consistent with prudent business practice; provided that each Loan Party and its Subsidiaries may self insure to the extent consistent with prudent business practice. The Borrower will furnish to the Lenders, upon request of the ABL Administrative Agent, information in reasonable detail as to the insurance so maintained.

(b) On or before the Effective Date, in respect of all insurance policies maintained by any Loan Party, each Loan Party shall deliver to the ABL Administrative Agent certificates of insurance naming the Collateral Agent (for the benefit of the Collateral Agent, the ABL Administrative Agent and the Lenders) as an additional insured or as loss payee, as applicable. Within five (5) Business Days after the Effective Date (or such later date as to which the ABL Administrative Agent may agree in its reasonable discretion), each Loan Party shall cause to be delivered to the ABL Administrative Agent endorsements in form and substance satisfactory to the ABL Administrative Agent containing loss payable clauses or mortgagee clauses, as applicable.

SECTION 5.10 Appraisals and Field Examinations. At any time reasonably deemed necessary by the ABL Administrative Agent, and upon reasonable notice from the ABL Administrative Agent, the Borrower and the Restricted Subsidiaries will permit the ABL Administrative Agent or professionals (including consultants, accounts and/or appraisers) retained by the ABL Administrative Agent to conduct field examinations and/or appraisals of (a) the Borrower’s practices in the computation of the Borrowing Base and (b) the assets included in the Borrowing Base. Subject to the following sentences, the Loan Parties shall pay the reasonable and documented fees and expenses of the ABL Administrative Agent and such professionals with respect to such evaluations and appraisals. The Loan Parties acknowledge that the ABL Administrative Agent may, in its discretion, undertake one (1) field examination and one (1) appraisal during each fiscal year at the Loan Parties’ expense; provided that, if Availability at any time is less than or equal to sixty-five percent (65%), but greater than thirty percent (30%), of the aggregate amount of the Revolving Commitments then in effect, the Loan Parties acknowledge that the ABL Administrative Agent, may in its discretion, undertake up to two (2) field examinations and two (2) appraisals during each fiscal year at the Loan Parties’ expense; provided further, that if Availability at any time is less than or equal to thirty percent (30%) of the aggregate amount of the Revolving Commitments then in effect, the Loan Parties acknowledge that the ABL Administrative Agent may, in its discretion, undertake up to

83

three (3) field examinations and three (3) appraisals during each fiscal year at the Loan Parties’ expense. Notwithstanding anything to the contrary contained herein, the ABL Administrative Agent may cause additional appraisals and field examinations to be undertaken (i) as it in its reasonable discretion deems necessary or appropriate, at its own expense, or (ii) if an Event of Default shall have occurred and be continuing, at the expense of the Loan Parties.

SECTION 5.11 Additional Collateral; Further Assurances.

(a) Subject to applicable law, the Borrower and each Restricted Subsidiary that is a Loan Party shall cause each of its domestic Restricted Subsidiaries formed or acquired after the date of this Agreement in accordance with the terms of this Agreement to become a Loan Party by executing the Joinder Agreement set forth as Exhibit D hereto (the “Joinder Agreement”). Upon execution and delivery thereof, each such Person (i) shall automatically become a Loan Guarantor hereunder and thereupon shall have all of the rights, benefits, duties, and obligations in such capacity under the Loan Documents and (ii) will grant Liens to the Collateral Agent, for the benefit of the Collateral Agent, the ABL Administrative Agent and the Lenders, in any property of such Loan Party which constitutes Collateral, including any parcel of real property with a fair market value in excess of $250,000 located in the U.S. owned by any Loan Party.

(b) The Borrower and each Restricted Subsidiary that is a Loan Party will cause (i) 100% of the issued and outstanding Equity Interests of each of its domestic Restricted Subsidiaries and (ii) 65% (or such greater percentage that, due to a change in applicable law after the date hereof, (1) could not reasonably be expected to cause the undistributed earnings of such foreign Restricted Subsidiary as determined for U.S. federal income tax purposes to be treated as a deemed dividend to such foreign Restricted Subsidiary’s U.S. parent and (2) could not reasonably be expected to cause any adverse tax consequences) of the issued and outstanding Equity Interests in each foreign Restricted Subsidiary directly owned by the Borrower or any domestic Restricted Subsidiary to be subject at all times to (i) a first priority, perfected Lien in favor of the Term Collateral Agent for the benefit of the Term Lenders and (ii) a second priority, perfected Lien in favor of the Collateral Agent for the benefit of the Lenders, in each case pursuant to the terms and conditions of the Loan Documents and the Term Loan Documents or other security documents, subject to the Intercreditor Agreement, as the ABL Administrative Agent and/or the Term Administrative Agent shall reasonably request.

(c) Without limiting the foregoing, each Loan Party will, and will cause each Restricted Subsidiary to, execute and deliver, or cause to be executed and delivered, to the ABL Administrative Agent such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and such other actions or deliveries of the type required by Section 4.01, as applicable), which may be required by law or which the ABL Administrative Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure perfection and priority of the Liens created or intended to be created by the Collateral Documents, all at the expense of the Loan Parties.

84

(d) If any material assets (including any real property or improvements thereto or any interest therein with a fair market value in excess of $250,000) are acquired by the Borrower or any Restricted Subsidiary that is a Loan Party after the Effective Date (other than assets constituting Collateral under the Security Agreement that become subject to the Lien in favor of the Collateral Agent upon acquisition thereof and Excluded Collateral (as defined in the ABL Loan Security Agreement)), the Borrower will notify the ABL Administrative Agent and the Lenders thereof, and, if requested by the ABL Administrative Agent or the Required Lenders, the Borrower will cause such assets to be subjected to a Lien securing the Secured Obligations and will take, and cause the Restricted Subsidiary Loan Parties to take, such actions as shall be necessary or reasonably requested by the ABL Administrative Agent to grant and perfect such Liens, including actions described in clause (c) of this Section 5.11, all at the expense of the Loan Parties.

SECTION 5.12 Cash Management.

(a) The Borrower shall cause 100% of the sum of (i) aggregate daily cash collections in respect of all Eligible Accounts and Eligible Credit Card Account Receivable and (ii) aggregate daily cash payments constituting proceeds of all Eligible Inventory to be paid into one or more deposit accounts with respect to which the Borrower has provided to the ABL Administrative Agent a Deposit Account Control Agreement (any such deposit account, a “Borrowing Base Proceeds Deposit Account”). During any Cash Dominion Period, the ABL Administrative Agent shall have the right, with respect to all amounts that pursuant to this Section 5.12(a) are on deposit in any Borrowing Base Proceeds Deposit Account, (1) to cause all such amounts to be swept at the end of each Business Day into an account (the “Collection Account”) maintained by the ABL Administrative Agent with Wells Fargo and (2) to apply all such amounts on deposit in the Collection Account to the prepayment of the Obligations and the cash collateralization of LC Exposure as set forth in Section 2.10(b).

(b) Each Loan Party shall provide to the Collateral Agent a Deposit Account Control Agreement with respect to each new deposit account of such Loan Party within 60 days after the opening of such new deposit account, other than any deposit account (i) in which the average monthly balance on deposit is less than $100,000 individually or $1,000,000 for all such deposit accounts, (ii) with respect to which the granting of a security interest and the entering into of a Deposit Account Control Agreement is prohibited by Requirements of Law or (iii) with respect to which the Collateral Agent has otherwise agreed not to require a Deposit Account Control Agreement.

SECTION 5.13 Real Property.

(a) The Borrower shall, and shall cause each of its Subsidiaries to, (i) comply in all material respects with all of their respective obligations under all of their material Leases having annual rentals in excess of $400,000 now or hereafter held respectively by them, (ii) not modify, amend, cancel, extend or otherwise change in any materially adverse manner any term, covenant or condition of any such material Lease, (iii) not assign or sublet any other Lease if such assignment or sublet would have a Material Adverse Effect, (iv) provide the ABL Administrative Agent with a copy of each notice of default under any material Lease received by the Borrower or any Subsidiary of the Borrower promptly upon receipt thereof and (v) notify the

85

ABL Administrative Agent at least 14 days prior to the date the Borrower or any Subsidiary takes possession of, or becomes liable under, any new leased premises or Lease, whichever is earlier.

(b) At least 15 Business Days prior to (i) entering into any Lease (other than a renewal of an existing Lease) for the principal place of business and chief executive office of the Borrower or any other Loan Guarantor or any other Lease (including any renewal) in which the annual rental payments are anticipated to equal or exceed $400,000 or (ii) acquiring any material owned Real Property, the Borrower shall, and shall cause such Loan Guarantor to, provide the ABL Administrative Agent written notice thereof.

(c) If at any time after the Effective Date, the Borrower or any Loan Guarantor shall acquire fee simple title to any material Real Property having a purchase price in excess of $400,000 or acquire or enter into any material Lease having annual rental in excess of $400,000, upon the written request of the ABL Administrative Agent, the Borrower shall, and shall cause each Loan Guarantor to, execute and deliver to the Collateral Agent, for the benefit of each of the ABL Administrative Agent and the Lenders, promptly and in any event not later than 45 days after receipt of such notice (or, if such request is given by the ABL Administrative Agent prior to the acquisition of such Real Property or Lease, immediately upon such acquisition), a mortgage on any owned Real Property or a Leasehold Mortgage on any or Lease of the Borrower or such Loan Guarantor, together with (i) if requested by the ABL Administrative Agent and such Real Property is located in the United States or is a Lease of Real Property located in the United States, all Leasehold Mortgage Supporting Documents relating thereto or (ii) otherwise, documents similar to Leasehold Mortgage Supporting Documents deemed by the ABL Administrative Agent to be appropriate in the applicable jurisdiction to obtain the equivalent in such jurisdiction of a first-priority mortgage on such Real Property or Lease; provided that, with respect to any properties identified on the Leasehold Property Schedule, the foregoing is subject to the Borrower obtaining (i) any required landlord consent and/or (ii) a recordable lease or memorandum of lease, if necessary, with respect thereto, which, in each case, the Borrower shall use commercially reasonable efforts to obtain.

SECTION 5.14 Post-Closing Matters.

(a) Within 45 days after the Effective Date (or such later date as to which the ABL Administrative Agent may agree in its reasonable discretion), the Borrower shall deliver to the ABL Administrative Agent an amendment and restatement, in form and substance reasonably satisfactory to the ABL Administrative Agent, of each of the following documents previously delivered by the Borrower pursuant to the Existing Credit Agreement: (i) the Primary Collateral Access Agreement; and (ii) the Real Property Holding Company Collateral Access Agreement.

(b) Within 60 days after the Effective Date (or such later date as to which the ABL Administrative Agent may agree in its reasonable discretion), the Borrower shall deliver to the ABL Administrative Agent an amendment and restatement, in form and substance reasonably satisfactory to the ABL Administrative Agent, of the Amended and Restated Deposit Account Control Agreement, dated as of December 21, 2006, among the Borrower, the Original Agent and Bank of America, N.A.

86

(c) Within 60 days after the Effective Date (or such later date as to which the ABL Administrative Agent may agree in its reasonable discretion), each Loan Party shall use its commercially reasonable efforts to provide to the Collateral Agent a Collateral Access Agreement with respect to its corporate headquarters and each leased distribution center or warehouse location maintained by such Loan Party as of the Effective Date. Thereafter, with respect to any other leased distribution center or warehouse location maintained by any Loan Party after the Effective Date, the Borrower shall, within 60 days of the placement of any tangible Collateral at such location, use its commercially reasonable efforts to provide to the Collateral Agent a Collateral Access Agreement with respect to such location unless the Collateral placed in such location is Inventory having a value of $1,000,000 or less. No Collateral shall be located at any location outside of the continental United States.

ARTICLE VI

Negative Covenants

Until the Revolving Commitments have expired or terminated and the principal of and interest on each Loan and all fees, expenses and other amounts payable under any Loan Document have been paid in full and all Letters of Credit have expired or terminated or been cash collateralized and all LC Disbursements shall have been reimbursed, the Loan Parties covenant and agree, jointly and severally, with the Lenders that:

SECTION 6.01 Indebtedness. No Loan Party will, nor will it permit any Restricted Subsidiary to, create, incur or suffer to exist any Indebtedness, except:

(a) Indebtedness incurred pursuant to any Loan Document;

(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01 and extensions, renewals, refinancings and replacements of any such Indebtedness in accordance with clause (f) hereof;

(c) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other Subsidiary, provided that (i) Indebtedness of any Subsidiary that is not a Loan Party to the Borrower or any Subsidiary that is a Loan Party shall be subject to Section 6.04 and (ii) Indebtedness of the Borrower to any Subsidiary and Indebtedness of any Subsidiary that is a Loan Party to any Subsidiary that is not a Loan Party shall be subordinated to the Secured Obligations on terms reasonably satisfactory to the ABL Administrative Agent;

(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Restricted Subsidiary of Indebtedness of the Borrower or any other Subsidiary, provided that (i) the Indebtedness so Guaranteed is permitted by this Section 6.01, (ii) Guarantees by the Borrower or any Subsidiary that is a Loan Party of Indebtedness of any Restricted Subsidiary that is not a Loan Party shall be subject to Section 6.04 (without giving effect to clause (p) thereof) and (iii) Guarantees permitted under this clause (d) shall be subordinated to the Secured Obligations of the applicable Restricted Subsidiary on the same terms as the Indebtedness so Guaranteed is subordinated to the Secured Obligations;

87

(e) Indebtedness of the Borrower or any Restricted Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets (whether or not constituting purchase money Indebtedness), including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness in accordance with clause (f) hereof; provided that such Indebtedness is incurred prior to, concurrently with or within 180 days after such acquisition or the completion of such construction or improvement;

(f) Indebtedness which represents an extension, refinancing, or renewal of any of the Indebtedness described in clauses (b), (e), (i) and (j) hereof; provided that (i) the principal amount of such Indebtedness is not increased except by an amount equal to accrued but unpaid interest and premiums thereon, (ii) any Liens securing such Indebtedness are not extended to any additional property of any Loan Party, (iii) no Loan Party that is not originally obligated with respect to repayment of such Indebtedness is required to become obligated with respect thereto, (iv) such extension, refinancing or renewal does not result in a shortening of the average weighted maturity of the Indebtedness so extended, refinanced or renewed, (v) the terms and conditions, including the covenants and event of default provisions of such extension, refinancing, or renewal are market terms and conditions at the time of such extension, refinancing or renewal, and (vi) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Secured Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include subordination terms and conditions that are at least as favorable to the ABL Administrative Agent and the Lenders as those that were applicable to the refinanced, renewed, or extended Indebtedness;

(g) Indebtedness owed to any person providing workers’ compensation, health, disability or other employee benefits or property, casualty or liability insurance, pursuant to reimbursement or indemnification obligations to such person, in each case incurred in the ordinary course of business;

(h) Indebtedness of the Borrower or any Restricted Subsidiary in respect of performance bonds, bid bonds, appeal bonds, surety bonds and similar obligations, in each case provided in the ordinary course of business;

(i) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided that (i) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (ii) the aggregate principal amount of Indebtedness permitted by this clause (i) shall not exceed $10,000,000 at any time outstanding;

(j) Indebtedness pursuant to the Term Loan Agreement;

(k) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within two Business Days of its incurrence;

88

(l) Indebtedness representing deferred compensation to employees of the Borrower and the Restricted Subsidiaries incurred in the ordinary course of business;

(m) Indebtedness supported by a letter of credit (for so long as supported by such letter of credit) in a principal amount not to exceed the face amount of such letter of credit;

(n) any “bad acts” Guarantee and any environmental indemnity issued by the Borrower in connection with the Real Estate Debt pursuant to which the Unrestricted Subsidiary is borrower; and

(o) other (i) unsecured Indebtedness of the Borrower or any Restricted Subsidiary in an aggregate principal amount not exceeding $140,000,000, of which a maximum aggregate principal amount of $50,000,000 may be senior unsecured Indebtedness, provided that other than in the event that such Restricted Subsidiary is a corporate co-issuer with the Borrower of such Indebtedness, the maximum aggregate amount of Indebtedness that may be incurred by Restricted Subsidiaries pursuant to this clause (i) shall be $10,000,000 and (ii) Indebtedness of the Borrower or any Restricted Subsidiary (but only in the event that such Restricted Subsidiary is a corporate co-issuer with the Borrower of such Indebtedness) in an aggregate principal amount not exceeding $10,000,000 provided that such Indebtedness may only be secured in accordance with Section 6.02(i).

SECTION 6.02 Liens. No Loan Party will, nor will it permit any Restricted Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:

(a) Liens created pursuant to any Loan Document;

(b) Permitted Encumbrances;

(c) any Lien on any property or asset of the Borrower or any Restricted Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or Restricted Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof and which are permitted by clause (f) of Section 6.01;

(d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Restricted Subsidiary or arising out of sale and leaseback transactions permitted by Section 6.06; provided that (i) such security interests secure Indebtedness permitted by clause (e) of Section 6.01, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or concurrently with or within 180 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Borrower or Restricted Subsidiary;

89

(e) any Lien existing on any property or asset (other than Accounts, Credit Card Account Receivable and Inventory) prior to the acquisition thereof by the Borrower or any Restricted Subsidiary or existing on any property or asset (other than Accounts, Credit Card Account Receivable and Inventory) of any Person that becomes a Loan Party after the date hereof prior to the time such Person becomes a Loan Party; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Loan Party, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Loan Party (other than proceeds) and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Loan Party, as the case may be and such Indebtedness is permitted by clause (i) of Section 6.01 and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof (plus accrued interest and premiums) and which are permitted by clauses (f) of Section 6.01;

(f) Liens of a collecting bank arising in the ordinary course of business under Section 4-208 of the Uniform Commercial Code in effect in the relevant jurisdiction covering only the items being collected upon;

(g) Liens granted by a Restricted Subsidiary that is not a Loan Party in favor of the Borrower or another Loan Party in respect of Indebtedness owed by such Restricted Subsidiary or Liens on Fixtures (as defined in the ABL Loan Security Agreement) to the extent granted to secure the Real Estate Debt;

(h) Liens on securities held by the Borrower or any of its Restricted Subsidiaries representing an interest in a joint venture to which the Borrower or such Restricted Subsidiary is a party (provided that such joint venture is not a Subsidiary of the Borrower) to the extent that (i) such Liens constitute purchase options, calls or similar rights of a counterparty to such joint venture and (ii) such Liens are granted pursuant to the terms of the partnership agreement, joint venture agreement or other similar document or documents pursuant to which such joint venture was created or otherwise governing the rights and obligations of the parties to such joint venture;

(i) Liens created pursuant to any Term Loan Document; and

(j) Liens with respect to property or assets of the Borrower or any Restricted Subsidiary not constituting Eligible Accounts, Eligible Credit Card Account Receivable or Eligible Inventory with an aggregate fair market value (valued at the time of creation of the Liens) of not more than $10,000,000 at any time.

Notwithstanding the foregoing, none of the Liens permitted pursuant to this Section 6.02 may at any time attach to any Loan Party’s (1) Eligible Accounts and Eligible Credit Card Account Receivable, other than those permitted under clauses (a) and (1) of the definition of Permitted Encumbrance and clauses (a), (e) and (i) above and (2) Eligible Inventory, other than those permitted under clauses (a), (b), (e) and (h) of the definition of Permitted Encumbrance and clauses (a), (e) and (i) above.

SECTION 6.03 Fundamental Changes.

90

(a) No Loan Party will, nor will it permit any Restricted Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) any Restricted Subsidiary of the Borrower may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Loan Party (other than the Borrower) may merge into any Loan Party in a transaction in which the surviving entity is a Loan Party, (iii) any Restricted Subsidiary may merge into another Restricted Subsidiary, provided that if one is a Loan Party the surviving company must be a Loan Party, (iv) any Restricted Subsidiary that is not a Loan Party may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders, and (v) any investment permitted by Section 6.04 may be structured as a merger or consolidation.

(b) No Loan Party will, nor will it permit any of its Restricted Subsidiaries to, engage in any business other than businesses of the type conducted by the Borrower and its Restricted Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto.

(c) Holdings will not engage in any business or activity other than the ownership of all the outstanding Equity Interests of the Borrower and activities incidental thereto, including (i) paying taxes, (ii) preparing reports to Governmental Authorities and to its shareholders and (iii) holding directors and shareholders meetings, preparing corporate records and other activities permitted by this Agreement. Holdings will not own or acquire any assets (other than Equity Interests of the Borrower, the cash proceeds of any Restricted Payments permitted by Section 6.08 and cash contributions received from the holders of Equity Interest of Holdings provided that such contributions shall be immediately contributed to the Borrower) or incur any liabilities (other than liabilities under the Loan Documents, liabilities reasonably incurred in connection with its maintenance of its existence, nonconsensual obligations imposed by law and obligations with respect to its Equity Interests (including pursuant to its stockholders’ agreement)).

SECTION 6.04 Investments, Loans, Advances, Guarantees and Acquisitions. No Loan Party will, nor will it permit any Restricted Subsidiary to, purchase, hold or acquire any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit (whether through purchase of assets, merger or otherwise), except:

(a) Permitted Investments;

(b) investments in existence on the date of this Agreement and described in Schedule 6.04;

91

(c) investments by Holdings in the Borrower and by the Borrower and the Restricted Subsidiaries in Equity Interests in their respective Restricted Subsidiaries; provided that (A) any such Equity Interests held by a Loan Party shall be pledged pursuant to the Security Agreement (subject to the limitations applicable to common stock of a foreign Restricted Subsidiary referred to in Section 5.11) and (B) the aggregate amount of investments by Loan Parties in Restricted Subsidiaries that are not Loan Parties (together with outstanding intercompany loans permitted under clause (B) to the proviso to Section 6.04(d), outstanding Guarantees permitted under the proviso to Section 6.04(e), investments permitted under clause (i) of Section 6.04 and investments permitted under clause (j) of Section 6.04) shall not exceed $10,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs);

(d) loans or advances made by the Borrower to any Restricted Subsidiary and made by any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary; provided that (A) any such loans and advances made by a Loan Party shall be evidenced by a promissory note pledged pursuant to the Security Agreement and (B) the amount of such loans and advances made by Loan Parties to Restricted Subsidiaries that are not Loan Parties (together with outstanding investments permitted under clause (B) to the proviso to Section 6.04(c), outstanding Guarantees permitted under the proviso to Section 6.04(e), investments permitted under clause (i) of Section 6.04 and investments permitted under clause (j) of Section 6.04(c)) shall not exceed $10,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs);

(e) Guarantees constituting Indebtedness permitted by Section 6.01; provided that the aggregate principal amount of Indebtedness of Restricted Subsidiaries that are not Loan Parties that is Guaranteed by any Loan Party (together with outstanding investments permitted under clause (B) to the proviso to Section 6.04(c), outstanding intercompany loans permitted under clause (B) to the proviso to Section 6.04(d), investments permitted under clause (i) of Section 6.04 and investments permitted under clause (j) of Section 6.04) shall not exceed $10,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs);

(f) loans or advances made by a Loan Party to its employees on an arms-length basis in the ordinary course of business consistent with past practices (including for travel and entertainment expenses, relocation costs and similar purposes) up to a maximum aggregate amount of $5,000,000 for the Loan Parties taken as a whole;

(g) (i) extensions of trade credit in the ordinary course of business and (ii) subject to Sections 4.2(a) and 4.4 of the Security Agreement, notes payable, or stock or other securities issued by Account Debtors to a Loan Party pursuant to negotiated agreements with respect to settlement of such Account Debtor’s Accounts and Credit Card Account Receivable in the ordinary course of business, consistent with past practices;

(h) investments in the form of Swap Agreements permitted by Section 6.07;

(i) investments of any Person existing at the time such Person becomes a Restricted Subsidiary of the Borrower or consolidates or merges with the Borrower or any of the

92

Restricted Subsidiaries (including in connection with a Permitted Acquisition) so long as such investments were not made in contemplation of such Person becoming a Restricted Subsidiary or of such merger; provided that the amount of such investments (together with outstanding investments permitted under clause (B) to the proviso to Section 6.04(c), outstanding intercompany loans permitted under clause (B) to the proviso to Section 6.04(d), outstanding Guarantees permitted under the proviso to Section 6.04(e) and outstanding investments permitted under clause (j) of Section 6.04) shall not exceed $10,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs);

(j) investments received in connection with the dispositions of assets permitted by Section 6.05; provided that the amount of such investments (together with outstanding investments permitted under clause (B) to the proviso to Section 6.04(c), outstanding intercompany loans permitted under clause (B) to the proviso to Section 6.04(d), outstanding Guarantees permitted under the proviso to Section 6.04(e) and outstanding investments permitted under clause (i) of Section 6.04) shall not exceed $10,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs); and

(k) investments constituting deposits described in clauses (c) and (d) of the definition of the term “Permitted Encumbrances”;

(1) any “bad acts” Guarantee and any environmental indemnity issued by the Borrower in connection with the Real Estate Debt pursuant to which the Unrestricted Subsidiary is borrower;

(m) the purchase or other acquisition by the Borrower or any of its Restricted Subsidiaries of all of the Equity Interests in any Person that upon consummation thereof will be wholly owned, directly or indirectly, by the Borrower (including as a result of a merger or consolidation), or the purchase or other acquisition by the Borrower or any of its Restricted Subsidiaries of all or substantially all of the property and assets of any Person or a division or business unit of any Person; provided that (i) the lines of business of the Person to be (or the property and assets of which are to be) so purchased or otherwise acquired shall be substantially the same lines of business as those of the Borrower and its Restricted Subsidiaries or reasonably related thereto, (ii) the total cash consideration paid by or on behalf of the Borrower and its Restricted Subsidiaries for any such purchase or acquisition, when aggregated with the total cash consideration paid by or on behalf of the Borrower and its Restricted Subsidiaries for all other purchases and acquisitions made pursuant to this Section 6.04(m), shall not exceed $50,000,000, (iii) immediately before and immediately after giving pro forma effect to any such purchase or acquisition, no Event of Default shall have occurred and be continuing, (iv) immediately after giving pro forma effect to any such purchase or acquisition, the Borrower shall be in compliance with Section 6.14, and (v) at least five Business Days prior to the date upon which any such purchase or acquisition is to be consummated, the Borrower shall have delivered to the ABL Administrative Agent a certificate of a Financial Officer certifying that all the requirements set forth in this Section 6.04(m) have been satisfied or will be satisfied on or prior to the consummation of such purchase or acquisition;

(n) investments made with the proceeds of equity issuances;

93

(o) in addition to investments, loans and advances otherwise expressly permitted pursuant to this Section 6.04, investments, loans and advances by the Borrower or any of its Restricted Subsidiaries in an aggregate amount (valued at cost) not to exceed during the term of this Agreement $2,000,000 plus an amount equal to any returns of capital actually received in cash in respect of any such investments (which amount shall not exceed the amount of such investment valued at cost at the time such investment was made);

(p) any investment or loan not otherwise permitted by this Section 6.04; provided that after giving effect to such investment or loan on a pro forma basis the Available Credit Condition shall be satisfied.

SECTION 6.05 Asset Sales. No Loan Party will, nor will it permit any Restricted Subsidiary to, sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by it, nor will the Borrower permit any Restricted Subsidiary to issue any additional Equity Interest in such Restricted Subsidiary (other than to the Borrower or another Restricted Subsidiary in compliance with Section 6.04), except:

(a) sales, transfers and dispositions of (i) Inventory in the ordinary course of business and (ii) used, obsolete, worn out or surplus equipment or property in the ordinary course of business;

(b) sales, transfers and dispositions to the Borrower or any Restricted Subsidiary, provided that any such sales, transfers or dispositions involving a Restricted Subsidiary that is not a Loan Party shall be made in compliance with Section 6.09;

(c) sales, transfers and dispositions of accounts receivable in connection with the compromise, settlement or collection thereof;

(d) sales, transfers and dispositions of investments permitted by clauses (j) and (k) of Section 6.04;

(e) sale and leaseback transactions permitted by Section 6.06;

(f) dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Borrower or any Restricted Subsidiary;

(g) licensing and cross-licensing arrangements entered into in the ordinary course of business involving any technology or other intellectual property of the Borrower or any Restricted Subsidiary;

(h) (i) dispositions of Permitted Investments for fair market value and (ii) leases and subleases not materially interfering with the ordinary course of business; and

(i) sales, transfers and other dispositions of assets (other than Equity Interests in a Restricted Subsidiary unless all Equity Interests in such Restricted Subsidiary are sold) that are not permitted by any other clause of this Section; provided that the aggregate fair market value of all assets sold, transferred or otherwise disposed of in reliance upon this clause

94

(i) shall not exceed $20,000,000 during any fiscal year of the Borrower or $75,000,000 during the term of this Agreement;

provided that all sales, transfers, leases and other dispositions permitted hereby (other than those permitted by clauses (b), (f), (g), and (h)(ii) above) shall be made for fair value and for at least 75% cash consideration.

SECTION 6.06 Sale and Leaseback Transactions. No Loan Party will, nor will it permit any Restricted Subsidiary to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred, except for any such sale of any fixed or capital assets by the Borrower or any Restricted Subsidiary that is made for cash consideration in an amount not less than the fair value of such fixed or capital asset and is consummated within 180 days after the Borrower or such Restricted Subsidiary acquires or completes the construction of such fixed or capital asset.

SECTION 6.07 Swap Agreements. No Loan Party will, nor will it permit any Restricted Subsidiary to, enter into any Swap Agreement or any speculative transaction except (a) Swap Agreements entered into to hedge or mitigate risks to which the Borrower or any Restricted Subsidiary has actual exposure (other than those in respect of Equity Interests of the Borrower or any of its Restricted Subsidiaries), and (b) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the Borrower or any Restricted Subsidiary, in each case for the sole purpose of hedging in the ordinary course of business.

SECTION 6.08 Restricted Payments; Certain Payments of Indebtedness.

(a) No Loan Party will, nor will it permit any Restricted Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, or to make, or agree to make any redemptions or repurchases with respect to its capital stock, or incur any obligation (contingent or otherwise) to do so, except: (i) each of Holdings and the Borrower may make Restricted Payments with respect to its common Equity Interests payable solely in additional shares of its common Equity Interests, and, with respect to its preferred Equity Interests, payable solely in additional shares of such preferred Equity Interests or in shares of its common Equity Interests; (ii) Restricted Subsidiaries may declare and pay dividends ratably with respect to their Equity Interests; (iii) each of Holdings and the Borrower may make Restricted Payments, not exceeding $5,000,000 during any fiscal year, pursuant to and in accordance with stock option plans or other benefit plans for management or employees of Holdings, the Borrower and its Restricted Subsidiaries; (iv) each of Holdings and the Borrower may pay dividends or make distributions to the Persons holding its Equity Interests in an aggregate amount such that such Persons may pay (x) franchise taxes and other fees, taxes and expenses to maintain their legal existence and (y) federal, state and local income taxes to the extent attributable to Holdings and its Subsidiaries or to the Borrower and its Subsidiaries as the case may be, provided that in all events the amounts paid pursuant to clause (y) shall be amounts sufficient to pay the direct obligations of such Persons for such taxes and obligations of the

95

Borrower and Holdings under the Tax Sharing Agreement, provided, however, that (aa) the amounts paid under clause (y) shall not exceed the amount that would be payable, on a consolidated or combined basis, were Holdings the common parent of a separate federal consolidated group or state combined group including the Borrower and its Subsidiaries and (bb) in the case of taxes attributable to the Unrestricted Subsidiary, an amount equal to the amount of such tax payment has been received by the Borrower from the Unrestricted Subsidiary prior to such payment being made; and (v) so long as there exists no Event of Default, each of Holdings and the Borrower may pay dividends or make distributions to the Persons holding its Equity Interests in an aggregate amount such that such Persons may pay officers, directors and corporate overhead expenses incurred in the ordinary course of business up to a maximum aggregate amount of $2,500,000 in any fiscal year.

(b) No Loan Party will, nor will it permit any Restricted Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Indebtedness, or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Indebtedness, except:

(i) payments of Indebtedness created under the Loan Documents and the Term Loan Documents;

(ii) payments of regularly scheduled interest and principal payments and any mandatory prepayments or redemptions provided no Default has occurred and is continuing hereunder, as and when due in respect of any Indebtedness, other than payments in respect of the Subordinated Indebtedness prohibited by the subordination provisions thereof;

(iii) refinancings of Indebtedness to the extent permitted by Section 6.01;

(iv) payments or prepayments made with the proceeds of equity issuances; and

(v) payments of secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness.

(c) In addition to Restricted Payments permitted under Section 6.08(a) and payments on or in respect of Indebtedness permitted under Section 6.08(b). any Loan Party may make Restricted Payments and payments of or in respect of Indebtedness if, on a pro forma basis after giving effect thereto, the Available Credit Condition shall be satisfied.

SECTION 6.09 Transactions with Affiliates. No Loan Party will, nor will it permit any Restricted Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except: (a) transactions that (i) are in the ordinary course of business and (ii) are at prices and on terms and conditions not less favorable to the Borrower or such Restricted Subsidiary than could be obtained on an arm’s-length basis from

96

unrelated third parties; (b) transactions between or among the Borrower and any Restricted Subsidiary that is a Loan Party not involving any other Affiliate; (c) transactions otherwise permitted by this Agreement; (d) the payment of reasonable fees to directors of the Borrower or any Restricted Subsidiary who are not employees of the Borrower or any Restricted Subsidiary, and compensation and employee benefit arrangements paid to, and indemnities provided for the benefit of, directors, officers or employees of the Borrower or its Restricted Subsidiaries in the ordinary course of business; (e) any issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment agreements, stock options and stock ownership plans approved by the Borrower’s board of directors; and (f) transactions pursuant to the Related Documents and the Management Services Agreement.

SECTION 6.10 Restrictive Agreements. No Loan Party will, nor will it permit any Restricted Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon: (a) the ability of such Loan Party or any of its Restricted Subsidiaries to create, incur or permit to exist any Lien upon any of its property or assets; or (b) the ability of any Restricted Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances or to transfer any assets to the Borrower or any other Restricted Subsidiary or to Guarantee Indebtedness of the Borrower or any other Restricted Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.10 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Restricted Subsidiary or substantially all its assets pending such sale, provided such restrictions and conditions apply only to the Restricted Subsidiary or such assets that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (v) clause (a) of the foregoing shall not apply to customary provisions in leases or licenses restricting the assignment thereof , and (vi) the foregoing shall not apply to (x) restrictions contained in assumed documents in connection with assumed Indebtedness incurred pursuant to Section 6.01(i), (y) restrictions contained in documents in connection with Indebtedness incurred pursuant to Section 6.01(o), provided that such restrictions are no more onerous than market terms and conditions for such type of Indebtedness incurred at the time such Indebtedness is incurred, and provided in any case such subordination provisions are on terms satisfactory to the ABL Administrative Agent and (z) the Term Loan Documents.

SECTION 6.11 Amendment of Material Documents. No Loan Party will, nor will it permit any Restricted Subsidiary to, amend, modify or waive any of its rights under (i) any agreement relating to any Subordinated Indebtedness, (ii) its certificate of incorporation, bylaws, operating, management or partnership agreement or other organizational documents, or (iii) any Related Document, in each case to the extent any such amendment, modification or waiver would reasonably be expected to be materially adverse to the Lenders.

97

SECTION 6.12 Accounting; Fiscal Year. Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary of the Borrower to, change its (a) accounting treatment and reporting practices or tax reporting treatment, except as required by GAAP or any Requirement of Law and disclosed to the ABL Administrative Agent and provided that any such changes are reconciled against the accounting treatment and reporting practices or tax reporting treatment used by such entity at the date of this Agreement or (b) fiscal year.

SECTION 6.13 Margin Regulations. Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary of the Borrower to, use all or any portion of the proceeds of any credit extended hereunder to purchase or carry margin stock (within the meaning of Regulation U of the Federal Reserve Board) in contravention of Regulation U of the Federal Reserve Board.

SECTION 6.14 Fixed Charge Coverage Ratio. In the event Availability is less than or equal to 10% of Maximum Availability for three consecutive days, the Borrower shall maintain a Fixed Charge Coverage Ratio (determined as of the last day of the preceding month for the twelve months ending on such last day) of at least 1.0:1 for the first twelve months after the Effective Date and 1.1:1 for each month thereafter.

ARTICLE VII

Events of Default

If any of the following events (“Events of Default”) shall occur:

(a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; or

(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article VII) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days; or

(c) any representation or warranty made or deemed made by or on behalf of any Loan Party or any Restricted Subsidiary in or in connection with this Agreement or any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been materially incorrect when made or deemed made; or

(d) any Loan Party shall fail to observe or perform (i) any covenant, condition or agreement contained in Sections 5.01(g), 5.02(a), 5.03 (with respect to a Loan Party’s existence), 5.08, 5.09(b), 5.12 (except to the extent that such failure to observe or perform the obligations set out in Section 5.12 relates solely to an error in the transmission of funds or to other ordinary course of business cash management issues and where such default or breach is rectified within two (2) Business Day’s of any Loan Party becoming aware of such

98

failure to observe or perform) or Section 5.14 or Article VI, or (ii) any other covenant, condition or agreement contained in this Agreement and such failure shall continue unremedied for a period of 30 days after the earlier of such breach or notice thereof from the ABL Administrative Agent (which notice will be given at the request of any Lender); or

(e) any Loan Party or any Subsidiary of the Borrower shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, and such failure relates to Indebtedness having a principal amount of $10,000,000 or more, when and as the same shall become due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or

(f) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; or

(g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of a Loan Party or any Subsidiary of any Loan Party or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Loan Party or any Subsidiary of any Loan Party or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or

(h) any Loan Party or any Subsidiary of any Loan Party shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (g) of this Article VII, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Loan Party or Subsidiary of any Loan Party or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; or

(i) any Loan Party or any Subsidiary of any Loan Party shall become unable, admit in writing its inability or fail generally to pay its debts as they become due; or

(j) one or more judgments for the payment of money in each case an aggregate amount in excess of $10,000,000 (not covered by insurance as to which the insurer has been notified and has not denied coverage) shall be rendered against any Loan Party, any Restricted Subsidiary of any Loan Party or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed or bonded pending appeal, or any Loan Party or any Restricted Subsidiary of any Loan

99

Party shall fail within 30 days to discharge one or more non-monetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgments or orders, in any such case, are not stayed on appeal or otherwise being appropriately contested in good faith by proper proceedings diligently pursued; or

(k) an ERISA Event shall have occurred that individually or when taken together with any other ERISA Events that have occurred, could reasonably be expected to have a Material Adverse Effect; or

(1) a Change in Control (or a “Change in Control” as such term is defined in the Term Loan Agreement) shall occur; or

(m) the occurrence of (i) any material “default”, as defined in any Loan Document (other than this Agreement) or the breach of any of the material terms or provisions of any Loan Document (other than this Agreement), which default or breach continues beyond any period of grace therein provided and (ii) any other “default”, as defined in any Loan Document (other than this Agreement) or the breach of any other terms or provisions of any Loan Document (other than this Agreement), which default or default or breach continues unremedied for a period of 30 days; or

(n) the Loan Guaranty shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Loan Guaranty, or any Loan Guarantor shall fail to comply with any of the terms or provisions of the Loan Guaranty to which it is a party, or any Loan Guarantor shall deny that it has any further liability under the Loan Guaranty to which it is a party, or shall give notice to such effect; or

(o) any Collateral Document shall for any reason fail to create a valid and perfected first priority security interest in any Collateral purported to be covered thereby, except as permitted by the terms of any Loan Document, or any Collateral Document shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Collateral Document, or any Loan Party shall fail to comply with any of the terms or provisions of any Collateral Document; or

(p) any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in accordance with its terms (or any Loan Party shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms); or

(q) except as otherwise expressly permitted hereunder, (i) the Borrower shall suspend the operation of twenty percent (20%) or more of its store locations for a period of time exceeding five (5) Business Days, or (ii) any Loan Party shall liquidate all or a material portion of its assets or store locations, or employ an agent or other third party to conduct a program of closings, liquidations or “Going-Out-Of-Business” sales of any material portion of its business;

then, and in every such event (other than an event with respect to the Borrower described in clause (g) or (h) of this Article VII), and at any time thereafter during the continuance of such event, with the consent of the Required Lenders, the ABL Administrative Agent may, and at the

100

request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Revolving Commitments, and thereupon the Revolving Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (g) or (h) of this Article VII, the Revolving Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Upon the occurrence and the continuance of an Event of Default, the ABL Administrative Agent may, and at the request of the Required Lenders shall, exercise any rights and remedies provided to the ABL Administrative Agent under the Loan Documents or at law or equity, including all remedies provided under the UCC.

ARTICLE VIII

The Administrative Agent

SECTION 8.01 Resignation of Original Agent. The Original Agent hereby resigns, effective upon the Effective Date, as ABL Administrative Agent and Collateral Agent under the Existing Credit Agreement and the other Loan Documents. The Lenders and the Borrower hereby accept such resignation. The Original Agent shall, at the expense of the Borrower, execute and deliver to the ABL Administrative Agent such instruments, documents, and agreements, and shall do all such things, from time to time hereafter as the ABL Administrative Agent reasonably may request to carry into effect the provisions and intent of this resignation. Without limiting the foregoing, with respect to all UCC-1 Financing Statements filed and naming any Loan Party, as Debtor, and the Original Agent, as Secured Party, the Original Agent hereby authorizes the ABL Administrative Agent to file (1) UCC-3 Amendments replacing the Original Agent as Secured Party with the Collateral Agent, or (2) UCC Termination Statements releasing certain filings by the Original Agent, as Secured Party, and a Loan Party, as Debtor, as applicable. Until such time as the Original Agent and/or the Loan Parties shall have executed and delivered such instruments, documents and agreements, and shall have done all such other things as the ABL Administrative Agent reasonably may request to carry into effect the provisions and intent of this Section 8.01, the Original Agent agrees to hold all Collateral in its possession, custody, or control (or in the possession, custody, or control of its agents or bailees) as of the Effective Date as agent for the ABL Administrative Agent, the Collateral Agent and the Lenders party to this Agreement solely for the purpose of perfecting the security interest granted to each in such Collateral. All provisions of Article VIII and Section 9.03 of this Agreement shall continue to inure to the benefit of the Original Agent as to any actions taken or omitted to be taken by it (a) while it was ABL Administrative Agent and Collateral Agent under, and as defined in, the Existing Credit Agreement and other Loan Documents and (b) during the Transition Period.

101

SECTION 8.02 Appointment of ABL Administrative Agent and Collateral Agent. Each of the Lenders and each of the Issuing Banks hereby irrevocably appoints WFRF as ABL Administrative Agent and authorizes the ABL Administrative Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to the ABL Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. Each of the Lenders hereby irrevocably appoints WFRF as Collateral Agent for purposes of the perfection of all Liens created by the Loan Documents and all other purposes stated therein and authorizes the Collateral Agent to enter into and exercise such powers as set forth in the Intercreditor Agreement.

The bank serving as the ABL Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the ABL Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Loan Parties or any Subsidiary of a Loan Party or other Affiliate thereof as if it were not the ABL Administrative Agent hereunder.

SECTION 8.03 Limited Duties. The ABL Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the ABL Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the ABL Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the ABL Administrative Agent is required to exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth in the Loan Documents, the ABL Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any of its Subsidiaries that is communicated to or obtained by the bank serving as ABL Administrative Agent or any of their Affiliates in any capacity. The ABL Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02”) or in the absence of its own gross negligence or willful misconduct. The ABL Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the ABL Administrative Agent by the Borrower or a Lender. The ABL Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection with any Loan Document, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the ABL Administrative Agent.

102

SECTION 8.04 Reliance. The ABL Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The ABL Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The ABL Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

SECTION 8.05 Delegation of Rights and Duties. The ABL Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the ABL Administrative Agent. The ABL Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding clauses shall apply to any such sub-agent and to the Related Parties of the ABL Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as ABL Administrative Agent.

SECTION 8.06 Resignation of ABL Administrative Agent. Subject to the appointment and acceptance of a successor ABL Administrative Agent as provided in this clause, the ABL Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, with the consent of the Borrower (such consent not to be unreasonably withheld), to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring ABL Administrative Agent gives notice of its resignation, then the retiring ABL Administrative Agent may, on behalf of the Lenders, appoint a successor ABL Administrative Agent which shall be a commercial bank or an Affiliate of any such commercial bank. Upon the acceptance of its appointment as ABL Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring ABL Administrative Agent and the retiring ABL Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor ABL Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the ABL Administrative Agent’s resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring ABL Administrative Agent its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as ABL Administrative Agent.

SECTION 8.07 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the ABL Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the ABL Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this

103

Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder.

SECTION 8.08 Reports. Each Lender hereby agrees that: (a) it has requested a copy of each Report prepared by or on behalf of the ABL Administrative Agent; (b) it has requested a copy of all financial statements and projections required to be delivered by the Borrower hereunder; (b) the ABL Administrative Agent (i) makes no representation or warranty, express or implied, as to the completeness or accuracy of any Report or any of the information contained therein or any inaccuracy or omission contained in or relating to a Report and (ii) shall not be liable for any information contained in any Report; (c) the Reports are not comprehensive audits or examinations, and that any Person performing any field examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties’ books and records, as well as on representations of the Loan Parties’ personnel and that the ABL Administrative Agent undertakes no obligation to update, correct or supplement the Reports; (d) it will keep all Reports confidential and strictly for its internal use, not share the Report with any Loan Party or any other Person except as otherwise permitted pursuant to this Agreement; and (e) without limiting the generality of any other indemnification provision contained in this Agreement, it will pay and protect, and indemnify, defend, and hold the ABL Administrative Agent and any such other Person preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including reasonable attorney fees) incurred by any such Person as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.

SECTION 8.09 Agents Generally. The Agents shall not have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such.

SECTION 8.10 Defaulting Lenders.

(a) [RESERVED]

(b) The non-Defaulting Lenders shall also have the right, but not the obligation, in their respective, sole and absolute discretion, to cause the termination and assignment, without any further action by the Defaulting Lender for no cash consideration (pro rata, based on the respective Revolving Commitments of those Lenders electing to exercise such right), of the Defaulting Lender’s Revolving Commitment to fund future Loans. Upon any such purchase of the Applicable Percentage of any Defaulting Lender, the Defaulting Lender’s share in future Loans and Letters of Credit and its rights under the Loan Documents with respect thereto shall terminate on the date of purchase, and the Defaulting Lender shall promptly execute all documents reasonably requested to surrender and transfer such interest, including, if so requested, an Assignment and Assumption.

(c) In addition to the rights of the non-Defaulting Lenders set forth in Section 8.10(b) above, the Borrower shall have the right, at any time, upon notice to a Defaulting Lender or a Deteriorating Lender and the ABL Administrative Agent, to replace such Defaulting Lender or Deteriorating Lender in accordance with the provisions of Section 2.19(b) hereof.

104

(d) Each Defaulting Lender shall indemnify the ABL Administrative Agent and each non-Defaulting Lender from and against any and all loss, damage or expenses, including, but not limited to, reasonable attorneys’ fees and funds advanced by the ABL Administrative Agent or by any non-Defaulting Lender, on account of a Defaulting Lender’s failure to timely fund its Applicable Percentage of a Loan or to otherwise perform its obligations under the Loan Documents.

SECTION 8.11 Indemnification of Agents. The Lenders agree to indemnify each of the ABL Administrative Agent, the Collateral Agent and the Original Agent (provided that the Lenders shall indemnify the Original Agent solely with respect to actions taken or omitted to be taken by the Original Agent during the Transition Period) in its capacity as such, and each Related Party of any of the foregoing Persons (to the extent not reimbursed by the Loan Parties and without limiting the obligation of the Loan Parties to do so), ratably according to their respective Applicable Percentages in effect on the date on which indemnification is sought under this Section 8.11 (or, if indemnification is sought after the date upon which the Revolving Commitment of any Lender shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Applicable Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against the ABL Administrative Agent, the Collateral Agent or the Original Agent in any way relating to or arising out of, the Revolving Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Non-Extending Lender shall be obligated to indemnify the ABL Administrative Agent, the Collateral Agent or the Original Agent for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which relate to matters subsequent to the termination of such Non-Extending Lender’s Revolving Commitment and repayment of all Obligations to such Non-Extending Lender (for clarity, such Non-Extending Lenders shall remain liable for any claims which relate to a period during which they were a “Lender” hereunder, even if first asserted after the termination of such Non-Extending Lender’s Revolving Commitment and repayment of all Obligations to such Non-Extending Lender); provided further that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the ABL Administrative Agent’s, the Collateral Agent’s or the Original Agent’s gross negligence or willful misconduct. The agreements in this Section 8.11 shall survive the payment of the Loans and all other amounts payable hereunder.

ARTICLE IX

Miscellaneous

SECTION 9.01 Notices.

105

(a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to clause (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:

(i) if to any Loan Party, to the Borrower at:

Orchard Supply Hardware LLC

6450 Via Del Oro

San Jose, CA 95119

Attention: Richard Gibson and Rob Lynch

Facsimile No: (408) 629-7174

(ii) if to the ABL Administrative Agent, the Collateral Agent, Wells Fargo or the Swingline Lender, to WFRF at:

Wells Fargo Retail Finance, LLC

One Boston Place, 18^th Floor

Boston, MA 02108

Attention: Wai Cheng

Facsimile No.:

with copy to:

Riemer & Braunstein LLP

Three Center Plaza

Boston, Massachusetts 02108

Attention: Donald E. Rothman, Esquire

Facsimile No.: (617) 692-3556

(iii) if to any other Lender or Issuing Bank, to it at its address or facsimile number set forth in its Administrative Questionnaire.

All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received or (ii) sent by facsimile shall be deemed to have been given when sent, provided that if not given during normal business hours for the recipient, such notice shall be deemed to have been given at the opening of business on the next Business Day for the recipient.

(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications (including e-mail and internet or intranet websites) pursuant to procedures approved by the ABL Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II or to compliance and no Event of Default certificates delivered pursuant to Section 5.01(d) unless otherwise agreed by the ABL Administrative Agent and the applicable Lender. The ABL Administrative Agent or the Borrower (on behalf of the Loan Parties) may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved

106

by it; provided that approval of such procedures may be limited to particular notices or communications. All such notices and other communications (i) sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if not given during the normal business hours of the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day for the recipient, and (ii) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (b)(i) of notification that such notice or communication is available and identifying the website address therefor.

(c) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.

SECTION 9.02 Waivers; Amendments.

(a) No failure or delay by the ABL Administrative Agent, any Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the ABL Administrative Agent, the Issuing Banks and the Lenders hereunder and under any other Loan Document are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by clause (b) of this Section 9.02, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the ABL Administrative Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time.

(b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (i) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or, (ii) in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the ABL Administrative Agent and the Loan Party or Loan Parties that are parties thereto, with the consent of the Required Lenders; provided that no such agreement shall: (i) increase the Revolving Commitment of any Lender without the written consent of such Lender (provided that the ABL Administrative Agent may make Protective Advances as set forth in Section 2.04), (ii) reduce or forgive the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce or forgive any interest or fees payable hereunder, without the written consent of each Lender directly affected thereby, (iii) postpone the Revolving Credit Termination Date or any scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any date for the payment of any interest, fees or other Obligations payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Revolving Commitment, without the written consent of each Lender directly affected thereby, (iv) change Section 2.18(b) or

107

2.18(d) in a manner that would alter the manner in which payments are shared, without the written consent of each Lender, (v) increase the advance rates set forth in the definition of Borrowing Base or add new categories of eligible assets, without the written consent of the Supermajority Lenders, (vi) change any of the provisions of this Section or the definition of “Required Lenders”, “Super-Majority Lenders” or any other provision of any Loan Document specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender, (vii) release all or substantially all of the Loan Guarantors from their obligations under the Loan Guaranty (except as otherwise permitted herein or in the other Loan Documents), without the written consent of each Lender, or (viii) except as provided in clauses (d) and (e) of this Section or in any Collateral Document, release all or substantially all of the Collateral, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the ABL Administrative Agent, the Issuing Bank or the Swingline Lender hereunder without the prior written consent of the ABL Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be; and provided further that with respect to any amendment, waiver or modification of this Agreement or any Loan Document requiring the consent of the Required Lenders or of all affected Lenders pursuant to this Section 9.02, Ares Capital Markets Group shall not be entitled to vote with respect to any Disqualified Ares Loans. The ABL Administrative Agent may also amend the Commitment Schedule to reflect assignments entered into pursuant to Section 9.04.

(c) The Lenders hereby irrevocably authorize the ABL Administrative Agent, at its option and in its sole discretion, to release any Loan Guarantor or any Liens granted to the ABL Administrative Agent by the Loan Parties on any Collateral (i) upon the termination of all Revolving Commitments, payment and satisfaction in full in cash of all Secured Obligations (other than Unliquidated Obligations), and the cash collateralization of all Unliquidated Obligations in a manner satisfactory to any Issuing Bank, (ii) constituting property being sold or disposed of if such sale or disposition is made in compliance with the terms of this Agreement, (iii) constituting property leased to a Loan Party under a lease which has expired or been terminated in a transaction permitted under this Agreement, or (iv) as required to effect any sale or other disposition of such Collateral in connection with any exercise of remedies of the ABL Administrative Agent and the Lenders pursuant to Article VII. Except as provided in the preceding sentence, the ABL Administrative Agent will not release any Liens on Collateral without the prior written authorization of the Required Lenders; provided that the ABL Administrative Agent may in its discretion, release its Liens on Collateral valued in the aggregate not in excess of $500,000 during any calendar year without, the prior written authorization of the Required Lenders. Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by the Loan Parties, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral.

(d) If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “each Lender affected thereby,” the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is not obtained (any such Lender whose consent is necessary but not obtained being referred to herein as a “Non-Consenting Lender”), then the Borrower may elect to replace a Non-Consenting Lender as a

108

Lender party to this Agreement; provided that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Borrower and the ABL Administrative Agent shall agree, as of such date, to purchase for cash the Loans and other Obligations due to the Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 9.04, and (ii) the Borrower shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrower hereunder to and including the date of termination, including without limitation payments due to such Non-Consenting Lender under Sections 2.15 and 2.17. and (2) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 2.16 had the Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Lender.

SECTION 9.03 Expenses; Indemnity; Damage Waiver.

(a) The Borrower and each other Loan Party shall jointly and severally pay (i) all reasonable out-of-pocket expenses incurred by the ABL Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of one primary counsel and one local counsel in each relevant jurisdiction for the ABL Administrative Agent, in connection with the syndication and distribution (including, without limitation, via the internet or through a service such as Intralinks) of the credit facilities provided for herein, the preparation and administration of the Loan Documents or any amendments, modifications or waivers of the provisions of the Loan Documents (whether or not the transactions contemplated hereby or thereby shall be consummated), and the creation, perfection or protection of the Liens under the Loan Documents, (ii) all reasonable out-of-pocket expenses incurred by any Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (iii) all reasonable out-of-pocket expenses incurred by the ABL Administrative Agent, the Original Agent (provided that the Borrower and each other Loan Party shall pay all reasonable out-of-pocket expenses incurred by the Original Agent solely in connection with the enforcement, collection or protection of the Original Agent’s rights as “Collateral Agent” under, and as defined in, the Primary Collateral Access Agreement, the Real Property Holding Company Collateral Access Agreement and the existing Amended and Restated Deposit Account Control Agreement described in Section 5.14(b) during the Transition Period), any Issuing Bank or any Lender, including the reasonable fees, charges and disbursements of any counsel for the ABL Administrative Agent, the Original Agent, any Issuing Bank or any Lender, in connection with the enforcement, collection or protection of its rights in connection with the Loan Documents, including its rights under this Section 9.03, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. Expenses being reimbursed by the Borrower under this Section include, without limiting the generality of the foregoing, costs and expenses incurred in connection with:

(i) appraisals;

109

(ii) field examinations and the preparation of Reports based on the fees charged by a third party retained by the ABL Administrative Agent and reasonably acceptable to the Borrower or the internally allocated per diem fees for each Person employed by the ABL Administrative Agent with respect to each field examination, together with the reasonable fees and expenses associated with collateral monitoring services performed by the ABL Administrative Agent (and the Borrower agrees to modify or adjust the computation of the Borrowing Base which may include maintaining additional Reserves, modifying the advance rates or modifying the eligibility criteria for the components of the Borrowing Base to the extent required by the ABL Administrative Agent as a result of any such evaluation, appraisal or monitoring);

(iii) lien and title searches and title insurance;

(iv) taxes, fees and other charges for filing financing statements and continuations, and other actions to perfect, protect, and continue the Collateral Agent’s Liens;

(v) sums paid or incurred to take any action required of any Loan Party under the Loan Documents that such Loan Party fails to pay or take; and

(vi) forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining the accounts and lock boxes, and costs and expenses of preserving and protecting the Collateral.

All of the foregoing costs and expenses may be charged to the Borrower as Revolving Loans or to another deposit account, all as described in Section 2.10(b).

(b) The Borrower shall indemnify the ABL Administrative Agent, the Original Agent (provided that the Borrower shall indemnify the Original Agent and each Related Party of the Original Agent solely under the circumstances described in clause (v) of this Section 9.03(b)), each other Agent, each Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, penalties, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by any Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability to the extent related in any way to the Borrower or any of its Subsidiaries, (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto, or (v) any actions taken or omitted to be taken by the

110

Original Agent during the Transition Period; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee.

(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the ABL Administrative Agent, the Original Agent, any other Agent, any Issuing Bank or the Swingline Lender under clause (a) or (b) of this Section 9.03, each Lender severally agrees to pay to the ABL Administrative Agent, the Original Agent, such other Agent, such Issuing Bank or the Swingline Lender, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss,, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against the ABL Administrative Agent, the Original Agent, such other Agent, such Issuing Bank or the Swingline Lender in its capacity as such.

(d) To the extent permitted by applicable law, no Loan Party shall assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.

(e) All amounts due under this Section 9.03 shall be payable promptly after written demand therefor.

SECTION 9.04 Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of any Issuing Bank that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of any Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in clause (c) of this Section 9.04) and, to the extent expressly contemplated hereby, the Related Parties of each of the ABL Administrative Agent, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) (i) Subject to the conditions set forth in clause (b)(ii) below, any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Revolving Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:

111

(A) the Borrower; provided that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default pursuant to clauses (a), (b), (g), (h) or (i) of Article VII has occurred and is continuing, any other assignee;

(B) the ABL Administrative Agent; provided that no consent of the ABL Administrative Agent shall be required for an assignment to a Lender, an Affiliate of a Lender or an Approved Fund; and

(C) each Issuing Bank; provided that no consent of any Issuing Bank shall be required for an assignment to a Lender, an Affiliate of a Lender or an Approved Fund.

(ii) Assignments shall be subject to the following additional conditions:

(A) (i) no assignment may be made by an Extending Lender to a Non-Extending Lender unless such Non-Extending Lender shall agree to become an Extending Lender for purposes of the assigned rights and obligations pursuant to documentation acceptable to the ABL Administrative Agent and the Borrower; and (ii) any assignment by a Non-Extending Lender to an Extending Lender shall, without further action, result in the Revolving Commitments so assigned being extended to the Extended Termination Date and otherwise entitle the assignee to the rights and obligations of an Extending Lender with respect to the Revolving Commitments so assigned (including the applicable fee and interest rates);

(B) no assignment may be made to any of (i) Holdings, (ii) any Permitted Holder or (iii) any Affiliate of Holdings or any Permitted Holder (other than Ares Capital Markets Group) if, after giving effect to such assignment, Holdings, the Permitted Holders and their Affiliates (other than Ares Capital Markets Group), collectively, would hold in excess of 10% of the total aggregate amount of the Revolving Commitments;

(C) except in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender’s Revolving Commitment or Loans of any Class, the amount of the Revolving Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the ABL Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the ABL Administrative Agent otherwise consent; provided that no such consent of the Borrower shall be required if an Event of Default pursuant to clauses (a), (b), (g), (h), or (i) of Article VII has occurred and is continuing;

(D) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this

112

Agreement; provided that this clause shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender’s rights and obligations in respect of one Class of Commitments or Loans;

(E) the parties to each assignment shall execute and deliver to the ABL Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; and

(F) the assignee, if it shall not be a Lender, shall deliver to the ABL Administrative Agent an Administrative Questionnaire in which the assignee designates one or more Credit Contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower, the Loan Parties and their related parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws.

For the purposes of this Section 9.04(b), the term “Approved Fund” has the following meaning:

“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

(iii) Subject to acceptance and recording thereof pursuant to clause (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15. 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with clause (c) of this Section 9.04.

(iv) The ABL Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Revolving Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower,

113

the ABL Administrative Agent, the Issuing Banks and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, any Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in clause (b) of this Section 9.04 and any written consent to such assignment required by clause (b) of this Section 9.04, the ABL Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.05. 2.06(d) or (e), 2.07(b), 2.18(d) or 9.03(c), the ABL Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this clause.

(c) (i) Any Lender may, without the consent of the Borrower, the ABL Administrative Agent, any Issuing Bank or the Swingline Lender, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Revolving Commitment and the Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the ABL Administrative Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to clause (c)(ii) of this Section 9.04, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to clause (b) of this Section 9.04. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18(c) as though it were a Lender.

(d) (ii) A Participant shall not be entitled to receive any greater payment under Sections 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless

114

such Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as though it were a Lender.

(e) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section 9.04 shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

SECTION 9.05 Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the ABL Administrative Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Revolving Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Revolving Commitments or the termination of this Agreement or any provision hereof.

SECTION 9.06 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the ABL Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the ABL Administrative Agent and when the ABL Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 9.07 Severability. Any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity,

115

legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

SECTION 9.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower or such Loan Guarantor against any of and all the Secured Obligations held by such Lender, irrespective of whether or not such Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured. The applicable Lender shall notify the Borrower and the ABL Administrative Agent of such set-off or application, provided that any failure to give or any delay in giving such notice shall not affect the validity of any such set-off or application under this Section. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.

SECTION 9.09 Governing Law; Jurisdiction; Consent to Service of Process.

(a) The Loan Documents (other than those containing a contrary express choice of law provision) shall be governed by and construed in accordance with the laws of the State of New York.

(b) Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any U.S. Federal or New York State court sitting in New York, New York in any action or proceeding arising out of or relating to any Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the ABL Administrative Agent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.

(c) Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in clause (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan

116

Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 9.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 9.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

SECTION 9.12 Confidentiality.

(a) Each of the ABL Administrative Agent, the Issuing Banks and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed: (i) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (ii) to the extent requested by any regulatory authority; (iii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process; (iv) to any other party to this Agreement; (v) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder; (vi) subject to an agreement containing provisions substantially the same as those of this Section, to (A) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (B) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations; (vii) with the consent of the Borrower; or (viii) to the extent such Information (A) is or becomes publicly available other than as a result of a breach of this Section 9.12 or (B) is or becomes available to the ABL Administrative Agent, any Issuing Bank or any Lender on a non-confidential basis from a source other than the Borrower. For the purposes of this Section 9.12. “Information” means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the ABL Administrative Agent, any Issuing Bank or any Lender on a non-confidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, the Borrower will notify the ABL Administrative Agent if the information includes material non-public information (within the meaning of United States federal securities laws) with respect to Sears Holdings Corporation

117

and its Affiliates (taken as a whole) and any of their respective securities. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to confidential information of a similar nature.

(b) EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN SECTION 9.12(a) FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.

(c) ALL INFORMATION, INCLUDING WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWER OR THE ABL ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE BORROWER, THE LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES) AND ITS SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE ABL ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.

SECTION 9.13 Several Obligations; Nonreliance; Violation of Law. The respective obligations of the Lenders hereunder are several and not joint and the failure of any Lender to make any Loan or perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. Each Lender hereby represents that it is not relying on or looking to any margin stock for the repayment of the Borrowings provided for herein. Anything contained in this Agreement to the contrary notwithstanding, neither any Issuing Bank nor any Lender shall be obligated to extend credit to the Borrower in violation of any Requirement of Law.

SECTION 9.14 USA PATRIOT ACT. Each Lender that is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”) hereby notifies the Borrower and each Guarantor that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Borrower and each Guarantor, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower and each Guarantor in accordance with the Act.

SECTION 9.15 Disclosure. Each Loan Party and each Lender hereby acknowledges and agrees that the ABL Administrative Agent and/or its Affiliates from time to

118

time may hold investments in, make other loans to or have other relationships with any of the Loan Parties and their respective Affiliates.

SECTION 9.16 Appointment for Perfection. Each Lender hereby appoints each other Lender as its agent for the purpose of perfecting Liens, for the benefit of the ABL Administrative Agent and the Lenders, in assets which, in accordance with Article 9 of the UCC or any other applicable law can be perfected only by possession. Should any Lender (other than the ABL Administrative Agent) obtain possession of any such Collateral, such Lender shall notify the ABL Administrative Agent thereof, and, promptly upon the ABL Administrative Agent’s request therefor shall deliver such Collateral to the ABL Administrative Agent or otherwise deal with such Collateral in accordance with the ABL Administrative Agent’s instructions.

SECTION 9.17 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.

SECTION 9.18 Amendment and Restatement.

(a) On the Effective Date, the Existing Credit Agreement shall be amended and restated in its entirety by this Agreement, and the Existing Credit Agreement shall thereafter be of no further force and effect, except to evidence (i) the incurrence by the Borrower of the “Obligations” under and as defined in the Existing Credit Agreement (whether or not such “Obligations” are contingent as of the Effective Date), (ii) the representations and warranties made by the Borrower prior to the Effective Date and (iii) any action or omission performed or required to be performed pursuant to such Existing Credit Agreement prior to the Effective Date (including any failure, prior to the Effective Date, to comply with the covenants contained in such Existing Credit Agreement). The amendments and restatements set forth herein shall not cure any breach thereof or any “Default” or “Event of Default” under and as defined in the Existing Credit Agreement existing prior to the Effective Date. This Agreement is not in any way intended to constitute a novation of the obligations and liabilities existing under the Existing Credit Agreement or evidence payment of all or any portion of such obligations and liabilities.

(b) The terms and conditions of this Agreement and the ABL Administrative Agent’s and the Lenders’ rights and remedies under this Agreement and the other Loan Documents shall apply to all of the “Obligations” incurred under and as defined in the Existing Credit Agreement.

119

(c) On and after the Effective Date, (i) all references to the Existing Credit Agreement in the Loan Documents (other than this Agreement) shall be deemed to refer to the Existing Credit Agreement, as amended and restated hereby, (ii) all references to any Article, Section or sub-clause of the Existing Credit Agreement in any Loan Document (other than this Agreement) shall be deemed to be references to the corresponding provisions of this Agreement and (iii) except as the context otherwise provides, on or after the Effective Date, all references to this Agreement herein (including for purposes of indemnification and reimbursement of fees) shall be deemed to be reference to the Existing Credit Agreement, as amended and restated hereby.

(d) This amendment and restatement is limited as written and is not a consent to any other amendment, restatement or waiver, whether or not similar and, except as expressly provided herein or in any other Loan Document, all terms and conditions of the Loan Documents remain in full force and effect unless otherwise specifically amended hereby or any other Loan Document.

SECTION 9.19 Intercreditor Agreement. Notwithstanding anything herein to the contrary, the Liens and security interests granted to the Collateral Agent pursuant to the Collateral Documents, and the exercise of any right or remedy by the Collateral Agent hereunder or thereunder, are subject to the provisions of the Intercreditor Agreement. In the event of any conflict between the terms of the Intercreditor Agreement and the terms of this Agreement, the terms of the Intercreditor Agreement shall govern and control.

ARTICLE X

Loan Guaranty

SECTION 10.01 Guaranty. Each Loan Guarantor hereby agrees that it is jointly and severally liable for, and, as primary obligor and not merely as surety, absolutely and unconditionally guarantees to the Lenders the prompt payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, of the Secured Obligations and all costs and expenses including, without limitation, all court costs and attorneys’ and paralegals’ fees (including allocated costs of in-house counsel and paralegals) and reasonable out-of-pocket expenses paid or incurred by the ABL Administrative Agent, the Issuing Banks and the Lenders in endeavoring to collect all or any part of the Secured Obligations from, or in prosecuting any action against, the Borrower, any Loan Guarantor or any other guarantor of all or any part of the Secured Obligations (such costs and expenses, together with the Secured Obligations, collectively the “Guaranteed Obligations”). Each Loan Guarantor further agrees that the Guaranteed Obligations may be extended or renewed in whole or in part without notice to or further assent from it, and that it remains bound upon its guarantee notwithstanding any such extension or renewal. All terms of this Loan Guaranty apply to and may be enforced by or on behalf of any domestic or foreign branch or Affiliate of any Lender that extended any portion of the Guaranteed Obligations.

SECTION 10.02 Guaranty of Payment. This Loan Guaranty is a guaranty of payment and not of collection. Each Loan Guarantor waives any right to require the ABL Administrative Agent, any Issuing Bank or any Lender to sue the Borrower, any Loan Guarantor,

120

any other guarantor, or any other person obligated for all or any part of the Guaranteed Obligations (each, an “Obligated Party”), or otherwise to enforce its payment against any collateral securing all or any part of the Guaranteed Obligations.

SECTION 10.03 No Discharge or Diminishment of Loan Guaranty.

(a) Except as otherwise provided for herein, the obligations of each Loan Guarantor hereunder are unconditional and absolute and not subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Guaranteed Obligations), including: (i) any claim of waiver, release, extension, renewal, settlement, surrender, alteration, or compromise of any of the Guaranteed Obligations, by operation of law or otherwise; (ii) any change in the corporate existence, structure or ownership of the Borrower or any other guarantor of or other person liable for any of the Guaranteed Obligations; (iii) any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Obligated Party, or their assets or any resulting release or discharge of any obligation of any Obligated Party; or (iv) the existence of any claim, setoff or other rights which any Loan Guarantor may have at any time against any Obligated Party, the ABL Administrative Agent, any Issuing Bank, any Lender, or any other person, whether in connection herewith or in any unrelated transactions.

(b) The obligations of each Loan Guarantor hereunder are not subject to any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality, or unenforceability of any of the Guaranteed Obligations or otherwise (other than a defense of payment or performance), or any provision of applicable law or regulation purporting to prohibit payment by any Obligated Party, of the Guaranteed Obligations or any part thereof.

(c) Further, the obligations of any Loan Guarantor hereunder are not discharged or impaired or otherwise affected by: (i) the failure of the ABL Administrative Agent, any Issuing Bank or any Lender to assert any claim or demand or to enforce any remedy with respect to all or any part of the Guaranteed Obligations; (ii) any waiver or modification of or supplement to any provision of any agreement relating to the Guaranteed Obligations; (iii) any release, non-perfection, or invalidity of any indirect or direct security for the obligations of the Borrower for all or any part of the Guaranteed Obligations or any obligations of any other guarantor of or other person liable for any of the Guaranteed Obligations; (iv) any action or failure to act by the ABL Administrative Agent, any Issuing Bank or any Lender with respect to any collateral securing any part of the Guaranteed Obligations; or (v) any default, failure or delay, willful or otherwise, in the payment or performance of any of the Guaranteed Obligations, or any other circumstance, act, omission or delay that might in any manner or to any extent vary the risk of such Loan Guarantor or that would otherwise operate as a discharge of any Loan Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of the Guaranteed Obligations).

SECTION 10.04 Defenses Waived. To the fullest extent permitted by applicable law, each Loan Guarantor hereby waives any defense based on or arising out of any defense of the Borrower or any Loan Guarantor or the unenforceability of all or any part of the Guaranteed Obligations from any cause, or the cessation from any cause of the liability of the

121

Borrower or any Loan Guarantor, other than the indefeasible payment in full in cash of the Guaranteed Obligations. Without limiting the generality of the foregoing, each Loan Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any person against any Obligated Party, or any other person. The ABL Administrative Agent may, at its election, foreclose on any Collateral held by it by one or more judicial or nonjudicial sales, accept an assignment of any such Collateral in lieu of foreclosure or otherwise act or fail to act with respect to any collateral securing all or a part of the Guaranteed Obligations, compromise or adjust any part of the Guaranteed Obligations, make any other accommodation with any Obligated Party or exercise any other right or remedy available to it against any Obligated Party, without affecting or impairing in any way the liability of such Loan Guarantor under this Loan Guaranty except to the extent the Guaranteed Obligations have been fully and indefeasibly paid in cash. To the fullest extent permitted by applicable law, each Loan Guarantor waives any defense arising out of any such election even though that election may operate, pursuant to applicable law, to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Loan Guarantor against any Obligated Party or any security.

SECTION 10.05 Rights of Subrogation. No Loan Guarantor will assert any right, claim or cause of action, including, without limitation, a claim of subrogation, contribution or indemnification that it has against any Obligated Party, or any collateral, until the Loan Parties and the Loan Guarantors have fully performed all their obligations to the ABL Administrative Agent, the Issuing Banks and the Lenders.

SECTION 10.06 Reinstatement; Stay of Acceleration. If at any time any payment of any portion of the Guaranteed Obligations is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, or reorganization of the Borrower or otherwise, each Loan Guarantor’s obligations under this Loan Guaranty with respect to that payment shall be reinstated at such time as though the payment had not been made and whether or not the ABL Administrative Agent, the Issuing Banks and the Lenders are in possession of this Loan Guaranty. If acceleration of the time for payment of any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of any agreement relating to the Guaranteed Obligations shall nonetheless be payable by the Loan Guarantors forthwith on demand by the Lender.

SECTION 10.07 Information. Each Loan Guarantor assumes all responsibility for being and keeping itself informed of the Borrower’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that each Loan Guarantor assumes and incurs under this Loan Guaranty, and agrees that neither the ABL Administrative Agent nor any Issuing Bank nor any Lender shall have any duty to advise any Loan Guarantor of information known to it regarding those circumstances or risks.

SECTION 10.08 Termination. The Lenders may continue to make loans or extend credit to the Borrower based on this Loan Guaranty until three days after it receives written notice of termination from any Loan Guarantor. Notwithstanding receipt of any such notice, each Loan Guarantor will continue to be liable to the Lenders for any Guaranteed

122

Obligations created, assumed or committed to prior to the third day after receipt of the notice, and all subsequent renewals, extensions, modifications and amendments with respect to, or substitutions for, all or any part of that Guaranteed Obligations.

SECTION 10.09 Taxes. Subject to the same exceptions and limitations applicable to the Borrower under Section 2.17 of the Agreement, mutatis mutandis, all payments of the Guaranteed Obligations will be made by each Loan Guarantor free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if any Loan Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the ABL Administrative Agent, any Lender or any Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Guarantor shall make such deductions and (iii) such Loan Guarantor shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

SECTION 10.10 Maximum Liability. The provisions of this Loan Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Loan Guarantor under this Loan Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Loan Guarantor’s liability under this Loan Guaranty, then, notwithstanding any other provision of this Loan Guaranty to the contrary, the amount of such liability shall, without any further action by the Loan Guarantors or the Lenders, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Loan Guarantor’s “Maximum Liability”). This Section with respect to the Maximum Liability of each Loan Guarantor is intended solely to preserve the rights of the Lenders to the maximum extent not subject to avoidance under applicable law, and no Loan Guarantor nor any other person or entity shall have any right or claim under this Section with respect to such Maximum Liability, except to the extent necessary so that the obligations of any Loan Guarantor hereunder shall not be rendered voidable under applicable law. Each Loan Guarantor agrees that the Guaranteed Obligations may at any time and from time to time exceed the Maximum Liability of each Loan Guarantor without impairing this Loan Guaranty or affecting the rights and remedies of the Lenders hereunder; provided that nothing in this sentence shall be construed to increase any Loan Guarantor’s obligations hereunder beyond its Maximum Liability.

SECTION 10.11 Contribution. In the event any Loan Guarantor (a “Paying Guarantor”) shall make any payment or payments under this Loan Guaranty or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Loan Guaranty, each other Loan Guarantor (each a “Non-Paying Guarantor”) shall contribute to such Paying Guarantor an amount equal to such Non-Paying Guarantor’s “Applicable Percentage” of such payment or payments made, or losses suffered, by such Paying Guarantor. For purposes of this Article X, each Non-Paying Guarantor’s “Applicable Percentage” with respect to any such payment or loss by a Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such Non-Paying Guarantor’s Maximum Liability as of such date (without giving effect to any right to

123

receive, or obligation to make, any contribution hereunder) or, if such Non-Paying Guarantor’s Maximum Liability has not been determined, the aggregate amount of all monies received by such Non-Paying Guarantor from the Borrower after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate Maximum Liability of all Loan Guarantors hereunder (including such Paying Guarantor) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any Loan Guarantor, the aggregate amount of all monies received by such Loan Guarantors from the Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this provision shall affect any Loan Guarantor’s several liability for the entire amount of the Guaranteed Obligations (up to such Loan Guarantor’s Maximum Liability). Each of the Loan Guarantors covenants and agrees that its right to receive any contribution under this Loan Guaranty from a Non-Paying Guarantor shall be subordinate and junior in right of payment to the payment in full in cash of the Guaranteed Obligations. This provision is for the benefit of the ABL Administrative Agent, the Issuing Banks, the Lenders and the Loan Guarantors and may be enforced by any one, or more, or all of them in accordance with the terms hereof.

SECTION 10.12 Liability Cumulative. The liability of each Loan Party as a Loan Guarantor under this Article X is in addition to and shall be cumulative with all liabilities of each Loan Party to the ABL Administrative Agent, the Issuing Banks and the Lenders under this Agreement and the other Loan Documents to which such Loan Party is a party or in respect of any obligations or liabilities of the other Loan Parties, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.

SECTION 10.13 Common Enterprise. The successful operation and condition of each of the Loan Parties is dependent on the continued successful performance of the functions of the group of the Loan Parties as a whole and the successful operation of each of the Loan Parties is dependent on the successful performance and operation of each other Loan Party. Each Loan Party expects to derive benefit, directly and indirectly, from (i) successful operations of each of the other Loan Parties and (ii) the credit extended by the Lenders to the Borrower hereunder, both in their separate capacities and as members of the group of companies.

124

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

ORCHARD SUPPLY HARDWARE LLC, as Borrower
By: Orchard Supply Hardware Stores Corporation, its Managing Member
By:	/s/ Robert M. Lynch
	Name:	Robert M. Lynch
	Title:	President & CEO
ORCHARD SUPPLY HARDWARE STORES CORPORATION, as Loan Guarantor
By:	/s/ Robert M. Lynch
	Name:	Robert M. Lynch
	Title:	President & CEO
OSH FINANCE CORPORATION, as Loan Guarantor
By:	/s/ Robert M. Lynch
	Name:	Robert M. Lynch
	Title:	President & CEO

[Signature Page to Second Amended and Restated Senior Secured Credit Agreement]

WELLS FARGO RETAIL FINANCE, LLC, as ABL Administrative Agent, Collateral Agent, Swingline Lender, and as a Lender
By:	/s/ Wai Yin Cheng
Name:	Wai Yin Cheng
Title:	Assistant Vice President

[Signature Page to Second Amended and Restated Senior Secured Credit Agreement]

BANK OF AMERICA, N.A., as an Issuing Bank and as a Lender
By:	/s/ Christine M. Scott
Name:	Christine M. Scott
Title:	SVP-Director

[Signature Page to Second Amended and Restated Senior Secured Credit Agreement]

CITICORP NORTH AMERICA INC., as a Lender
By:	/s/ Miles D. McManus
Name:	Miles D. McManus
Title:	Vice President and Director

[Signature Page to Second Amended and Restated Senior Secured Credit Agreement]

GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender
By:	/s/ Craig Winslow
Name:	Craig Winslow
Title:	Duly Authorized Signatory

[Signature Page to Second Amended and Restated Senior Secured Credit Agreement]

RZB FINANCE LLC, as a Lender
By:	/s/ Christoph Hoedl
Name:	Christoph Hoedl
Title:	First Vice President
By:	/s/ Randall Abrams
Name:	Randall Abrams
Title:	Vice President

[Signature Page to Second Amended and Restated Senior Secured Credit Agreement]

JPMORGAN CHASE BANK, N.A., as a Lender
By:	/s/ Barry K. Bergman
Name:	Barry K. Bergman
Title:	Managing Director

[Signature Page to Second Amended and Restated Senior Secured Credit Agreement]

Commitment Schedule

Commitment Schedule

Lender	Revolving Commitment				Applicable Percentage
	Non-Extending Lenders		Extending Lenders
Wells Fargo Retail Finance, LLC			$	48,000,000.00		40.00000000	%
Bank of America, N. A.			$	13,000,000.00		10.83333333	%
Citicorp North America, N.A.			$	13,500,000.00		11.25000000	%
General Electric Capital Corporation			$	13,000,000.00		10.83333333	%
RZB Finance LLC			$	12,500,000.00		10.41666667	%
Subtotal - Extending Lenders			$	100,000000.00
JPMorgan Chase Bank, N.A.	$	10,188,679.00				8.49056583	%
UBS Loan Finance LLC	$	9,811,321.00				8.17610083	%
Lehman Commercial Paper Inc.	$	0				0	%
Subtotal - Non-Extending Lenders	$	20,000,000.00
TOTALS		TOTAL REVOLVING COMMITMENTS: $120,000,000.00				100.00	%

Schedule 2.06

Schedule 2.06 – Existing Letters of Credit

Issued by	Bank Reference	Beneficiary Name	Type	Amount of Outstanding LC
Bank of America		RAPID RACK INDUSTRIES	Import LC	$	25,472.99
Bank of America		NORTHPOLE(CHINA) LIMITED	Import LC	$	11,025.00
Bank of America		NORTHPOLE(CHINA) LIMITED	Import LC	$	37,530.00
Bank of America		RAPID RACK INDUSTRIES	Import LC	$	18,566.75
Bank of America		RAPID RACK INDUSTRIES	Import LC	$	17,334.00
Bank of America		WESTINGHOUSE LIGHTING CORPORATION	Import LC	$	5,390.00
Bank of America		WESTINGHOUSE LIGHTING CORPORATION	Import LC	$	253,239.00
Bank of America		THE GERSON COMPANY	Import LC	$	14,416.92
Bank of America		THE GERSON COMPANY	Import LC	$	14,416.92
Bank of America		ONE WORLD TECHNOLOGIES	Import LC	$	26,800.48
Bank of America		SOONGWON IND. CO. LTD	Import LC	$	41,493.54
Bank of America		THE GERSON COMPANY	Import LC	$	3,775.86
Bank of America		ONE WORLD TECHNOLOGIES	Import LC	$	5,545.92
Bank of America		HESPERIA COMMUNITY	Standby LC	$	278,000.00
Bank of America		ACE AMERICAN INSURANCE	Standby LC	$	2,347,521.00
Bank of America		ACE AMERICAN INSURANCE	Standby LC	$	2,785,000.00
Bank of America		ACE AMERICAN INSURANCE	Standby LC	$	1,720,872.00
		TOTAL		$	7,606,400.38

Schedule 3.05

Schedule 3.05 – Properties

Owned Property

STORE	ADDRESS	CITY	STATE	ZIP
Alum Rock (Parking Lot)	2956 Alum Rock Avenue	San Jose	CA		95127
San Carlos (additional parcel)	655 Auzerais Avenue	San Jose	CA		95126

Leased Property

STORE	ADDRESS	CITY	STATE	ZIP		LANDLORD
Alum Rock	3000 Alum Rock Ave.	San Jose	CA		95127	OSH Properties LLC
Antelope	4249 Elverta Road	Sacramento	CA		95843	OSH Properties LLC
Branham (Pick-up Station)	1188 Branham Lane	San Jose	CA		95118	OSH Properties LLC
Chico	231 W. East Avenue	Chico	CA		95926	OSH Properties LLC
Clovis	147 W. Shaw Avenue	Clovis	CA		93612	OSH Properties LLC
Cottle	5651 Cottle Road	San Jose	CA		95123	OSH Properties LLC
Folsom	905 E. Bidwell Street	Folsom	CA		95630	OSH Properties LLC
Hollywood	5525 Sunset Boulevard	Hollywood	CA		90028	OSH Properties LLC

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP		LANDLORD
Modesto	2800 Sisk Road	Modesto	CA		95350	OSH Properties LLC
Pinole	1440 Fitzgerald Drive	Pinole	CA		94564	OSH Properties LLC
Pismo Beach	853 Oak Park Road	Pismo Beach	CA		93449	OSH Properties LLC
San Carlos	720 West San Carlos Street	San Jose	CA		95126	OSH Properties LLC
San Lorenzo	Pickup 85 177 Lewelling Boulevard	San Lorenzo	CA		94580	OSH Properties LLC
Silver Creek	1751 East Capital Expressway	San Jose	CA		95121	OSH Properties LLC
Tracy Distribution Center	2650 MacArthur Drive	Tracy	CA		95376	OSH Properties LLC
Van Nuys	5960 Sepulveda Boulevard	Van Nuys	CA		91411	OSH Properties LLC
Branham	1130 Branham Lane	San Jose	CA		95118	Branham Square LLC, Bernice W. Avina, Trustee of the Bernice W. Avina 2000 Revocable Trust dated March 8, 2000 and Joan W. Tartaglis Trust dated April 12, 2000. c/o Biagini Properties, 333 W. El Camino Real, Suite 240, Sunnyvale, CA 94087
Sunnyvale (RR)	777 Sunnyvale- Saratoga Rd	Sunnyvale	CA		94087	Mardit Properties Limited Partnership PO Box 2098, Saratoga, CA 95070
Huntington Beach	19930 Golden West St.	Huntington Beach	CA		92648	Seacliff Village LLC, c/o Cornerstone Real Estate Advisers, Inc., 10866 Wilshire Blvd., Suite 800, Los Angeles, CA 90024
Capitola	1601 41st Avenue (Office)	Capitola	CA		95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Capitola	Pick up station 1416 38th Avenue	Capitola	CA	95010	George Ow Trust Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010
Capitola	1601 41st Avenue (Main Building)	Capitola	CA	95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010
Capitola	1601 41st Avenue (Main Building, Additional Space)	Capitola	CA	95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010
Livermore (RR)	1450 First Street	Livermore	CA	94550	Walter & Dorothy Anderson, 1091 Buckingham Drive, Los Altos, CA 94024
Midtown / Los Angeles	4801 Venice Blvd.	Los Angeles	CA	90019	Midtown Shopping Center, 4725 W. Venice Blvd., 2nd Floor, Los Angeles, CA 90019
Elk Grove / Sacramento	7431 Laguna Blvd.	Elk Grove	CA	95758	Donahue Schriber Realty Group LP 200 E. Baker Street, Suite 100, Costa Mesa, CA 95626
Fremont	5130 Mowry Avenue	Fremont	CA	94538	Mowry East Shopping Center, LP, c/o Biagini Properties, Inc., 333 W. El Camino Real, Suite 240, Sunnyvale, CA 94087
Dublin	7884 Dublin Blvd.	Dublin	CA	94568	PK II Dublin Retail Center LP c/o Kimco Realty Corporation 3333 New Hyde Park Road New Hyde Park, NY 10042-0020
Stockton	1015 West Hammer Lane	Stockton	CA	95209	Fedi, Fedi, Jaworski & Santini, c/o Frank Jaworski, 635 Atherton Drive, Lodi, CA 95242
Milpitas	125 N. Milpitas Blvd.	Milpitas	CA	95035	Shapell Industries of Northern California, Inc. 100 No. Milpitas Blvd., P.O. Box 361169, Milpitas, CA 95035
Gilroy (RR)	303 East 10th	Gilroy	CA	95020	Conrotto Family 1990 Trust, 1320 Cedar Court, Gilroy, CA 95020
Modesto, Eastgate	1800 Oakdale Rd, Suite A	Modesto	CA	95355	Orchard Plaza, LLC P.O. Box 602, Denair, CA 95316
Millbrae	900 El Camino Real	Millbrae	CA	94030	City and County of San Francisco, acting through its Public Utilities Commission 1000 El Camino Real, P.O. Box 730, Millbrae, CA 94030

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Milbrae - PGE	900 El Camino Real	Millbrae	CA	94030	PG & E, Non-Energy Collection Unit, P.O. Box 8329, Stockton, CA 95208-8329
Redwood City	2110 Middlefield Road	Redwood City	CA	94063	PL Redwood City LP, 3333 New Hyde Park Road, Suite 100, New Hyde Park NY 11042 c/o Kimco Realty Corporation
La Verne	2244 Foothill Blvd	La Verne	CA	91750	La Verne Courtyard, LLC, c/o Preferred Property Development, 629 Camino de los Mares, Suite 201, San Clemente, CA 92673
Concord	2050 Monument Blvd.	Concord	CA	94520	Joan Bruzzone, 899 Hope Lane, Lafayette, CA 94549
Arden & Watt Sacramento	3350 Arden Way	Sacramento	CA	95825	Arden Way LLC and Arden Way No 2 LLC 101 Montgomery Street, Suite 2350 San Francisco, CA 94104-4159
Salinas	1067 North Davis Road	Salinas	CA	93906	John Cortese & Sarah Cortese, 4190 Cadwallader Ave., San Jose, CA 95121
Watsonville (RFO/RR)	1060 S. Green Valley Road	Watsonville	CA	95076	South County Professional Park, L.P., 9053 Soquel Drive, Suite B, Aptos, CA 95003
Prospect	5365 Prospect Road	San Jose	CA	95129	Grosvenor International (Westcoast Freeholds) Limited, c/o CB Richard Ellis 225 W. Santa Clara Street, Suite 1050, San Jose, CA 95113
El Camino	3615 El Camino Real	Santa Clara	CA	95051	Anka & Pero Margaretic, 355 Main Street, Suite A, Los Altos, CA 94022
El Cerrito	1751 Eastshore Blvd.	El Cerrito	CA	94530	Bay Area Warehouse Stores, c/o Ralphs Grocery Co., 1100 West Artesia Boulevard, Compton, CA 90220
San Leandro	300 Floresta Blvd.	San Leandro	CA	94578	Builders Associates #3, c/o Arnold Schlessinger, 9595 Wilshire Blvd., #710, Beverly Hills, CA 90212
Antioch (RFO, Limited RR)	2388 Buchanan Road	Antioch	CA	94509	S.M. Properties, P.O. Box 3596, Los Altos, CA 94040

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Fresno	5445 N. Blackstone Ave.	Fresno	CA	93710	Dervishian Properties, 333 W. Shaw #6, Fresno, CA 93704
Paso Robles	2005 Theatre Drive	Paso Robles	CA	93446	Paso Robles Ventures LLC, c/o Ellis Partners, Inc., 111 Sutter Street, Suite 600, San Francisco, CA 94104
Napa (RFO, Limited RR)	3980 Bel Aire Plaza	Napa	CA	94558	Monroe Forsyth, Inc c/o Randy Pennington, 2375 Hardies Lane, Santa Rosa, CA 95403
Tracy	1975 W. 11th Street	Tracy	CA	95376	RRG-RMC/Tracy, LLC, c/o Regency Centers, LP One Independent Drive, Suite 114, Jacksonville, FL 32202§
Turlock	3051 Geer Road	Turlock	CA	95380	John & Kathleen McCorduck, P.O. Box 183, Walnut Creek, CA 94596
San Ramon	1041 Marketplace	San Ramon	CA	94583	MPK LLC, Paul Pries, 1845 Dry Creek Road, Campbell, CA 95008
Lone Tree (Antioch 2)	4873 Lone Tree Way	Antioch	CA	94531	Robert Dewey, 6602 N. Lost Dutchman Drive, Paradise Valley, AZ 85253
Vacaville	220 Peabody Road	Vacaville	CA	95687	Joann Hosking dba Bridgeport Properties 7373 Cana Highway, Chico, CA 95973
San Rafael (3)	1151 Andersen Drive	San Rafael	CA	94901	c/o Harvey Capital Corp., 2333 Cotner Avenue, Los Angeles, CA 90064 cc: Ball & East Ltd.
Visalia	2230 W. Walnut Ave.	Visalia	CA	93277	Visalia Properties Partnership, 13630 Sunset Blvd., Pacific Palisades, CA 90272
Moraga	1550 Canyon Road	Moraga	CA	94556	Russell J. Bruzzone, Inc., 899 Hope Lane, Lafayette, CA 94549
Foster City	1010 Metro Center Blvd.	Foster City	CA	94404	Metro TCE LLC, c/o Transpacific Development, Co., 2377 Crenshaw Blvd., Suite 300, Torrance, CA 90501
Sand City	800 Playa Ave.	Sand City	CA	93955	Fortuna Realty Company, c/o Thomas Financial Service PO Box EC, Pacific Grove, CA 93950

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Fresno	1536 East Champlain Drive	Fresno	CA	93720	Via Montana, LLC PO Box 2460, Saratoga, CA 95070
Santa Maria	1950 South Broadway	Santa Maria	CA	93454	Western Village Shopping Center, 2011 South Broadway, Suite J Santa Maria, CA 93454
Citrus Heights	6124 San Juan Avenue	Citrus Heights	CA	95610	San Juan, LLC c/o Red Mountain Retail Group, Inc., 1234 E. 17th St., Santa Ana, CA 92701
Kings Canyon	5653 East Kings Canyon	Fresno	CA	93727	Save Mart Grocery Stores c/o SMS Management Company PO Box 5234, Modesto, CA 95352-5234
Berkeley	1025 Ashby Avenue	Berkeley	CA	94710	Berkeley Business Center, LLC c/o Hawthorne/Stone, Inc. 1704 Union Street, San Francisco, CA 94123
Newark	5655 Jarvis Avenue	Newark	CA	94560	Newark Development Company 11150 Santa Monica Blvd., Suite 760, Los Angeles, CA 90025
Lodi	360 S. Cherokee Lane	Lodi	CA	95240	O-S Lodi, Attn. Mr. Peter Paige, 3205 Underhill Place, Bend, OR 97701
Yuba City	1262 Stabler Lane	Yuba City	CA	95993	Butte House/Bel Air Investors, c/o Brandywine Realty Trust 2220 Douglas Blvd., Suite 280, Roseville, CA 95661
Manteca	189 West Louise Avenue	Manteca	CA	95336	Edward & Dolores Cardoza, P.O. Box 1022, Manteca, CA 95336
S. San Francisco	2245 Gellert Blvd.	S. San Francisco	CA	94080	American United Life Insurance Company, One American Square, P.O. Box 368, Indianapolis, IN 46206-0368
Petaluma	1390 N. McDowell Blvd.	Petaluma	CA	94954	J&R Properties, c/o R.T. Bettencourt, 7226 Via Sendero, San Jose, CA 95135
Merced (4)	3155 R. Street	Merced	CA	95348	Isenberg Investments, Attn: Berent Isenberg, P.O. Box 2144, Merced, CA 95344
Sonora	750 E. Mono Way	Sonora	CA	95370	Sonora Plaza I, LLC, 770 Tamalpais Drive, Suite 401-B, Corte Madera, CA 94925

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Hanford	700 11th Avenue	Hanford	CA	93230	Hanford Center LLC, P.O. Box 655, 1555 Indian Valley Road, Novato, CA 94948
Pasadena	3425 E. Colorado Blvd.	Pasadena	CA	91107	KCB RE, L.P. c/o KCB Management Inc. 117 E. Colorado Blvd., Suite 400, Pasadena, CA 91105
So. Pasadena	452 Fair Oaks Ave.	So. Pasadena	CA	91030	Young Properties, 3407 Ocean View Blvd., Glendale, CA 91208
Burbank	641 N. Victory Blvd.	Burbank	CA	91502	Airport Plaza, Inc., c/o Pacifica Holding Company 2121 Rosecrans Ave., Suite 2370, El Segundo, CA 90245
West Los Angeles	2020 S. Bundy Drive and 2005 Armacost Avenue	West Los Angeles	CA	90025	Bundy Plaza W.L.A., Ltd. c/o Denholm, Harris & Co. 2503 Eastbluff Drive, Suite 204 Newport Beach, CA 92660
Goleta	125 N. Fairview	Goleta	CA	93117	Fairview Shopping Center LLC 1900 Avenue of the Stars, #2475, Los Angeles, CA 90067
Redding	2340 Athens Avenue	Redding	CA	96001	Athens Plaza, LLC, P.O. Box 15175, Seattle, WA 98115
Mountain View	2555 Charleston Road	Mountain View	CA	94043	Edward/Barbara Hinshaw, 12901 Saratoga Avenue, San Jose, CA 95070
La Crescenta	3100 Foothill Blvd.	La Crescenta	CA	91214	Young Properties, 3407 Ocean View Blvd., Glendale, CA 91208
Whittier Subleased to Michael’s and Anna’s linens	13400 Whittier Blvd	Whittier	CA	90605	GMS Realty, LLC, 5973 Avenida Encinas, Suite 300, Carlsbad, CA 92008
Canoga Park	22741 Victory Blvd.	Canoga Park	CA	91307	Ralph’s Grocery Company, c/o Property Management Department Unit 08, PO Box 5000 Portland, OR 97208-5000
Canoga Park Pick-Up Station	22741 Victory Blvd.	Canoga Park	CA	91307	SWZ Partnership, LLC c/o Pride Properties LLC PO Box 800127, Santa Clarita, CA 91380-0127
Torrance	4340 Pacific Coast Highway	Torrance	CA	90505	PACOSH, LP, c/o Pacific Properties Group 12100 Wilshire Blvd., Suite #1025, Los Angeles, CA 90025

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Woodland	1350 E. Main St.	Woodland	CA	95776	PM/OSH Associates, LLC, 11819 Wilshire Blvd., #204, Los Angeles, CA 90025
Thousand Oaks	1934 E. Avenida De Los Arboles	Thousand Oaks	CA	91362	Butler Champion, Ltd., 11845 West Olympic Boulevard, Suite 700, Los Angeles, CA 90064
Santa Clarita	26565 N. Bouquet Canyon Road	Santa Clarita	CA	91350	Bouquet Canyon II LLC c/o Dollinger - Devcon Associates, c/o Mr. Michael Dollinger, 555 Twin Dolphin Dr., #600, Redwood City, CA 94065
Rancho Cucamonga	9080 Foothill Blvd.	Rancho Cucamonga	CA	91730	Orchard Capital, L.P., c/o Safelo Capital, 1850 S. Sepulveda Blvd., #200, Los Angeles, CA 90025
Fountain Valley	17200 Brookhurst Street	Fountain Valley	CA	92708	Builders Associates #3, c/o Arnold Schlesinger, 9595 Wilshire Boulevard, Suite 710, Beverly Hills, CA 90212
Long Beach	4480 Atlantic Ave.	Long Beach	CA	90807	GGF, LLC, 100 W. Broadway Suite 950, Glendale, CA 91210
Santa Ana	1975 E. 17th Street.	Santa Ana	CA	92701	Frances Drooz Trust 1701 Kelton Avenue, Los Angeles, CA 90024
Granada Hills	18060 Chatsworth St.	Granada Hills	CA	91344	Trak Chicago & 75th Ave., c/o Combined Properties, Inc., 1255 22nd Street, N.W., 6th Floor, Washington, D.C. 20037
Bakersfield	6464 Ming Avenue	Bakersfield	CA	93309	Sagepointe LLC, c/o M.D. Atkinson Col, Inc., 1401 19th Street, Suite 400, Bakersfield, CA 93301
Store Support Center	6450 Via Del Oro	San Jose	CA	95119	South San Jose Interests c/o Sobrato Development Companies, 10600 N. De Anza Blvd., Suite 200, Cupertino, CA 95014
Santa Rosa	2230 Cleveland Ave	Santa Rosa	CA	95403	The City Portfolio, LLC c/o Red Mountain Retail Group, Inc. 1234 E. 17th Street Santa Ana, CA 92701
Fairfield	1500 Oliver Road	Fairfield	CA	94534	Fairfield Corners, LLC c/o WSZ Investments, LLC 101 Chestnut Street Boston, MA 02108
Hesperia	16824 Main Street	Hesperia	CA	92345	Salomon Wainberg and Olga Wainberg 23639 Arminta Street West Hills, CA 91304

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Tracy Excess Warehouse (month to month)	1050 E. Grantline Road	Tracy	CA	95304	California Valley LLC c/o Buzz Oates Management Services 8615 Elder Creek Road Sacramento, CA 95828

Schedule 3.05

Schedule 3.05 – Intellectual Property

U.S. Copyright Registrations

Registration No.	Title	Claimant
VA-518-495	Handyman OSH	Orchard Supply Hardware LLC
VA-518-496	OSH the Gardener	Orchard Supply Hardware LLC
VA-518-730	OSH the Cupid	Orchard Supply Hardware LLC
VA-518-731	Columbus, OSH	Orchard Supply Hardware LLC

Trademark and Service Mark Applications and Registrations

Mark	Serial No.		Registration No.		Goods/Services	Owner
Bridgewater		78/153,859		2,776,948	Faucets	Orchard Supply Hardware LLC
Complete Hardware & Garden		75/203,175		2,200,708	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
Las Soluciones Existen. Nosotros Te Ayudamos A Encontrarlas		78/136,272		2,704,813	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
Lifetime Plant Guarantee & Design		78/427,038		2,967,061	Retail store services featuring live plants and flowers	Orchard Supply Hardware LLC
Orchard Supply Hardware		78/186,264		2,775,762	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
OSH		78/186,009		2,766,925	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
OSH Orchard Supply Hardware & Design		76/282,064		2,638,912	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
Pacific Bay		78/602,363		3,071,123	Ceiling Fans	Orchard Supply Hardware LLC
The Answers Are Out There. We’ll Help You Find Them.		76/409,915		2,683,582	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
Blue Ridge		78/693472		3,200,849	Electric holiday lights; artificial garlands, wreaths and flower arrangements; artificial Christmas trees	Orchard Supply Hardware LLC
Sweet San Carlos		78/755,991		3,478,057	Rose bush developed for OSH 75th Anniversary	Orchard Supply Hardware LLC
Orchard’s Pride		78/755,985		3,478,056	Rose bush developed for OSH 75th Anniversary	Orchard Supply Hardware LLC
Orchard Super Hardware		77/413,986		3,511,974	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
Backyard Pro*		78/245,656		2,918,132	hand operated pruning tools, namely pruners, loppers, hedge shears, and grass shears	Sears Brands, LLC

Schedule 3.05

Western Hawk* 78/954,897 3,667,934 Hand tools, namely screw drivers Rulers, namely tape rulers Sears Brands, LLC

* Loan Parties do not own but are licensed to use the trademark.

Domain Name	Owner	Registrar		Expiration Date
Orchardsupplyhardware.biz	Orchard Supply Hardware LLC		Register.com		2/19/2010
Orchardsupplyhardware.com	Orchard Supply Hardware LLC		Register.com		10/06/2011
Osh.biz	Orchard Supply Hardware LLC		Register.com		11/18/2010
Osh.com	Orchard Supply Hardware LLC		Register.com		9/19/2014
Osh.info	Orchard Supply Hardware LLC		Register.com		9/20/2011
Osh.us	Orchard Supply Hardware LLC		Register.com		5/15/2011

The Borrower does not believe that any of the intellectual property contained in this schedule, individually, is necessary in its business; the information on this schedule is provided for full disclosure purposes only.

Schedule 3.06

Schedule 3.06 – Disclosed Matters

Legal Matters

SaveMart v. Orchard Supply Hardware LLC

In March 2009, SaveMart filed a complaint in Fresno, California, against Orchard alleging breach of contract and breach of implied covenant of good faith, relating to the termination by Orchard of a contract for the lease of a store to be built by SaveMart in Fresno, California.

In addition, OSH is subject to various legal proceedings, involving insured and other routine litigation incidental to the business.

Environmental Matters

None.

Schedule 3.13

Schedule 3.13 – Insurance

General Liability

• Insurer: Ace American Insurance Company

• Policy: HDOG23751367

• Effective / Expiration: 2/1/2009 – 2/1/2010 (renewed for 2/1/2010 – 2/1/2011, Policy HDOG24939844)

• Deductible: $250,000

• Limits of Liability

• $2,000,000         Each Occurrence

• $2,000,000         Personal & Advertising Injury

• $5,000,000         General Aggregate

• $2,000,000         Products

Automobile Liability

• Insurer: Ace American Insurance Company

• Policy: ISAH08254047

• Effective / Expiration: 2/1/2009 – 2/1/2010 (renewed for 2/1/2010 – 2/1/2011, Policy ISAH08586925)

• Deductible: 0

• Limits of Liability

• $2,000,000         Combined Single Limit

Excess Liability – Umbrella form

• Insurer: Chartis and Ace American

• Policy: BE27471375 Chartis ($50M limit); XCPG23864903 Ace USA ($50M limit)

• Effective – Expiration: 8/1/2009 – 8/1/2010

• Self-Insured Retentions: $5,000,000

• Limits of Liability

• $100,000,000         Each Occurrence

• $100,000,000         Aggregate

Workers’ Compensation and Employers’ Liability

• Insurer: Ace American Insurance Company

• Policy: WLRC4436623A

• Effective / Expiration: 2/1/2009 – 2/1/2010 (renewed for 2/1/2010 – 2/1/2011, Policy WLRC46131666)

• Deductible: $250,000

• Limits of Liability

• $1,000,000         Each Accident

• $1,000,000         Each Employee by Disease

• $1,000,000         Policy Limit by Disease

Schedule 3.13

Sponsorship Liability

• Insurer: Employers Fire Insurance Company

• Policy: GL0004301 (Primary) and EX0002001 (Excess)

• Effective – Expiration: 8/1/2009 to 8/1/2010

• Self-Insured Retentions: n/a

• Limits of Liability

• $5,000,000         General Aggregate

• $5,000,000         Products & Completed Operations Aggregate

Blanket Building and Personal Property

• Insurer: Affiliated FM Insurance Company

• Policy: TS599

• Effective – Expiration: 6/29/2009 – 6/29/2010

• Limits of Liability

• $100,000,000         Per Occurrence

• $100,000,000         Annual Aggregate

• Deductible:

• $50,000 Per Occurrence and % for wind, flood and earthquake capped at $250,000

Stock Throughput

• Insurer: Lloyd’s of London

• Policy: MA0902054

• Effective – Expiration: 6/29/2009 – 6/29/2010

• Deductible: $250,000

• Limits of Liability

• $50,000,000         Tracy DC

• $20,000,000         Stock in Transit

Commercial Crime Coverage

• Insurer: Chubb

• Policy: 82115112

• Effective / Expiration: 3/31/2009 to 5/1/2010

• Self-Insured Retentions: $2,500,000

• Limits of Liability

• $10,000,000         Annual Aggregate

• $300,000              Common Carrier Transport Accident

• $100,000              Comprehensive Accident

Directors and Officers Liability

• Insurer: Houston Casualty/ U.S. Specialty Insurance Co.

• Policy: 14MGU09A18393

• Effective – Expiration: 2/16/2009 to 2/16/2010

• Self-Insured Retentions: $100,000

Schedule 3.13

• Limits of Liability

• $15,000,000         Annual Aggregate

Employment Practices Liability Insurance

• Insurer: Houston Casualty/ U.S. Specialty Insurance Co.

• Policy: 14MGU09A18393

• Effective – Expiration: 2/16/2009 to 2/16/2010

• Self-Insured Retentions: $250,000

• Limits of Liability

• $15,000,000         Annual Aggregate

Schedule 3.14

Schedule 3.14 – Capitalization and Subsidiaries

Name of Entity	Relationship to Borrower	Type of Entity	Class of Authorized Equity Interests	Owner of Equity Interests	% of Equity Interests Owned
Orchard Supply Hardware LLC	—	Limited Liability Company	100% of limited liability company interests	Orchard Supply Hardware Stores Corporation	100
OSH Finance Corporation	wholly owned subsidiary	Corporation	100 shares of common stock, par value $0.01 per share	Orchard Supply Hardware LLC	100
OSH Properties LLC	wholly owned subsidiary	Limited Liability Company	100% of limited liability company interests	Orchard Supply Hardware LLC	100

Schedule 3.15

Schedule 3.15 – Security Interest in Collateral

1.
Debtor	Actions to Perfect Security Interests	Office of Filing
Orchard Supply Hardware Stores Corporation	Initial Filing Number: 5364581 0	Delaware Secretary of State
Orchard Supply Hardware LLC	Initial Filing Number: 5364579 4	Delaware Secretary of State
OSH Finance Corporation	Initial Filing Number: 5364585 1	Delaware Secretary of State

2.

Debtor	Actions to Perfect Security Interests	Office of Filing
Orchard Supply Hardware Stores Corporation	UCC-3 amendment to initial financing statement # 5364581 0, changing the name of secured party from JPMorgan Chase Bank, N.A., as Administrative Agent to JPMorgan Chase Bank, N.A., as Collateral Agent	Delaware Secretary of State
Orchard Supply Hardware LLC	UCC-3 amendment to initial financing statement 5364579 4, changing the name of secured party from JPMorgan Chase Bank, N.A., as Administrative Agent to JPMorgan Chase Bank, N.A., as Collateral Agent	Delaware Secretary of State
OSH Finance Corporation	UCC-3 amendment to initial financing statement # 5364585 1, changing the name of secured party from JPMorgan Chase Bank, N.A., as Administrative Agent to JPMorgan Chase Bank, N.A., as Collateral Agent	Delaware Secretary of State

3.
Debtor	Actions to Perfect Security Interests	Office of Filing
Orchard Supply Hardware Stores Corporation	UCC-3 amendment to initial financing statement # 5364581 0, adding, as Secured Party, Wells Fargo Retail Finance, LLC, as administrative agent and collateral agent	Delaware Secretary of State
Orchard Supply Hardware LLC	UCC-3 amendment to initial financing statement # 5364579 4, adding, as Secured Party, Wells Fargo Retail Finance, LLC, as administrative agent and collateral agent	Delaware Secretary of State
OSH Finance Corporation	UCC-3 amendment to initial financing statement # 5364585 1, adding, as Secured Party, Wells Fargo Retail Finance, LLC, as administrative agent and collateral agent	Delaware Secretary of State

Schedule 3.15

4.
Debtor	Actions to Perfect Security Interests	Office of Filing
Orchard Supply Hardware Stores Corporation	UCC-3 amendment to initial financing statement # 5364581 0, deleting JPMorgan Chase Bank, N.A., as Collateral Agent	Delaware Secretary of State
Orchard Supply Hardware LLC	UCC-3 amendment to initial financing statement # 5364579 4, deleting JPMorgan Chase Bank, N.A., as Collateral Agent	Delaware Secretary of State
OSH Finance Corporation	UCC-3 amendment to initial financing statement #5364585 1, deleting JPMorgan Chase Bank, N.A., as Collateral Agent	Delaware Secretary of State

Schedule 3.20

Schedule 3.20 – Corporate Names

Orchard Supply Hardware LLC changed its name from Orchard Supply Hardware Corporation on October 3, 2005.

Orchard Supply Hardware LLC has been operating 4 stores with the name “Orchard Super Hardware” for more than 5 years.

Schedule 3.21

Schedule 3.21 – Existing Credit Card Arrangements

Agreement	Percentage of Sale Payable to Issuer	Transaction Fees	Expiration
Visa (FirstData Merchant Service)	varies	Visa Acquisition Fee - $.0195 per auth; $0.0065 per transaction Discount fee to First Data		6/30/2012
MC (FirstData Merchant Service)	varies	MCNABU fee - $0.0185 per settled transaction; $0.0065 per transaction Discount fee to First Data		6/30/2012
American Express	2.50%	$0.0065 per transaction Discount fee to First Data		6/30/2012
Discover	1.37%	$0.0065 per transaction Discount fee to First Data		12/31/2010

Schedule 6.01

Schedule 6.01 – Existing Indebtedness

Capital Leases

Orchard Unit	Principal Balance
	$	961,877.08
	$	4,246,714.66
	$	3,140,972.05
	$	4,765,176.22
	$	4,462,033.30
	$	5,334,294.00
	$	800,848.00
	$	922,051.36
	$	7,656,383.69
	$	2,637,471.32
	$	60,874.71
	$	1,484,769.61
	$	3,506,549.81
	$	2,707,791.41
	$	3,818,527.36
	$	5,931,778.44
	$	3,547,933.57
	$	3,470,642.93
	$	6,743,861.99
Total Principal Balance	$	66,182,551.52

Schedule 6.02

Schedule 6.02 – Existing Liens

Orchard Supply Hardware LLC

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21684442 File Date: 06/10/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod. B60Z S/N A230N02174Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 File No.: 22711509 File Date: 10/28/2002	Banc of America Vendor Finance, Inc.	Amendment of 21684442
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 File No.: 71474317 File Date: 04/26/2007	Banc of America Vendor Finance, Inc.	Continuation of 21684442
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71574093 File Date: 04/26/07	Banc of America Vendor Finance, Inc.	Continuation of # 21684624
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21684624 File Date: 03/10/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod. C60XT2 S/N A499N01673Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711483 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # 21684624
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21684632 File Date: 6/10/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod B60Z S/N A230N02161Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711491 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # 21684632
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No. 71573228 File Date: 04/26/07	Banc of America Vendor Finance, Inc.	Continuation of # 21684632
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21684657 File Date: 06/10/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod. B60Z S/N A230N02173Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711475 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # : 21684657

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71573871 File Date	Banc of America Vendor Finance, Inc.	Continuation of # : 21684657
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21697659 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod. C60XT2, S/N A499N01672Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711467 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # 21697659
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71580066 File Date: 04/27/07	Banc of America Vendor Finance, Inc.	Continuation of # 21697659
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21697915 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod. C60XT2, S/N A499N01667Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711426 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # 21697915
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71574424 File Date: 04/26/07	Banc of America Vendor Finance, Inc.	Continuation of # 21697915
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21698087 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod. C60XT2, S/N A499N01668Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711434 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # 21698087
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71574903 File Date: 04/26/07	Banc of America Vendor Finance, Inc.	Continuation of # 21698087
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21701899 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Lift Truck, Mod. H35XM, S/N E001HO1939Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711418 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # 21701899

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71580173 File Date: 04/27/07	Banc of America Vendor Finance, Inc.	Continuation of # # 21701899
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21702178 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod. C60XT2, S/N A499N01671Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711459 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # 21702178
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71575124 File Date: 04/26/07	Banc of America Vendor Finance, Inc.	Continuation of # 21702178
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21702202 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod. C60XT2, S/N A499N01669Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711442 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # 21702202
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71575348 File Date: 04/26/07	Banc of America Vendor Finance, Inc.	Continuation of # 21702202
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21707961 File Date: 06/12/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod. H35XM, S/N E001HO1962Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711400 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # 21707961
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71580868 File Date: 04/27/07	Banc of America Vendor Finance, Inc.	Continuation of # 21707961
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21707979 Date: 06/12/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Lift Truck, Mod. H35XM, S/NE001HO1965Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711376 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of # 21707979

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71580462 File Date: 04/27/07	Bane of America Vendor Finance, Inc.	Continuation of # 21707979
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21707995 File Date: 06/12/02	Bane of America Vendor Finance, Inc.	One (1) New Hyster Lift Truck, Mod. H35XM, S/N E001HO1963Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711392 File Date: 10/28/02	Bane of America Vendor Finance, Inc.	Amendment of # 21707995
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71580280 File Date: 04/27/07	Bane of America Vendor Finance, Inc.	Continuation of # 21707995
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 21708001 File Date: 06/12/02	Bane of America Vendor Finance, Inc.	One (1) New Hyster Lift Truck, Mod. H35XM, S/N E001HO1964Z
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 22711384 File Date: 10/28/02	Bane of America Vendor Finance, Inc.	Amendment of # 21708001
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 71580736 File Date: 04/27/07	Bane of America Vendor Finance, Inc.	Continuation of # 21708001
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22679342 File Date: 10/24/02	Bane of America Vendor Finance, Inc.	(1) One New Big Joe Walkie’s Tacker Model No. 2024 s/n 371223 and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73030334 File Date: 08/09/07	Bane of America Vendor Finance, Inc.	Continuation of # 22679342
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22679557 File Date: 10/24/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Narrow-Aisle Lift Truck, Model No. R30XM2, S/N G118N01771Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73030128 File Date: 08/09/07	Bane of America Vendor Finance, Inc.	Continuation of # 22679557
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22679656 File Date: 10/24/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Narrow-Aisle Lift Truck Model No. R30XM2 s/n G118N01776Z and all attachments, accessories to.

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73029161 File Date: 08/09/07	Bane of America Vendor Finance, Inc.	Continuation of # 22679656
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22679755 File Date: 10/24/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Narrow-Aisle Lift Truck Model No. R30XM2 s/n G118N01770Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73029971 File Date: 08/09/07	Bane of America Vendor Finance, Inc.	Continuation of # 22679755
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22679896 File Date: 10/24/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Narrow-Aisle Lift Truck Model No. R30XM2 s/n G118N01769Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73029880 File Date: 08/09/07	Bane of America Vendor Finance, Inc.	Continuation of # 22679896
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22680100 File Date: 10/24/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Lift Truck Model No. H35XM s/n E001H02057Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73029732 File Date: 08/09/07	Bane of America Vendor Finance, Inc.	Continuation of # 22680100
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22680142 File Date: 10/24/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Lift Truck Model No. H35XM s/n E001H02058Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73029617 File Date: 08/09/07	Bane of America Vendor Finance, Inc.	Continuation of # 22680142
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22680274 File Date: 10/24/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Forklift Model No. B60Z s/n A230N02265Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73029476 File Date: 08/09/07	Bane of America Vendor Finance, Inc.	Continuation of # 22680274
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22680415 File Date: 10/24/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Forklift Model No. B60Z s/n A230N02262Z and all attachments, accessories to.

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73029351 File Date: 08/09/07	Bane of America Vendor Finance, Inc.	Continuation of # 22680415
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22680639 File Date: 10/24/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Lift Truck Model No. H35XM s/n E001H01937Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73030375 File Date: 08/09/07	Bane of America Vendor Finance, Inc.	Continuation of # 22680639
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22814568 File Date: 11/07/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Fork Lift Model No. B60Z s/n A230N02505Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73585865 File Date: 09/21/07	Bane of America Vendor Finance, Inc.	Continuation of # 22814568
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 22814626 File Date: 11/07/02	Bane of America Vendor Finance, Inc.	(1) One New Hyster Model No. B60Z Forklift s/n A230N02506Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73574109 File Date: 09/21/07	Bane of America Vendor Finance, Inc.	Continuation of # 22814626
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 23113978 File Date: 12/12/02	Bane of America Vendor Finance, Inc.	(1) One Hyster N45XMR3 narrow aisle lift truck s/n G138N01700Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73917019 File Date: 10/17/07	Bane of America Vendor Finance, Inc.	Continuation of # 23113978
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 23114240 File Date: 12/12/02	Bane of America Vendor Finance, Inc.	(1) One Hyster R30XM2 serial # G118N01800Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73917050 File Date: 10/17/07	Bane of America Vendor Finance, Inc.	Continuation of #23114240
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 23114448 File Date: 12/12/02	Bane of America Vendor Finance, Inc.	(1) One Hyster R30XM2 serial # G118N01798Z and all attachments, accessories to.

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73917167 File Date: 10/17/07	Banc of America Vendor Finance, Inc.	Continuation of # 23114448
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 23114513 File Date: 12/12/02	Banc of America Vendor Finance, Inc.	(1) One Hyster R30XM2 serial # G118N01796Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73917225 File Date: 10/17/07	Banc of America Vendor Finance, Inc.	Continuation of # 23114513
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 23114562 File Date: 12/12/02	Banc of America Vendor Finance, Inc.	(1) One Hyster R30XM2 serial # and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73917316 File Date: 10/17/07	Banc of America Vendor Finance, Inc.	Continuation of # 23114562
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 23115023 File Date: 12/12/02	Banc of America Vendor Finance, Inc.	(1) One New Hyster B60Z S/N A230N02553Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73916631 File Date: 10/17/07	Banc of America Vendor Finance, Inc.	Continuation of # 23115023
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 23115072 File Date: 12/12/02	Banc of America Vendor Finance, Inc. .	(1) One New Hyster S/N A230N02525Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73916441 File Date: 10/17/07	Banc of America Vendor Finance, Inc.	Continuation of # 23115072
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 23115080 File Date: 12/12/02	Banc of America Vendor Finance, Inc.	(1) One New Hyster B60Z S/N A230N02526Z and all attachments, accessories to.
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 73916565 File Date: 10/17/07	Banc of America Vendor Finance, Inc.	Continuation of # 23115080
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 31102006 File Date: 04/15/03	Hyster Credit Company	All construction equipment, loaders and material handling equipment, of any make or manufacture
Orchard Supply Hardware Corporation	DE	SOS	Assignment File No.: 74134044 File Date: 10/31/07	Wells Fargo Equipment Finance, Inc.	Assignment of # 31102006

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	Continuation File No.: 74165428 File Date: 11/01/07	Wells Fargo Equipment Finance, Inc.	Continuation of # 31102006
Orchard Supply Hardware1	DE	SOS	UCC-1 File No.: 41536970 File Date: 05/14/04	IOS Capital	All equipment now or hereafter leased in an equipment leasing transaction
Orchard Supply Hardware Corporation2	DE	SOS	UCC-1 File No.: 41562463 File Date: 5/18/04	Toyota Motor Credit Corporation	16 New Toyota Forklift models, side shifter, LP tank, solid pneumatic tires, g-force monitor, 42” Forks.
Orchard Supply Hardware3	DE	SOS	UCC-1 File No.: 41996224 File Date: 07/14/04	IOS Capital	All equipment now or hereafter leased in an equipment leasing transaction
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 50758384 File Date: 03/01/05	Toyota Motor Credit Corporation	(1) New 2004 Toyota Forklift Model 7FGU25 Serial: 74435 Specs: Side Shifter, 42”Forks, 189” FSV Mast, Solid Pneumatic Tries, G-Force
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 52038280 File Date: 07/01/05	Toyota Motor Credit Corporation	(1) New Toyota Model 7FGU25 S/N 76577, Cascade Side shifter, 36 inch Forks, Backup Alarm 189 FSV MAST, Strobe/Flashing lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 52041771 File Date: 07/01/05	Toyota Motor Credit Corporation	(1) New Toyota Model 7FGU25 S/N 76598, Cascade Side shifter, 36 inch Forks, Backup Alarm 189 FSV MAST, Strobe/Flashing lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-I File No.: 52041813 File Date: 07/01/05	Toyota Motor Credit Corporation	(1) New Toyota Model 7FGU25 S/N 76670, Cascade Side shifter, 36 inch Forks, Backup Alarm 189 FSV MAST, Strobe/Flashing lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 52042688 File Date: 07/01/05	Toyota Motor Credit Corporation	(1) New Toyota Model 7FGU25 S/N 76504, Cascade Side shifter, 36 inch Forks, Backup Alarm 189 FSV MAST, Strobe/Flashing lights, Solid Pneumatic Tires, LP Systemless Tank

¹  Due to lapse, this lien is no longer perfected.

²  Due to lapse, this lien is no longer perfected.

³  Due to lapse, this lien is no longer perfected.

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 52043108	Toyota Motor Credit	(1) New Toyota Model 7FGU25 S/N 76505, Alarm 189 FSV MAST, Strobe/Flashing lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 52043751 File Date: 07/01/05	Toyota Motor Credit Corporation	(1) New Toyota Model 7FGU25 S/N 76628, Cascade Side shifter, 36 inch Forks, Backup Alarm 189 FSV MAST, Strobe/Flashing lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-3 Amendment File No.: 52222462 File Date: 07/19/05	Toyota Motor Credit Corporation	Amendment of # 52043751 - Restated collateral description: One (1) New Toyota Model 7FGU25 S/N 76628 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System, LP Systemless Tank.
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 52742170 File Date 09/02/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 76696 CASCADE Side Shifter, 42 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System, LP Systemless Tank, Fire Extinguisher.
Orchard Supply Hardware Corporation	DE	SIS	UCC-1 File No.: 53075406 File Date: 10/04/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 77670 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 53075414 File Date: 10/04/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 76643 CASCADE Side Shifter, 42 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank, Fire Extinguisher.
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 53075422 File Date: 10/04/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 76722 CASCADE Side Shifter, 42 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank, Fire Extinguisher

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 53796928 File Date: 12/08/05	NMHG Financial Services, Inc.	All equipment now or hereafter leased by lessor to lessee
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 53802007 File Date: 12/08/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 78765 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 53803534 File Date: 12/08/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 78579 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 53803633 File Date: 12/08/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 76744 CASCADE Side Shifter, 42 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank, Fire Extinguisher
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 53927366 File Date: 12/19/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 78753 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 53927762 File Date: 12/19/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 78640 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 53928109 File Date: 12/19/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 78614 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 53928117 File Date: 12/19/05	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 78796 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 60018564 File Date: 01/04/06	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 79680 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 60223248 File Date: 01/19/06	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 79672 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware Corporation	DE	SOS	UCC-1 File No.: 60313437 File Date: 01/26/06	Toyota Motor Credit Corporation	One (1) New Toyota Model 7FGU25 S/N 78779 CASCADE Side Shifter, 36 inch Forks Backup Alarm, 189 FSV Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP Systemless Tank
Orchard Supply Hardware	DE	SOS	UCC-1 File No.: 60828517 File Date: 03/10/06	IOS Capital	All equipment now or hereafter leased in an equipment leasing transaction
Orchard Supply Hardware	DE	SOS	UCC-1 File No.: 64195368 File Date: 12/02/06	IOS Capital	All equipment now or hereafter leased in an equipment leasing transaction
Orchard Supply Hardware	DE	SOS	UCC-1 File No.: 71290062 File Date: 04/06/07	IOS Capital	All equipment now or hereafter leased in an equipment leasing transaction
Orchard Supply Hardware	DE	SOS	UCC-1 File No.: 72612264 File Date: 07/11/07	IKON Financial SVCS	All equipment now or hereafter leased in an equipment leasing transaction
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 73473567 File Date: 09/13/07	World Financial Capital Bank	Accounts and Receivables purchased pursuant to the terms of a Purchase and Sale Agreement, dated February 26, 2007.

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93476071 File Date: 10/29/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19782. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Single Internal Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Type LP, Multi Digital Display
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93476097 File Date: 10/29/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19790. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Dual 3- way Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Type LP Less Tank, Multi Digital Display
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93476105 File Date: 10/29/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19794. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Dual 3- way Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Type LP Less Tank, Multi Digital Display
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93476980 File Date: 10/29/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19789. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Dual 3- way Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Type LP Less Tank, Multi Digital Display
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93476998 File Date: 10/29/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19795. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Dual 3- way Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Type LP Less Tank, Multi Digital Display
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93477004 File Date: 10/29/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19803. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Dual 3- way Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Type LP Less Tank, Multi Digital Display
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93478192 File Date: 10/29/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19804. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Dual 3- way Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Type LP Less Tank, Multi Digital Display

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93478200 File Date: 10/29/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19809. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Dual 3- way Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Type LP Less Tank, Multi Digital Display
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93478226 File Date: 10/29/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19810. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Dual 3- way Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Type LP Less Tank, Multi Digital Display
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93688170 File Date: 11/17/09	Toyota Motor Credit Corporation	Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Dual 3- way Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Approvd Type LP, Trvl Speed Control
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93688469 File Date: 11/17/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19896. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, Dual 3- way Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Apprvd Type LP, Trvl Speed Control System
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93737357 File Date: 11/20/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19888. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, 3rd Func Internal Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Apprvd Type LP, Trvl Speed Control
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93737365 File Date: 11/20/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 19904. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, 3rd Func Internal Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Apprvd Type LP, Trvl Speed Control
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93832968 File Date: 12/01/09	Toyota Motor Credit Corporation	1 New Toyota 8FGU25 SN# 20019. Sideshifter, 42” Forks, Back up Alarm, 189 FSV Mast, 3rd Func Internal Hosing, Strobe/Flashing Lights/Solid Pneumatic Tires, UL Apprvd Type LP, Trvl Speed/Accel System

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 93849780 File Date: 12/02/09	Associated Packaging Inc.	6 Orion Flex RTA machines.
Orchard Supply Hardware LLC4	DE	SOS	UCC-1 File No.: 64462883 File Date: 12/20/06	JPMorgan Chase Bank, N.A., as Collateral Agent	All assets of Debtor.
Orchard Supply Hardware Stores Corporation
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 32157942 File Date: 08/19/03	De Lage Landen Financial Services, Inc.	All equipment of any make or manufacture, together with all accessories and attachments thereto, financed for or leased to Lessee by Lessor
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-3 Continuation of # 32157942 File No.: 2008 0997096 File Date: 03/21/08	De Lage Landen Financial Services, Inc.	All equipment of any make or manufacture, together with all accessories and attachments thereto, financed for or leased to Lessee by Lessor
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 61589910 File Date: 05/10/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81073
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 61590199 File Date: 05/10/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81114
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 61590207 File Date: 05/10/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81101
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 61590405 File Date: 05/10/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 78595
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 61818988 File Date: 05/30/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81579

⁴  This UCC-1 was filed in connection with the Term Loan Agreement.

Schedule 6.02

Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62026961 File Date: 06/14/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81775
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62026979 File Date: 06/14/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81669
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62026987 File Date: 06/14/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81706
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62027365 File Date: 06/14/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81699
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62027373 File Date: 06/14/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81560
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62027720 File Date: 06/14/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81540
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62029320 File Date: 06/14/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81511
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62030252 File Date: 06/14/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81513
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62316016 File Date: 07/06/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81363
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62615946 File Date: 07/28/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 81665
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63502457 File Date: 10/10/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 83222
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63503018 File Date: 10/10/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 83381
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63503281 File Date: 10/10/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 82518

Schedule 6.02

Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63503307 File Date: 10/10/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 83395
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63503331 File Date: 10/10/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 82376
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63503729 File Date: 10/10/06	Toyota Motor Credit Corporation	One new Toyota model 7FGU25 serial number 82338
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 0297878 File Date: 01/24/07	Toyota Motor Credit Corporation	One (1) new Toyota model 7FGU25 S/N 84605
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 72018793 File Date: 05/30/07	NMHG Financial Services, Inc.	All of the equipment nor or hereafter leased by Lessor to Lessee;
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80594703 File Date: 02/19/08	Toyota Motor Credit Corporation	(1) New Toyota model 8FGU25 S/N 15834
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80951788 File Date: 03/18/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15251
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80982239 File Date: 03/20/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15223
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80982247 File Date: 03/20/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15226
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80982254 File Date: 03/20/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15248
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80982882 File Date: 03/20/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15553

Schedule 6.02

Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80983351 File Date: 03/20/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15532
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80985604 File Date: 03/20/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15515
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80986008 File Date: 03/20/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15575
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80986016 File Date: 03/20/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15237
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80988855 File Date: 03/20/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15409
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80994036 File Date: 03/21/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15116
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80994044 File Date: 03/21/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15294
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80994176 File Date: 03/21/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15236
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80994564 File Date: 03/21/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15225
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 80994572 File Date: 03/21/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15621
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 81935822 File Date: 06/06/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15276
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 81946431 File Date: 06/06/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 16265

Schedule 6.02

Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-3 Amendment File No.: 82576237 File Date: 07/28/08	Toyota Motor Credit Corporation	Amendment of # 81946431
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 81946456 File Date: 06/06/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 16327
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-3 Amendment File No.: 82517058 File Date: 07/22/08	Toyota Motor Credit Corporation	Amendment to # 81946456
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 82145488 File Date: 06/23/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 16490
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-3 Amendment File No.: 82575718 File Date: 07/28/08	Toyota Motor Credit Corporation	Amendment to # 82145488:
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 82207734 File Date: 06/27/08	Toyota Motor Credit Corporation	One (1) new Toyota model 8FGU25 S/N 15574
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-3 Amendment File No.: 82354908 File Date: 07/02/08	Toyota Motor Credit Corporation	Amendment to # 82207734
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 82517074 File Date: 07/22/08	Toyota Motor Credit Corporation	One (1) Toyota model 8FGU25 S/N 16313
Orchard Supply Hardware Stores Corporation5	DE	SOS	UCC-1 File No.: 64463444 File Date: 12/20/06	JPMorgan Chase Bank, N.A., as Collateral Agent	All assets of Debtor.

⁵  This UCC-1 was filed in connection with the Term Loan Agreement.

Schedule 6.02

OSH Finance Corporation

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
OSH Finance Corporation6	DE	SOS	UCC-1 File No.: 64463048 File Date: 12/20/2006	JPMorgan Chase Bank, N.A., as Collateral Agent	All assets of Debtor

⁶  This UCC-1 was filed in connection with the Term Loan Agreement.

Schedule 6.04

Schedule 6.04 – Existing Investments

Name of Loan Party	Existing Investment	Relationship to Loan Party	Type of Entity	Class of Authorized Equity Interests	% of Equity Interests Owned
Orchard Supply Hardware LLC	100% of limited liability company interests in OSH Properties LLC	wholly owned subsidiary	Limited Liability Company	100% of limited liability company interests	100

Schedule 6.10

Schedule 6.10 – Existing Restrictions

None.

EXHIBIT A

ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the ABL Credit Agreement identified below (as amended, modified, supplemented or restated and in effect from time to time, the “ABL Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the ABL Credit Agreement, as of the Effective Date inserted by the ABL Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the ABL Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any Letters of Credit, guarantees, and Swingline Loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the ABL Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

1.	Assignor:	__________________________
2.	Assignee:	__________________________
		[and is an Affiliate/Approved Fund of [identify Lender]1]
3.	Borrower(s):	Orchard Supply Hardware LLC
4.	ABL Administrative Agent:	Wells Fargo Retail Finance, LLC, as the administrative agent under the ABL Credit Agreement
5.	ABL Credit Agreement:	The Second Amended and Restated Senior Secured Credit Agreement, dated as of January 29, 2010, among (a)

¹  Select as applicable.

Exhibit A-1

Orchard Supply Hardware LLC, as Borrower, (b) Orchard Supply Hardware Stores Corporation, as Holdings, (c) those certain Subsidiaries of the Borrower parties thereto, as Loan Guarantors, (d) the Lenders party thereto and (e) the ABL Administrative Agent, and the other agents party thereto.

6. Assigned Interest:

Facility Assigned	Aggregate Amount of Revolving Commitments/Loans for all Lenders	Amount of Revolving Commitment/Loans Assigned	Percentage Assigned of Revolving Commitment/Loans2
Revolving Commitment	$	$		%
	$	$		%
	$	$		%

7. Effective Date of Assignment (the “Effective Date”): __________, 20__.³

The Assignee shall deliver to the ABL Administrative Agent an Administrative Questionnaire in a form approved by the ABL Administrative Agent in which the Assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Loan Parties and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the Assignee’s compliance procedures and applicable laws, including Federal and state securities laws.

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR
[NAME OF ASSIGNOR]
By:
	Title:

ASSIGNEE [NAME OF ASSIGNEE]
By:
	Title:

²  Set forth, to at least 9 decimals, as a percentage of the Revolving Commitment/Loans of all Lenders thereunder.

³  To be inserted by ABL Administrative Agent and which shall be the effective date of recordation of transfer in the Register therefor.

Exhibit A-2

[Consented to and]⁴ Accepted:

Wells Fargo Retail Finance, LLC, as ABL Administrative Agent
By
	Title:

[Consented to:]⁵

Orchard Supply Hardware LLC
By
	Title:

Consented to:

[ISSUING BANK(S)]6
By
	Title:

⁴  Delete bracketed language if Assignee is a Lender, an Affiliate of a Lender or an Approved Fund.

⁵  Delete Borrower Consent Signature block if Assignee is a Lender, an Affiliate of a Lender or an Approved Fund or if a payment or bankruptcy Event of Default has occurred and is continuing.

⁶  Delete bracketed language if Assignee is a Lender, an Affiliate of a Lender or an Approved Fund.

Exhibit A-3

ANNEX 1

To Assignment and Assumption

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

1.1 Assignor. The Assignor: (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the ABL Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2. Assignee. The Assignee: (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the ABL Credit Agreement, (ii) it satisfies the requirements, if any, specified in the ABL Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the ABL Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the ABL Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Sections 5.01 (a) and (b) thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the ABL Administrative Agent or any other Lender, and (v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the ABL Credit Agreement duly completed and executed by the Assignee (including, if such Foreign Lender is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under the ABL Credit Agreement, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate); and (b) agrees that (i) it will, independently and without reliance on the ABL Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2. Payments. From and after the Effective Date, the ABL Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

Exhibit A-4

3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by facsimile shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

4. Extending/Non-Extending Lenders. The Assignor and Assignee hereby represent and warrant that: (a) either (i) this assignment is not being made by an Extending Lender to a Non-Extending Lender, or (ii) if such assignment is being made by an Extending Lender to a Non-Extending Lender, such Non-Extending Lender hereby agrees to become an Extending Lender for purposes of the assigned rights and obligations, and (b) if this assignment is being made by a Non-Extending Lender to an Extending Lender, this Assignment, shall, without further action, result in the Revolving Commitments so assigned being extended to the Extended Termination Date and otherwise entitle the Assignee to the rights and obligations of an Extending Lender with respect to the Revolving Commitments so assigned (including the applicable fee and interest rates).

Exhibit A-5

EXHIBIT B

Orchard Supply Hardware LLC

Form of Weekly/Monthly Borrowing Base Certificate *

For the Week/Month Ended ______________________

A.	Available Accounts Receivable (from page 2 of 4)	$
B.	Available Credit Card Receivables (from page 3 of 4)	$
C.	Available Inventory (from page 4 of 4)	$
D.	Borrowing Base Reserves:
	Gift Card Liability Reserve	$
E.	Borrowing Base (Total Availability) (lines A + B + C - D)		$
F.	Lower of:
	Borrowing Base (Total Availability) (line E)	$
			$
	Revolving Credit Commitment	$
G.	Aggregate principal amount of loans outstanding	$
H.	L/C obligations outstanding	$
I.	Aggregate outstandings (lines G + H)		$
J.	Facility availability/(overadvance) (line F minus line I)		$

Officer’s Certification:

Pursuant to the Second Amended and Restated Senior Secured Credit Agreement, dated as of January     , 2010, the undersigned certifies that the information provided in this Certificate to Wells Fargo Retail Finance, LLC, as ABL Administrative Agent, on behalf of Orchard Supply Hardware LLC is accurate and complete in all material respects based on the accounting records of Orchard Supply Hardware LLC.

Signature & Title Date

* The Borrowing Base Certificate is to be accompanied by documentation outlined in Schedule 1 to this Exhibit B.

Exhibit B-1

EXHIBIT B

Orchard Supply Hardware LLC

Form of Weekly/ Monthly Borrowing Base Certificate *

For the Week/ Month Ended ________________________

	Total
Gross accounts receivable per x/xx/xx aging	$
Less ineligibles:
>30 days past due / >60 days past statement date
Credit reclass
Cross aging @ 50%
Payment discount
Foreign customers
Disputes/chargebacks, set-offs, claims
U.S. Government
Contra accounts
Due from bankrupt or insolvent customers
Intercompany
Unapplied cash
Affiliate, employee & other non-trade A/R
Unbilled receivables, no invoice
Sales on consignment or approval
Bill and hold receivables
No first priority perfected security interest
Notes receivables
Co-op advertising/rebate reserves
Extended terms
Other (per terms of ABL Credit Agreement)
Total ineligibles
Eligible Accounts Receivable
Less: Dilution Reserve (excess of 5%)
Adjusted Eligible Accounts Receivable
Advance rate		80	%
Available Accounts Receivable, before Reserves	$

* The Borrowing Base Certificate is to be accompanied by documentation outlined in Schedule 1 to Exhibit B.

Exhibit B-2

EXHIBIT B

Orchard Supply Hardware LLC

Form of Weekly/ Monthly Borrowing Base Certificate *

For the Week/ Month Ended _______________________

	Total
Gross credit card receivable per x/xx/xx aging	$
Less ineligibles:
>7 business days past due
No sole lawful title
Not an instrument under the UCC
Merchant / processor fees
Due from bankrupt or insolvent customers
Not a legal, valid and enforceable obligation
U.S. Government
No first priority perfected security interest
Non-conforming to representations / warranties
Accounts evidenced by chattel paper
Other (per terms of ABL Credit Agreement)
Total ineligibles
Eligible Credit Card Receivables
Adjusted Eligible Credit Card Receivables
Advance rate		90	%
Available Credit Card Receivables	$

* The Borrowing Base Certificate is to be accompanied by documentation outlined in Schedule 1 to this Exhibit B.

Exhibit B-3

EXHIBIT B

Orchard Supply Hardware LLC

Form of Weekly/ Monthly Borrowing Base Certificate *

For the Week/ Month Ended _______________________

	Total
Gross inventory per [perpetual]	$
Add: Inventory purchased under L/Cs:
Import Inventory
Inventory purchased under L/Cs (net of 25% reserve)
Less ineligibles:
Not solely owned by Borrower
No first priority perfected security interest
At foreign location
In-transit
Defective, seconds, rejects, obsolete/unmarketable
Returns, return to vendor
Consigned
At outside/ 3rd party warehouse or location
Leased location – no landlord waiver
Supplies & packing materials
Intercompany profit
Inactive inventory
Demonstrations, display
Reconciling differences
Other (per terms of ABL Credit Agreement)
Inventory Reserves:
Vendor rebates reserve
Excess/Obsolete/Slow move reserve
Inventory shrinkage
Other (per terms of ABL Credit Agreement)
Total ineligibles
Eligible Inventory
Advance Rate		70	%
Available Inventory
Less: Rent Reserve
Available Inventory, before net recovery liquidation cap	$
Lesser of:
(i) 70% of Eligible Inventory less Reserves	$
(ii) 85% of Net Orderly Liquidation Value7	$
Available Inventory	$

* The Borrowing Base Certificate is to be accompanied by documentation outlined in Schedule 1 to this Exhibit B.

⁷  As per the Inventory appraisal, for the periods March through June the Net Orderly Liquidation Value for the high selling point is utilized, and for the periods July through February the Net Orderly Liquidation Value for the low selling point is utilized.

Exhibit B-4

Schedule 1

to Exhibit B

Orchard Supply Hardware LLC

Collateral Monitoring Reporting Requirements

Documents to be Submitted to the Bank

The following information is to be submitted on a weekly/monthly basis by the third Business Day subsequent to the week then ended (for Accounts Receivable and Credit Card Receivables) or the fifteenth Business day subsequent to the month then ended (for Accounts Receivable, Credit Card Receivables, Inventory and Other as noted below) for all subsidiaries of Orchard Supply Hardware LLC.

• Borrowing Base Certificate in the form of Exhibit B.

• Accounts Receivable:

1) Accounts receivable aging, consolidated and for each subsidiary.

2) Accounts receivable rollforward including supporting documentation as follows:

• Total page of invoice (sales) register.

• Total page of cash receipts journal.

• Total page of credit and adjustments register (should include credit memos issued, write-offs, returns, discounts and other credit adjustments). If a credit and adjustments register is not available, credits and adjustments should be accumulated on a separate workpaper.

3) Top 10 accounts receivable balances aged including address and terms per the most recent aging. (quarterly)

4) Reconciliation of A/R aging report to general ledger and financial statements.

5) Top 10 sales concentration including address and terms on a consolidated and subsidiary basis, (quarterly)

6) Supporting documentation (system generated extract report where applicable) for the A/R ineligibles/reserves as follows:

>30 days past due / >60 days past invoice date	Intercompany
Credit reclass	Unapplied cash
Cross aging @ 50%	Affiliate, employee & other non-trade A/R
Payment discount	Unbilled receivables, no invoice
Concentration cap	Sales on consignment or approval
Foreign customers	Bill and hold receivables
Unsatisfactory credit standing	No first priority perfected security interest
Disputes/chargebacks, set-offs, claims	Notes receivables
U.S. Government	Co-op advertising/rebate reserves
Contra accounts	Extended terms
Due from bankrupt or insolvent customers	Other (per terms of ABL Credit Agreement)

• Credit Card Receivables:

1) Credit card receivables aging, consolidated and for each Subsidiary.

2) Credit card receivables rollforward including supporting documentation as follows:

• Total page of invoice (sales) register.

• Total page of cash receipts journal.

Exhibit B-5

• Total page of credit and adjustments register (should include credit memos issued, write-offs, returns, discounts and other credit adjustments). If a credit and adjustments register is not available, credits and adjustments should be accumulated on a separate workpaper.

3) Credit card receivables processing expense/receivable at month-end.

4) Support for any credit card receivable ineligibles as per the terms of the ABL Credit Agreement.

• Inventory:

1) Ending Inventory by division, store, and product line (at cost and retail). Note if location is owned vs. leased.

2) Total page per stockledger.

3) Gross margin and turnover by product line for division.

4) Reconciliation of stockledger inventory reports to general ledger and financial statements.

5) Schedule of monthly rent for all leased locations.

6) Supporting documentation (system generated extract report where applicable) for the inventory ineligibles/reserves as follows:

Not solely owned by Borrower	Intercompany profit
No first priority perfected security interest	Demonstrations, display
Not in good condition	Returns, rejects, seconds, thirds, return to vendor, scrap, defective
Not in co. possession in U.S.
In-transit	Vendor rebates reserve
Second quality	Capitalized favorable variances
Consigned	Landlord lien reserve
At outside/ 3rd party warehouse or location	Excess/Obsolete/Slow move reserve
Leased location – no landlord waiver	Inventory shrinkage
At foreign location	Warranty or scrap reserves
Supplies & packing materials	Reserves for written-down inventory
Obsolete/unmarketable	Other (per terms of ABL Credit Agreement)
Shipped “sale or return”

• Other:

1) Accounts payable aging summary by vendor.

2) Top 10 aged accounts payable vendor balances by aging category.

3) Top 10 purchases concentration including vendor name, address and terms (quarterly).

4) Reconciliation of A/P aging to general ledger and financial statements.

5) Support for gift card liabilities (total page of trial balance).

Submit to:

Wells Fargo Retail Finance, LLC

Attn:                                         

One Boston Place, 18^th Floor

Boston, Massachusetts 02108

Phone: (617) ____________

Fax:     (617) ____________

E-mail: _____________

Exhibit B-6

EXHIBIT C

COMPLIANCE CERTIFICATE

To: The Lenders parties to the ABL Credit Agreement Described Below

This Compliance Certificate is furnished pursuant to that certain Second Amended and Restated Senior Secured Credit Agreement, dated as of January 29, 2010 (as amended, modified, renewed, supplemented, restated or extended and in effect from time to time, the “ABL Credit Agreement”) among Orchard Supply Hardware LLC (the “Borrower”), the other Loan Parties, the Lenders party thereto and Wells Fargo Retail Finance, LLC, as ABL Administrative Agent and Collateral Agent for the Lenders. Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the ABL Credit Agreement.

THE UNDERSIGNED HEREBY CERTIFIES THAT:

1. I am the duly elected                      of the Borrower;

2. I have reviewed the terms of the ABL Credit Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of Holdings and the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements [for quarterly or monthly financial statements add: and such financial statements present fairly in all material respects the financial condition and results of operations of Holdings, the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes];

3. The examinations described in paragraph 2 did not disclose, except as set forth below, and I have no knowledge of (i) the existence of any condition or event which constitutes a Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate or (ii) any change in GAAP or in the application thereof that has occurred since the date of the audited financial statements referred to in Section 3.04 of the ABL Credit Agreement;

4. I hereby certify that no Loan Party has changed (i) its name, (ii) its chief executive office, (iii) principal place of business, (iv) the type of entity it is or (v) its state of incorporation or organization without having given the ABL Administrative Agent the notice required by Section 4.16 of the ABL Loan Security Agreement;

5. Schedule I attached hereto sets forth financial data and computations evidencing the Borrower’s compliance with the Fixed Charge Coverage Ratio set out in Section 6.14 of the ABL Credit Agreement, all of which data and computations are true, complete and correct; ⁸and

6. Schedule II hereto sets forth the computations necessary to determine the Applicable Rate and the Extended Term Applicable Rate commencing on the Business Day this certificate is delivered.

Described below are the exceptions, if any, to paragraph 3 by listing, in detail, (i) the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is

⁸  This section to be included only when Availability is less than or equal to 10% of Maximum Availability for three consecutive days

Exhibit C-1

taking, or proposes to take with respect to each such condition or event or (ii) the change in GAAP or the application thereof and the effect of such change on the attached financial statements:

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

The foregoing certifications, together with the computations set forth in Schedule I and Schedule II hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this      day of                 ,     .

ORCHARD SUPPLY HARDWARE LLC
By:
	Name:
	Title:

Exhibit C-2

SCHEDULE I

Compliance as of                     ,          with

Section 6.14 of the ABL Credit Agreement

Exhibit C-3

SCHEDULE II

Borrower’s Applicable Rate and Extended Term Applicable Rate Calculation

Exhibit C-4

EXHIBIT D

JOINDER AGREEMENT

THIS JOINDER AGREEMENT (this “Agreement”), dated as of                     ,         , 20    , is entered into between                                                                      , a                                      (the “New Subsidiary”), and WELLS FARGO RETAIL FINANCE, LLC, in its capacity as administrative agent (the “ABL Administrative Agent”) under that certain Second Amended and Restated Senior Secured Credit Agreement, dated as of January 29, 2010 (as amended, modified, supplemented or restated and in effect from time to time, the “ABL Credit Agreement”) among (a) the Borrower, (b) Orchard Supply Hardware Stores Corporation, as Holdings, (c) those certain Subsidiaries of Holdings parties thereto, as Loan Guarantors, (d) the Lenders party thereto, (e) the ABL Administrative Agent and Wells Fargo Retail Finance, LLC, as Collateral Agent. All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the ABL Credit Agreement.

The New Subsidiary and the ABL Administrative Agent, for the benefit of the Lenders, hereby agree as follows:

1. The New Subsidiary hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the New Subsidiary will be deemed to be a Loan Party under the ABL Credit Agreement and a “Loan Guarantor” for all purposes of the ABL Credit Agreement and shall have all of the obligations of a Loan Party and a Loan Guarantor thereunder as if it had executed the ABL Credit Agreement. The New Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the ABL Credit Agreement, including, without limitation, (a) all of the representations and warranties of the Loan Parties set forth in Article III of the ABL Credit Agreement, (b) all of the covenants set forth in Articles V and VI of the ABL Credit Agreement and (c) all of the guaranty obligations set forth in Article X of the ABL Credit Agreement. Without limiting the generality of the foregoing terms of this paragraph 1, the New Subsidiary, subject to the limitations set forth in Section 10.10 of the ABL Credit Agreement, hereby guarantees, jointly and severally with the other Loan Guarantors, to the ABL Administrative Agent and the Lenders, as provided in Article X of the ABL Credit Agreement, the prompt payment and performance of the Guaranteed Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in accordance with the terms thereof and agrees that if any of the Guaranteed Obligations are not paid or performed in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise), the New Subsidiary will, jointly and severally together with the other Loan Guarantors, promptly pay and perform the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration or otherwise) in accordance with the terms of such extension or renewal.

2. If required, the New Subsidiary is, simultaneously with the execution of this Agreement, executing and delivering such Collateral Documents (and such other documents and instruments) as requested by the ABL Administrative Agent in accordance with the ABL Credit Agreement.

Exhibit D-1

3. The address of the New Subsidiary for purposes of Section 9.01 of the ABL Credit Agreement is as follows:

_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

4. The New Subsidiary hereby waives acceptance by the ABL Administrative Agent and the Lenders of the guaranty by the New Subsidiary upon the execution of this Agreement by the New Subsidiary.

5. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument.

6. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the New Subsidiary has caused this Agreement to be duly executed by its authorized officer, and the ABL Administrative Agent, for the benefit of the Lenders, has caused the same to be accepted by its authorized officer, as of the day and year first above written.

[NEW SUBSIDIARY]

By:

Name:

Title:

Acknowledged and accepted:

WELLS FARGO RETAIL FINANCE, LLC, as ABL Administrative Agent

By:

Name:

Title:

Exhibit D-2

EX-10.4(A)

Exhibit 10.4(a)

EXECUTION COPY

SENIOR SECURED TERM LOAN AGREEMENT

by and among

ORCHARD SUPPLY HARDWARE LLC,

as Borrower,

and

ORCHARD SUPPLY HARDWARE STORES CORPORATION,

and certain other Subsidiaries of Orchard Supply Hardware Stores Corporation

as Guarantors

and

THE LENDERS FROM TIME TO TIME PARTY HERETO

and

JPMORGAN CHASE BANK, N.A.,

as Term Administrative Agent

and

JPMORGAN CHASE BANK, N.A.„

as Collateral Agent

and

J.P. MORGAN SECURITIES, INC.

GOLDMAN SACHS CREDIT PARTNERS L.P.

as Joint Bookrunner Managers and as Joint Lead Arrangers

and

GOLDMAN SACHS CREDIT PARTNERS L.P.

CITICORP NORTH AMERICA, INC.

LEHMAN COMMERCIAL PAPER INC.,

as Joint Syndication Agents

Dated: December 21, 2006

TABLE OF CONTENTS

		Page
ARTICLE I    DEFINITIONS			1
SECTION 1.01.	Defined Terms		1
SECTION 1.02.	Terms Generally		22
SECTION 1.03.	Accounting Terms; GAAP		22
ARTICLE II    THE AMOUNT AND TERMS OF TERM COMMITMENT			22
SECTION 2.01.	Term Commitments		22
SECTION 2.02.	[Reserved.]		23
SECTION 2.03.	Procedure for Borrowing		23
SECTION 2.04.	[Reserved]		23
SECTION 2.05.	[Reserved]		23
SECTION 2.06.	[Reserved]		23
SECTION 2.07.	Funding of Term Loans		23
SECTION 2.08.	Interest Elections		23
SECTION 2.09.	[Reserved]		24
SECTION 2.10.	Repayment of Term Loans; Evidence of Debt		24
SECTION 2.11.	Prepayment of Term Loans		25
SECTION 2.12.	Fees		26
SECTION 2.13.	Interest		26
SECTION 2.14.	Alternate Rate of Interest		27
SECTION 2.15.	Increased Costs		27
SECTION 2.16.	Break Funding Payments		28
SECTION 2.17.	Taxes		29
SECTION 2.18.	Payments Generally; Allocation of Proceeds; Sharing of Set-offs		30
SECTION 2.19.	Mitigation Obligations; Replacement of Term Lenders		31
SECTION 2.20.	Returned Payments		32
ARTICLE III    REPRESENTATIONS AND WARRANTIES			32
SECTION 3.01.	Organization; Powers		32
SECTION 3.02.	Authorization; Enforceability		32
SECTION 3.03.	Governmental Approvals; No Conflicts		32
SECTION 3.04.	Financial Condition; No Material Adverse Change		33
SECTION 3.05.	Properties		33

i

TABLE OF CONTENTS

(continued)

		Page
SECTION 3.06.	Litigation and Environmental Matters		33
SECTION 3.07.	Compliance with Laws and Agreements		34
SECTION 3.08.	Investment and Holding Company Status		34
SECTION 3.09.	Taxes		34
SECTION 3.10.	ERISA		34
SECTION 3.11.	Disclosure		34
SECTION 3.12.	Solvency		35
SECTION 3.13.	Insurance		35
SECTION 3.14.	Capitalization and Subsidiaries		35
SECTION 3.15.	Security Interest in Collateral		35
SECTION 3.16.	Labor Disputes		36
SECTION 3.17.	Margin Regulations		36
SECTION 3.18.	Use of Proceeds		36
SECTION 3.19.	[Reserved]		36
SECTION 3.20.	Corporate Names; Prior Transactions		36
SECTION 3.21.	[Reserved]		36
SECTION 3.22.	Related Documents		36
SECTION 3.23.	Survival of Warranties; Cumulative		36
ARTICLE IV    CONDITIONS			36
SECTION 4.01.	Closing Date		36
ARTICLE V    AFFIRMATIVE COVENANTS			39
SECTION 5.01.	Financial Statements and Other Information		39
SECTION 5.02.	Notices of Material Events		41
SECTION 5.03.	Existence; Conduct of Business		42
SECTION 5.04.	Payment of Obligations		42
SECTION 5.05.	Maintenance of Properties		42
SECTION 5.06.	Books and Records; Inspection Rights		42
SECTION 5.07.	Compliance with Laws		42
SECTION 5.08.	Use of Proceeds		42
SECTION 5.09.	Insurance		43
SECTION 5.10.	Maximum Adjusted Leverage Ratio		43

ii

TABLE OF CONTENTS

(continued)

		Page
SECTION 5.11.	Additional Collateral; Further Assurances		44
SECTION 5.12.	Cash Management		45
SECTION 5.13.	Collateral Access Agreements		45
SECTION 5.14.	Real Property		45
ARTICLE VI    NEGATIVE COVENANTS			46
SECTION 6.01.	Indebtedness		47
SECTION 6.02.	Liens		48
SECTION 6.03.	Fundamental Changes		50
SECTION 6.04.	Investments, Loans, Advances, Guarantees and Acquisitions		50
SECTION 6.05.	Asset Sales		53
SECTION 6.06.	Sale and Leaseback Transactions		54
SECTION 6.07.	Swap Agreements		54
SECTION 6.08.	Restricted Payments; Certain Payments of Indebtedness		54
SECTION 6.09.	Transactions with Affiliates		55
SECTION 6.10.	Restrictive Agreements		55
SECTION 6.11.	Amendment of Material Documents		56
SECTION 6.12.	Accounting; Fiscal Year		56
SECTION 6.13.	Margin Regulations		56
ARTICLE VII    EVENTS OF DEFAULT			56
ARTICLE VIII    THE ADMINISTRATIVE AGENT			59
ARTICLE IX    MISCELLANEOUS			61
SECTION 9.01.	Notices		61
SECTION 9.02.	Waivers; Amendments		63
SECTION 9.03.	Expenses; Indemnity; Damage Waiver		64
SECTION 9.04.	Successors and Assigns		66
SECTION 9.05.	Survival		68
SECTION 9.06.	Counterparts; Integration; Effectiveness		69
SECTION 9.07.	Severability		69
SECTION 9.08.	Right of Setoff		69
SECTION 9.09.	Governing Law; Jurisdiction; Consent to Service of Process		69
SECTION 9.10.	WAIVER OF JURY TRIAL		70

iii

TABLE OF CONTENTS

(continued)

		Page
SECTION 9.11.	Headings		70
SECTION 9.12.	Confidentiality		70
SECTION 9.13.	Several Obligations; Nonreliance; Violation of Law		71
SECTION 9.14.	USA PATRIOT ACT		71
SECTION 9.15.	Disclosure		71
SECTION 9.16.	Appointment for Perfection		71
SECTION 9.17.	Interest Rate Limitation		72
ARTICLE X    LOAN GUARANTY			72
SECTION 10.01.	Guaranty		72
SECTION 10.02.	Guaranty of Payment		72
SECTION 10.03.	No Discharge or Diminishment of Loan Guaranty		72
SECTION 10.04.	Defenses Waived		73
SECTION 10.05.	Rights of Subrogation		73
SECTION 10.06.	Reinstatement; Stay of Acceleration		73
SECTION 10.07.	Information		74
SECTION 10.08.	Termination		74
SECTION 10.09.	Taxes		74
SECTION 10.10.	Maximum Liability		74
SECTION 10.11.	Contribution		75
SECTION 10.12.	Liability Cumulative		75
SECTION 10.13.	Common Enterprise		75

iv

TABLE OF CONTENTS

(continued)

	Page
SCHEDULES:
Commitment Schedule
Leasehold Property Schedule
Schedule 2.06 – Existing Letters of Credit
Schedule 3.05 – Properties / Intellectual Property
Schedule 3.06 – Disclosed Matters
Schedule 3.13 – Insurance
Schedule 3.14 – Capitalization and Subsidiaries
Schedule 3.15 – Security Interest in Collateral
Schedule 3.20 – Corporate Names
Schedule 3.21 – Credit Card Agreements
Schedule 6.01 – Existing Indebtedness
Schedule 6.02 – Existing Liens
Schedule 6.04 – Existing Investments
Schedule 6.10 – Existing Restrictions
EXHIBITS:
Exhibit A – Form of Assignment and Assumption
Exhibit B – Form of Opinion of Borrower’s Counsel
Exhibit C – Form of Compliance Certificate
Exhibit D – Joinder Agreement
Exhibit E – Intercreditor Agreement

v

SENIOR SECURED TERM LOAN AGREEMENT, dated as of December 21, 2006 (as it may be amended or modified from time to time, this “Agreement”), among ORCHARD SUPPLY HARDWARE LLC (“Borrower”), ORCHARD SUPPLY HARDWARE STORES CORPORATION, a Delaware corporation (“Holdings”), those certain Subsidiaries of Holdings parties hereto (together with Holdings, collectively, the “Guarantors”), the Lenders party hereto, JPMORGAN CHASE BANK, N.A., as administrative agent for the Term Lenders (in such capacity, the “Term Administrative Agent”) and JPMORGAN CHASE BANK, N.A.„ as collateral agent for the Term Lenders (in such capacity, the “Collateral Agent”).

The parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below:

“ABL Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the ABL Lenders under the ABL Credit Agreement, or its successors.

“ABL Credit Agreement” means the Amended and Restated Senior Secured Credit Agreement dated as of the date hereof among the Borrower, the Loan Guarantors, the ABL Lenders and the ABL Administrative Agent.

“ABL Credit Commitment” has the meaning assigned to “Revolving Commitment” in the ABL Credit Agreement.

“ABL Facility” means the revolving facility under the ABL Credit Agreement.

“ABL Facility Primary Collateral” has the meaning assigned to such term in the Intercreditor Agreement.

“ABL Lenders” means the lenders and Issuing Bank under the ABL Credit Agreement.

“ABL Loan Documents” means the “Loan Documents” (as such term is defined in the ABL Credit Agreement).

“ABL Loans” means the loans and advances made by the ABL Lenders under the ABL Credit Agreement.

“ABL Security Agreement” means that certain Amended and Restated Pledge and Security Agreement, dated as of the date hereof, between the Loan Parties and the Collateral Agent, for the benefit of the Collateral Agent, the ABL Administrative Agent and the ABL Lenders, and any other pledge or security agreement (other than the Leasehold Mortgages and the Leasehold Mortgage Supporting Documents) entered into, after the date of the ABL Credit Agreement by any other Loan Party (as required by the ABL Credit Agreement or any other ABL Loan Document), or any other Person, granting a Lien on any property to secure the obligations and liabilities of any Loan Party under any ABL Loan Document, as the same may be amended, restated or otherwise modified from time to time.

“ABR”, when used in reference to any Term Loan, refers to whether such Term Loan, is bearing interest at a rate determined by reference to the Alternate Base Rate.

“Account” has the meaning assigned to such term in the Term Loan Security Agreement.

“Account Debtor” means any Person obligated on an Account.

“Adjusted LIBO Rate” means, with respect to any Eurodollar Loan for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

“Adjusted Leverage Ratio” means, as of any date, the ratio of (a) Consolidated Total Funded Debt outstanding as of such date minus any Unrestricted Cash over $3,000,000 to (b) EBITDA for the period of four consecutive fiscal quarters ending on such date.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Term Administrative Agent.

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Agents” means, collectively, the Term Administrative Agent, the Collateral Agent, the Lead Arrangers and the Syndication Agents.

“Alternate Base Rate” means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus ¹/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

“Appliance Sales Agreement” means the Amended and Restated Appliance Sales Agreement, dated as of December 21, 2006, between the Borrower and Sears.

“Applicable Rate” means (a) during the period from the Closing Date and ending on the date of receipt by the Administrative Agent of the financial statements for the first full fiscal quarter ending after the Closing Date required to be delivered pursuant to Section 5.01, with respect to (i) ABR Loans, a percentage per annum equal to the Alternate Base Rate plus 1.75% and (ii) Eurodollar Loans, a percentage per annum equal to the Adjusted LIBO Rate plus 2.75% and (b) thereafter, (i) if the Adjusted Leverage Ratio as of any date of determination is greater than 3.75:1.00, with respect to (x) ABR Loans, a percentage per annum equal to the Alternate Base Rate plus 1.75% and (y) Eurodollar Loans, a percentage per annum equal to the Adjusted LIBO Rate plus 2.75% or (ii) if the Adjusted Leverage Ratio as of any date of determination is less than or equal to 3.75:1.00, with respect to (x) ABR Loans, a percentage per annum equal to the Alternate Base Rate plus 1.50% and (y) Eurodollar Loans, a percentage per annum equal to the Adjusted LIBO Rate plus 2.50%.

For purposes of the foregoing, (a) the Applicable Rate shall be determined as of the end of each fiscal quarter of the Borrower based upon the Borrower’s annual or quarterly, as applicable, consolidated financial statements delivered pursuant to Section 5.01 and (b) each change in the Applicable Rate resulting from a change in the Adjusted Leverage Ratio shall be effective during the period commencing on and including the date of delivery to the Term Administrative Agent of such

2

consolidated financial statements and certificate of a Financial Officer of the Borrower indicating such change and ending on the date immediately preceding the effective date of the next such change, provided that the Adjusted Leverage Ratio shall be deemed to be greater than 3.75:1.00 (A) at any time that an Event of Default has occurred and is continuing or (B) at the option of the Term Administrative Agent or at the request of the Required Term Lenders if the Borrower fails to deliver the annual, quarterly or monthly (if applicable) consolidated financial statements required to be delivered by it pursuant to Section 5.01, during the period from the expiration of the time for delivery thereof until such consolidated financial statements and certificate of a Financial Officer of the Borrower are delivered.

“Approved Fund” has the meaning assigned to such term in Section 9.04.

“Ares Capital Markets Group” means any collateralized loan obligation fund, any collateralized debt obligation fund, any collateralized bond obligation fund, any distressed asset fund, any hedge fund or any other similar fund managed by Ares Management LLC or one of its Affiliates.

“Asset Sale” means any sale, transfer or other disposition (including pursuant to a sale and leaseback transaction) of any property or asset of any Loan Party which constitutes Collateral, other than dispositions described in Section 6.05(a) through (d), (f), (g) and (h).

“Assignment and Assumption” means an assignment and assumption entered into by a Term Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Term Administrative Agent, in the form of Exhibit A or any other form approved by the Term Administrative Agent.

“Authorized Seller Agreement” means the Authorized Seller Agreement, dated as of November 23, 2005, between the Borrower and Sears.

“Board” means the Board of Governors of the Federal Reserve System of the United States of America.

“Borrower” has the meaning assigned to such term in the preamble.

“Borrowing Request” means a request by the Borrower for the Term Loans in accordance with Section 2.03.

“Brand Sales Agreement” means the Amended and Restated Brand Sales Agreement, dated as of December 21, 2006 between the Borrower and Sears.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City or in San Jose, California are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

“Capital Expenditures” means, for any period, without duplication, any expenditure or other acquisition of any asset, including capitalized leasehold improvements, which would be classified as a fixed or capital asset on a consolidated balance sheet of the Borrower and its Restricted Subsidiaries prepared in accordance with GAAP; provided that the term “Capital Expenditures” shall not include (i) expenditures made in connection with the replacement, substitution, restoration or repair of assets to the extent financed with (x) insurance proceeds paid on account of the loss of or damage to the assets being replaced, restored or repaired or (y) awards of compensation arising from the taking by eminent

3

domain or condemnation of the assets being replaced, (ii) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller for such equipment being traded in at such time, or (iii) the purchase of plant, property or equipment to the extent financed with the proceeds of an Asset Sale or Property Loss Event that are not required to be applied to prepay the Obligations pursuant to Section 2.11(c).

“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“Change in Control” means the occurrence of any of the following:

(a) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Borrower and its Restricted Subsidiaries, taken as a whole, to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act), other than any one or more Permitted Holders;

(b) the adoption of a plan relating to the liquidation or dissolution of the Borrower;

(c) prior to the first Public Equity Offering, the Permitted Holders cease to be the “beneficial owners” (as defined in Rule 13d-3 under the Exchange Act, except that a Person will be deemed to have “beneficial ownership” of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of at least 50% of the total voting power of the Voting Stock of the Borrower or Holdings, whether as a result of the issuance of securities of the Borrower or Holdings, any merger, consolidation, liquidation or dissolution of the Borrower or Holdings, any direct or indirect transfer of securities by the Permitted Holders or otherwise (for purposes of this clause (c), the Permitted Holders will be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation so long as the Permitted Holders beneficially own, directly or indirectly, in the aggregate at least a majority of the total voting power of the Voting Stock of such parent corporation);

(d) on or after the first Public Equity Offering, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act or any successor provisions to either of the foregoing), including any group acting for the purpose of acquiring, holding, voting or disposing of securities within the meaning of Rule 13d-5(b)(l) under the Exchange Act, other than any one or more of the Permitted Holders, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, except that a person will be deemed to have “beneficial ownership” of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 40% or more of the total voting power of the Voting Stock of the Borrower or Holdings; provided, however, that the Permitted Holders are the “beneficial owners” (as defined in Rule 13d-3 under the Exchange Act, except that a person will be deemed to have “beneficial ownership” of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, in the aggregate of a lesser percentage of the total voting power of the Voting Stock of the Borrower or Holdings than such other person or group (for purposes of this clause (d), such person or group shall be deemed to beneficially own any Voting Stock of a corporation held by a parent corporation so long as such person or group beneficially owns, directly or indirectly, in the aggregate at least a majority of the total voting power of the Voting Stock of such parent corporation);

4

(e) the first day on which a majority of the members of the Board of Directors of Holdings are not Continuing Directors, other than pursuant to the right of a Permitted Holder to designate members of the Board of Directors of Holdings pursuant to the Stockholders’ Agreement; or

(f) the occurrence of a “Change in Control” (or any comparable term) under, and as defined in, (i) any document or instrument evidencing or governing any Material Indebtedness of the Borrower and its Subsidiaries, (ii) any Related Document and (iii) the ABL Credit Agreement.

“Change in Law” means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Term Lender (or, for purposes of Section 2.15(b), by any lending office of such Term Lender or by such Term Lender’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

“Chase” means JPMorgan Chase Bank, N.A., a national banking association, in its individual capacity, and its successors.

“Closing Date” means the date on which the conditions specified in Article IV are satisfied (or waived in accordance with Section 9.02).

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Collateral” means any and all “Collateral” referred to in the Collateral Documents.

“Collateral Access Agreement” has the meaning assigned to such term in the Security Agreement.

“Collateral Agent” has the meaning assigned to such term in the preamble.

“Collateral Documents” means, collectively, the Term Loan Security Agreement, the Leasehold Mortgages and any other documents granting, perfecting or evidencing a Lien upon the Collateral in favor of the Collateral Agent, on behalf of itself, the Term Administrative Agent and the Term Lenders, as security for payment of the Obligations.

“Commitment Schedule” means the Schedule attached hereto identified as such.

“Consolidated” means, with respect to any Person, the consolidation of accounts of such Person and its Subsidiaries in accordance with GAAP.

“Consolidated Current Assets” means, with respect to any Person at any date, the total Consolidated current assets (other than cash and cash equivalents) of such Person and its Subsidiaries at such date.

“Consolidated Current Liabilities” means, with respect to any Person at any date, all liabilities of such Person and its Subsidiaries at such date that should be classified as current liabilities on a Consolidated balance sheet of such Person and its Subsidiaries, but excluding, in the case of the Borrower the sum of (a) the principal amount of any current portion of long-term Consolidated Total Funded Debt and (b) (without duplication of clause (a) above) the then outstanding principal amount of the ABL Loans and the Term Loans.

5

“Consolidated Total Funded Debt” means, at any date, the aggregate principal amount of all Indebtedness described in clauses (a), (b), (e), (f) (to the extent that such Guarantee is with respect to Indebtedness described in clauses (a), (b), (e) and (g) and such Person has become obligated to make payment in respect of such Guarantee) and (g) of the definition of “Indebtedness” of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP.

“Continuing Directors” means, as of any date of determination, any member of the Board of Directors of Holdings who (a) was a member of such Board of Directors on the date of this Agreement; or (b) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Credit Card Account Receivable” means each “Account” together with all income, payments and proceeds thereof, owed by any Credit Card Issuer or Credit Card Processor to a Loan Party resulting from charges by a customer of the Borrower or any of its Restricted Subsidiaries on credit cards issued by such Credit Card Issuer or processed by such Credit Card Processor in connection with the sale of goods by the Borrower or any of its Restricted Subsidiaries, or services performed by the Borrower or any of its Restricted Subsidiaries, in each case in the ordinary course of its business.

“Credit Card Agreements” means all agreements now or hereafter entered into by any Loan Party with any Credit Card Issuer or any Credit Card Processor, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, including, but not limited to, as to the Borrower, the agreements set forth on Schedule 3.21 hereto.

“Credit Card Issuer” shall mean any Person who issues or whose members issue credit cards, including, without limitation, MasterCard or VISA bank credit or debit cards or other bank credit or debit cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa International and American Express, Discover, Diners Club and other non-bank credit or debit cards, including, without limitation, credit or debit cards issued by or through American Express Travel Related Services Company, Inc.

“Credit Card Processor” shall mean any servicing or processing agent or any factor or financial intermediary who facilitates, services, processes or manages the credit authorization, billing transfer and/or payment procedures with respect to any sales transactions of any Loan Party involving credit card or debit card purchases by customers using credit cards or debit cards issued by any Credit Card Issuer.

“Debt Issuance” means the incurrence of Indebtedness of the type specified in clause (a) or (b) of the definition of “Indebtedness” by the Borrower or any of its Restricted Subsidiaries and which is not permitted under Section 6.01.

“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“Deposit Account Control Agreement” means an agreement, in form and substance reasonably satisfactory to the Term Administrative Agent, among any Loan Party, a banking institution holding such Loan Party’s funds, and the Collateral Agent, with respect to collection and control of all

6

deposits and balances held in a deposit account maintained by any Loan Party with such banking institution.

“Disclosed Matters” means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06.

“Document” has the meaning assigned to such term in the Term Loan Security Agreement.

“dollars” or “$” refers to lawful money of the United States of America.

“EBITDA” means, for any period, Net Income for such period plus (a) without duplication and to the extent deducted in determining Net Income for such period, the sum of (i) Interest Expense for such period, (ii) provision for income taxes or tax sharing distributions paid pursuant to Section 6.08(a)(iv) for such period, (iii) all amounts attributable to depreciation and amortization expense for such period, (iv) any extraordinary non-cash charges for such period, (v) any non-recurring fees, cash charges and other cash expenses made in connection with the Transactions for such period, (vi) any extraordinary non-recurring, non-cash restructuring charges for such period, (vii) any non-recurring fees, expenses or charges in respect of professional or financial advisory, investment banking, financing, underwriting, placement agent or other similar services (including fees and expenses of legal counsel, consultants and accountants) for such period to the extent related to any equity offering, investment, acquisition, divestiture or recapitalization permitted hereunder or any issuance of indebtedness permitted to be incurred hereunder (whether or not successful) up to a maximum aggregate amount of $15,000,000 during the term of this Agreement, (viii) non-cash charges for share-based payments (as defined in accordance with GAAP) to employees and directors for such period, (ix) any extraordinary losses for such period, and (x) any other non-cash charges for such period (including non-cash rental expense but excluding any non-cash charge in respect of an item that was included in Net Income in a prior period and any non-cash charge that relates to the write-down or write-off of inventory) minus (b) without duplication and to the extent included in Net Income, (i) any cash payments made during such period in respect of non-cash charges described in clause (a)(v) and (a)(x) taken in a prior period and (ii) any extraordinary gains and any non-cash items of income for such period, all calculated for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP. For the purposes of calculating EBITDA for any period of four (4) consecutive fiscal quarters (each, a “Reference Period”), if during such Reference Period the Borrower or any Subsidiary shall have made a Material Acquisition or a Material Disposition, EBITDA for such Reference Period shall be calculated after giving pro forma effect thereto as if such Material Acquisition or Material Disposition occurred on the first day of such Reference Period. As used in this definition, “Material Acquisition” and “Material Disposition” means any acquisition or disposal as applicable of property or series of related acquisitions or disposal as applicable of property that constitutes assets comprising all or substantially all of an operating unit of a business or constitutes all or substantially all of the Equity Interests of a Person.

“ECF Percentage” means 50%; provided that with respect to each fiscal year of the Borrower, the ECF Percentage shall be 25% in respect of such fiscal year if the Adjusted Leverage Ratio as of the last day of such fiscal year is less than or equal to 3.00:1.00 but greater than 2.00:1:00; and provided further that the ECF Percentage shall be 0% in respect of such fiscal year if the Adjusted Leverage Ratio as of the last day of such fiscal year is less than or equal to 2.00:1.00.

“Eligible Accounts” has the meaning assigned to such term in the ABL Credit Agreement.

7

“Eligible Credit Card Receivables” has the meaning assigned to such term in the ABL Credit Agreement.

“Eligible Inventory” has the meaning assigned to such term in the ABL Credit Agreement.

“Environmental Laws” means all applicable laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the protection of the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to the extent relating to the presence or exposure to Hazardous Materials, to health and safety matters.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

8

“Eurodollar”, when used in reference to any Term Loan, refers to whether such Term Loan is bearing interest at a rate determined by reference to the Adjusted LIBO Rate.

“Event of Default” has the meaning assigned to such term in Article VII.

“Excess Cash Flow” means, for any period, (a) the sum of (without duplication) (i) Net Income for such period (determined for the Borrower and its Restricted Subsidiaries only), (ii) the excess, if any, of the Working Capital of the Borrower and its Restricted Subsidiaries at the beginning of such period over the Working Capital of the Borrower and its Restricted Subsidiaries at the end of such period, (iii) an amount equal to the amount of all non-cash charges of the Borrower and the Restricted Subsidiaries to the extent deducted in arriving at such Net Income and (iv) an amount equal to the aggregate net non-cash loss on asset dispositions by the Borrower and the Restricted Subsidiaries during such period (other than asset dispositions in the ordinary course of business) to the extent deducted in arriving at such Net Income minus (b) the sum of (without duplication) (i) scheduled and mandatory cash principal payments on the ABL Loans and the Term Loans (excluding mandatory prepayments in respect of Excess Cash Flow pursuant to Section 2.11(c) hereof) during such period (but only, in the case of payment in respect of ABL Loans, to the extent that the ABL Credit Commitments are permanently reduced by the amount of such payments), (ii) scheduled and (other than with respect to Indebtedness incurred pursuant to Section 6.01 (o)) mandatory cash principal payments made by the Borrower or any of its Restricted Subsidiaries during such period on other Indebtedness to the extent such other Indebtedness and payments are permitted by this Agreement, (iii) scheduled and mandatory payments made by the Borrower or any of its Restricted Subsidiaries on Capital Lease Obligations to the extent such Capital Lease Obligations and payments are permitted by this Agreement, (iv) without duplication of amounts deducted pursuant to clause (xii) below in prior fiscal years, Capital Expenditures made by the Borrower or any of its Restricted Subsidiaries during such period to the extent permitted by this Agreement, (v) the excess, if any, of the Working Capital of the Borrower and its Restricted Subsidiaries at the end of such period over the Working Capital of the Borrower and its Restricted Subsidiaries at the beginning of such period, (vi) an amount equal to the amount of all non-cash credits of the Borrower and the Restricted Subsidiaries included in arriving at such Net Income, (vii) an amount equal to the aggregate net non-cash gain on asset dispositions by the Borrower and the Restricted Subsidiaries during such period (other than asset dispositions in the ordinary course of business) to the extent included in arriving at such Net Income, (viii) cash payments by the Borrower and the Restricted Subsidiaries during such period in respect of long-term liabilities of the Borrower and the Restricted Subsidiaries other than Indebtedness, provided that such payments have been previously accrued and deducted from EBITDA (pursuant to clause (b)(i) of the definition thereof) for the purposes of calculating the Adjusted Leverage Ratio, (ix) without duplication of amounts deducted pursuant to clause (xii) below in prior fiscal years, the amount of investments and acquisitions made by the Borrower and the Restricted Subsidiaries during such period to the extent permitted by this Agreement and to the extent that such investments and acquisitions were not financed by the incurrence of Indebtedness, (x) the amount of Restricted Payments paid by the Borrower during such period to the extent permitted by this Agreement, (xi) the aggregate amount of expenditures actually made by the Borrower and the Restricted Subsidiaries in cash during such period to the extent that such expenditures are not expensed during such period, (xii) without duplication of amounts deducted from Excess Cash Flow in prior periods, the aggregate consideration required to be paid in cash by the Borrower or any of the Restricted Subsidiaries pursuant to binding contracts (the “Contract Consideration”) entered into prior to or during such period relating to acquisitions or Capital Expenditures to be consummated or made during the period of two consecutive fiscal quarters of the Borrower following the end of such period, provided that to the extent the aggregate amount of cash actually utilized to finance such acquisitions or Capital Expenditures during such period of two consecutive fiscal quarters is less than the Contract Consideration, the amount of such shortfall shall be added to the calculation of Excess Cash Flow at the end of such period of two consecutive fiscal quarters, and (xiii) the amount of cash taxes paid by the Borrower and the Restricted Subsidiaries during such

9

period to the extent they exceed the amount of tax expense of the Borrower and the Restricted Subsidiaries deducted in determining Net Income for such period.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Excluded Taxes” means, with respect to the Term Administrative Agent, any Term Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Term Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.19(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender’s failure to comply with Section 2.17(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.17(a).

“Existing Credit Agreement” has the meaning assigned to such term in the ABL Credit Agreement.

“Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Term Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“Financial Officer” means the president, chief executive officer, chief financial officer, principal accounting officer, treasurer or controller of the Borrower or Holdings, as applicable.

“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“Funding Account” has the meaning assigned to such term in clause (h) of Article IV.

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or

10

indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee of any guarantor shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made and (b) the maximum amount for which such guarantor may be liable pursuant to the terms of the instrument embodying such Guarantee, unless such primary obligation and the maximum amount for which such guarantor may be liable are not stated or determinable, in which case the amount of such Guarantee shall be such guarantor’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.

“Guaranteed Obligations” has the meaning assigned to such term in Section 10.01.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Holdings” has the meaning assigned to such term in the preamble.

“Home Services Agreement” means the Home Services Agreement, dated as of November 23, 2005, between the Borrower and Sears.

“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business and any earn-out obligation until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP but including any liquidated earn-out), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (i) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Information Memorandum” means the Confidential Information Memorandum dated December 2006 and relating to the Borrower and the Transactions.

11

“Intercreditor Agreement” means the Intercreditor Agreement, substantially in the form of Exhibit E, among the Term Administrative Agent, the ABL Administrative Agent, the Collateral Agent, the Borrower and the Loan Parties.

“Interest Election Request” means a request by the Borrower to convert or continue a Term Loan in accordance with Section 2.08.

“Interest Expense” means, with reference to any period, total cash interest expense (including that attributable to Capital Lease Obligations) of the Borrower and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries (including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Swap Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP), calculated on a consolidated basis ‘for the Borrower and its Subsidiaries for such period in accordance with GAAP.

“Interest Payment Date” means (a) with respect to any ABR Loan, the last day of each of March, June, September and December and the Term Loan Maturity Date, and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to such Term Loan and, in the case of a Eurodollar Loan with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Term Loan Maturity Date.

“Interest Period” means with respect to any Eurodollar Loan, the period commencing on the date of such Term Loan and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, if available to all Term Lenders, seven days or nine or twelve months) thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Loan only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Loan that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Term Loan initially shall be the Closing Date and, thereafter shall be the effective date of the most recent conversion or continuation of such Term Loan.

“Inventory” has the meaning assigned to such term in the Term Loan Security Agreement.

“Issuing Bank” has the meaning assigned to such term in the ABL Credit Agreement.

“Joinder Agreement” has the meaning assigned to such term in Section 5.11.

“Lead Arrangers” means J.P. Morgan Securities, Inc. and Goldman Sachs Credit Partners L.P.

“Leasehold Mortgages” means the leasehold mortgages in favor of the Collateral Agent made by the Borrower or any other Loan Party, each in form and substance reasonably satisfactory to the Term Administrative Agent with respect to the real property listed on the Leasehold Property Schedule.

“Leasehold Mortgage Supporting Documents” means, with respect to a Leasehold Mortgage, each of the following:

12

(A) (i) evidence in form and substance reasonably satisfactory to the Term Administrative Agent that the recording of counterparts of such Leasehold Mortgage in the recording offices specified in such Leasehold Mortgage will create a valid and enforceable first priority lien on the rights described therein in favor of the Collateral Agent for the benefit of the Collateral Agent, the Term Administrative Agent and the Term Lenders (or in favor of such other trustee as may be required or desired under local law) subject only to (A) Liens permitted under Section 6.02 and (B) such other Liens as the Term Administrative Agent may reasonably approve and (ii) an opinion of counsel in each state in which any such Leasehold Mortgage is to be recorded in form and substance and from counsel reasonably satisfactory to the Term Administrative Agent; and

(B) such other agreements, documents and instruments (including, without limitation, (i) title searches (together with all documents referred to therein), (ii) maps, plats, as-built surveys, and environmental reports (in each case, to the extent existing) and (iii) evidence regarding recording and payment of all recording fees and stamp, documentation, intangible or mortgage taxes, if any), each in form and substance reasonably satisfactory to the Term Administrative Agent, as the Term Administrative Agent deems necessary or appropriate to create, register or otherwise perfect, maintain, evidence the existence, substance, form or validity of, or enforce a valid and enforceable first priority lien on such rights in favor of the Collateral Agent for the benefit of the Collateral Agent, the Term Administrative Agent and the Term Lenders (or in favor of such other trustee as may be required or desired under local law) subject only to (A) Liens permitted under Section 6.02 and (B) such other Liens as the Term Administrative Agent may reasonably approve.

“Leases” means, with respect to any Person, all of those leasehold estates in real property of such Person, as lessee, as such may be amended, supplemented or otherwise modified from time to time.

“LIBO Rate” means, with respect to any Eurodollar Loan for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Term Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the “LIBO Rate” with respect to such Eurodollar Loan for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Term Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset and (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset.

“Loan Documents” means this Agreement, any promissory notes issued pursuant to this Agreement, the Collateral Documents, the Loan Guaranty, the Intercreditor Agreement and all other agreements, instruments, documents and certificates identified in Article IV executed and delivered to, or

13

in favor of, the Term Administrative Agent or any Term Lenders and including, without limitation all other pledges, powers of attorney, consents, assignments, contracts, notices and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Loan Party, or any employee of any Loan Party, and delivered to the Term Administrative Agent or any Term Lender in connection with the Agreement or the transactions contemplated thereby. Any reference in this Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to this Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes operative.

“Loan Guarantor” means Holdings, each Restricted Subsidiary of the Borrower party to this Agreement and any other Person who becomes a party to this Agreement pursuant to a Joinder Agreement and their successors and assigns.

“Loan Guaranty” means Article X of this Agreement.

“Loan Parties” means Holdings, the Borrower and the Loan Guarantors and their successors and assigns, but in no event including the Unrestricted Subsidiary.

“Management Services Agreement” means the Management Services Agreement, dated as of November 23, 2005, between the Borrower and ACOF Operating Manager, LP.

“Master Operating Lease” means the lease agreement dated as of November 23, 2005 between Real Property Holding Company as landlord and the Borrower as tenant.

“Material Adverse Effect” means a material adverse effect on (a) the assets and liabilities (taken together), results of operations or condition (financial or otherwise) of (i) Holdings and its Subsidiaries taken as a whole or (ii) Holdings and the Restricted Subsidiaries taken as a whole, (b) the ability of any Loan Party to perform any of its obligations under the Loan Documents to which it is a party, or (c) the ability of the Term Administrative Agent and the Term Lenders to enforce any of the Loan Documents.

“Material Indebtedness” means Indebtedness (other than the Term Loans), and obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the “obligations” of the Borrower or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.

“Maximum Liability” has the meaning assigned to such term in Section 10.10.

“Moody’s” means Moody’s Investors Service, Inc.

“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“Net Income” means, for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries,

14

(b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary.

“Net Proceeds” means, (x) with respect to any Asset Sale or Property Loss Event (a) the cash proceeds received in respect of such event including (i) any cash received in respect of any non-cash proceeds (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but excluding any interest payments), but only as and when received, (ii) in the case of a casualty, insurance proceeds and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments, net of (b) the sum of (i) all reasonable attorneys’ fees, accountants’ fees, investment banking fees and other reasonable fees and out-of-pocket expenses paid to third parties (other than Affiliates) in connection with such event, (ii) in the case of a sale, transfer or other disposition of an asset (including pursuant to a sale and leaseback transaction or a casualty or a condemnation or similar proceeding), the amount of all payments required to be made as a result of such event to repay Indebtedness (other than the ABL Loans and the Term Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event and to pay any interest, premium or other amounts in connection therewith and (iii) the amount of all taxes paid (or reasonably estimated to be payable) as a result thereof and the amount of any reserves established to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding year and that are directly attributable to such event (as determined reasonably and in good faith by a Financial Officer) and (y) with respect to any Debt Issuance, the excess, if any, of (a) the sum of the cash received in connection with such Debt Issuance over (b) the investment banking fees, underwriting discounts, commissions, costs and other out-of-pocket expenses and other customary expenses, incurred by the Borrower or such Restricted Subsidiary in connection with such incurrence or issuance.

“Non-Consenting Lender” has the meaning assigned to such term in Section 9.02(d).

“Non-Paying Guarantor” has the meaning assigned to such term in Section 10.11.

“Obligated Party” has the meaning assigned to such term in Section 10.02.

“Obligations” means all unpaid principal of and accrued and unpaid interest on the Term Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Loan Parties to the Term Lenders or to any Term Lender, the Term Administrative Agent or any indemnified party arising under the Loan Documents.

“Other Taxes” means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of this Agreement.

“Participant” has the meaning set forth in Section 9.04.

“Paving Guarantor” has the meaning assigned to such term in Section 10.11.

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

15

“Permitted Encumbrances” means:

(a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04;

(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04;

(c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations or to secure public or statutory obligations;

(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII;

(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Restricted Subsidiary;

(g) pledges and deposits in the ordinary course of business securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to the Borrower or any of its Restricted Subsidiaries;

(h) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;

(i) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale of goods entered into by the Borrower or any of its Restricted Subsidiaries in the ordinary course of business permitted by this Agreement;

(j) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Borrower or any of its Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of Borrower and its Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Borrower or any of its Restricted Subsidiaries in the ordinary course of business;

(k) Liens solely on any cash earnest money deposits made by the Borrower or any of its Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder; and

(l) Liens in favor of Credit Card Issuers arising in the ordinary course of business securing the obligation to pay customary fees and expenses in connection with credit card arrangements,

16

provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.

“Permitted Holders” means (a) Sears Holding Corporation, (b) ACOF I LLC and (c) ESL Investments, Inc. and their respective Related Parties and Affiliates.

“Permitted Investments” means:

(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each ease maturing within one year from the date of acquisition thereof;

(b) investments in commercial paper maturing within 12 months from the date of acquisition thereof and having, at such date of acquisition, a rating of at least A-2 (or the then equivalent grade) from S&P or P-2 (or the then equivalent grade) from Moody’s;

(c) investments in certificates of deposit, banker’s acceptances and time deposits maturing within 12 months from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $250,000,000;

(d) repurchase agreements with a term of not more than 30 days for securities issued or fully guaranteed by the United States government entered into with a financial institution satisfying the criteria described in clause (c) above; and

(e) securities issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s;

(f) securities backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (c) of this definition;

(g) money market mutual or similar funds that invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition; and

(h) money market funds that (i) comply with the criteria set forth in Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

17

“Pledged Collateral” has the meaning assigned to such term in the Term Loan Security Agreement.

“Primary Collateral Access Agreement” means the Collateral Access Agreements entered into by Real Property Holding Company and the Collateral Agent under the Real Estate Credit Agreement.

“Prime Rate” means the rate of interest per annum publicly announced from time to time by Chase as its prime rate at its offices at 270 Park Avenue in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.

“Projections” has the meaning assigned to such term in Section 5.01(g).

“Property Loss Event” means any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of any Loan Party which constitutes Collateral.

“Public Equity Offering” means any underwritten public offering of common stock of Holdings.

“Real Estate Credit Agreement” means the credit agreement dated as of November 23, 2005, as amended from time to time, between the Real Property Holding Company as borrower and Citigroup Global Markets Realty Corp. as administrative agent and lender.

“Real Estate Debt” means secured Indebtedness in a principal amount of $120,000,000 of OSH Properties LLC, pursuant to the Real Estate Credit Agreement.

“Real Property” means all now owned and hereafter acquired real property of the Borrower and the Restricted Subsidiaries, including leasehold interests, together with all buildings, structures, and other improvements located thereon and all licenses, easements and appurtenances relating thereto, wherever located.

“Real Property Holding Company” means OSH Properties LLC, which is a Special Purpose Vehicle.

“Register” has the meaning set forth in Section 9.04.

“Related Documents” means the Master Operating Lease, the Brand Sales Agreement, the Transition Services Agreement, the Tax Sharing Agreement, the Appliance Sales Agreement, the Authorized Seller Agreement, the Home Services Agreement, the Management Services Agreement, the Real Estate Credit Agreement, the Stockholders’ Agreement and each other material document executed or issued in connection therewith.

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

“Report” means reports prepared by the ABL Administrative Agent or another Person under the ABL Credit Agreement showing the results of appraisals, field examinations or audits pertaining to the Borrower’s assets from information furnished by or on behalf of the Borrower, after the

18

ABL Administrative Agent has exercised its rights of inspection pursuant to the ABL Credit Agreement, which Reports may be distributed to the Term Lenders by the Term Administrative Agent.

“Required Term Lenders” means, at any time, Term Lenders holding more than 50% of the sum of the unpaid principal amount of the Term Loans then outstanding; provided, that if Ares Capital Markets Group shall at any time hold more than 15% of the unpaid principal amount of the Term Loans then outstanding, “Required Term Lenders” shall mean Term Lenders holding more than 50% of (i) the sum of the unpaid principal amount of the Term Loans then outstanding minus (ii) any amount of such outstanding Term Loans held by Ares Capital Markets Group (the “Disqualified Ares Loans”) in excess of 15% of the total unpaid principal amount of such outstanding Term Loans; provided, further, that with respect to any amendment, waiver or modification of this Agreement or any Loan Document requiring the consent of the Required Term Lenders or of all affected Term Lenders, Ares Capital Markets Group shall not be entitled to vote with respect to any such Disqualified Ares Loans.

“Requirement of Law” as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower or any Restricted Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any Restricted Subsidiary or any option, warrant or other right to acquire any such Equity Interests in the Borrower or any Restricted Subsidiary.

“Restricted Subsidiary” means any Subsidiary of the Borrower other than the Unrestricted Subsidiary.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc.

“Sears” means Sears, Roebuck and Co.

“Sears Note” means the senior unsecured note dated as of November 23, 2005 in the aggregate outstanding principal amount of $205,000,000 issued by the Borrower in favor of Sears.

“Security Agreements” means collectively the Term Loan Security Agreement and the ABL Security Agreement.

“Special Purpose Vehicle” means a trust, partnership or other special purpose Person established by Holdings or the Borrower in a manner that is intended to legally isolate the assets of such Person from Holdings and its other Subsidiaries as a consolidated group.

“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate, without duplication, of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Term Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency

19

funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“Stockholders’ Agreement” means the Stockholders’ Agreement among Holdings, ACOF I LLC and Sears dated as of November 23, 2005.

“Subordinated Indebtedness” of a Person means any Indebtedness of such Person the payment of which is subordinated to payment of the Obligations to the written satisfaction of the Term Administrative Agent.

“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

“Subsidiary” means any subsidiary of the Borrower or a Loan Party, as applicable.

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

“Syndication Agents” means Goldman Sachs Credit Partners L.P., Citicorp North America, inc. and Lehman Commercial Paper Inc.

“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

“Tax Sharing Agreement” means the Tax Sharing Agreement, dated as of November 23, 2005, between Holdings and Sears Holdings Corporation.

“Term Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Term Lenders hereunder, or any successor.

“Term Commitment” means, with respect to each Term Lender, the commitment of such Term Lender to make Term Loans, as such commitment may be reduced or increased from time to time pursuant to assignments by or to such Term Lender pursuant to Section 9.04. The initial amount of each Term Lender’s Term Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Term Lender shall have assumed its Term Commitment, as applicable. The initial aggregate amount of the Term Lenders’ Term Commitments is $200,000,000.

20

“Term Facility” means the Term Loans under this Agreement.

“Term Facility Primary Collateral” has the meaning assigned to such term in the Intercreditor Agreement.

“Term Lenders” means the Persons listed on the Commitment Schedule and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.

“Term Loan” means a term loan made pursuant to Section 2.02(a).

“Term Loan Maturity Date” means December 21, 2013 or any earlier date on which the Term Loans are prepaid in full pursuant to the terms hereof.

“Term Loan Security Agreement”, means that certain Pledge and Security Agreement, dated as of the date hereof, between the Loan Parties and the Collateral Agent, for the benefit of the Term Administrative Agent and the Term Lenders, and any other pledge or security agreement (other than any Leasehold Mortgage or any Leasehold Mortgage Supporting Document) entered into, after the date of this Agreement by any other Loan Party (as required by this Agreement or any other Loan Document), or any other Person, granting a Lien on any property to secure the obligations and liabilities of any Loan Party under any Loan Document, as the same may be amended, restated or otherwise modified from time to time.

“Transactions” means the execution, delivery and performance by the Borrower of this Agreement and the ABL Credit Agreement, the borrowing of Term Loans and ABL Loans and other credit extensions, the use of the proceeds thereof and the repayment of the Sears Note.

“Transition Services Agreement” means the Services Agreement, dated as of November 23, 2005, between the Borrower and Sears.

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York or any other state the laws of which are required to be applied in connection with the issue of perfection of security interests.

“Unliquidated Obligations” means, at any time, any Obligations (or portion thereof) that are contingent in nature or unliquidated at such time, including any Obligation that is: (i) an obligation to reimburse a bank for drawings not yet made under a letter of credit issued by it; (ii) any other obligation (including any guarantee) that is contingent in nature at such time; or (iii) an obligation to provide collateral to secure any of the foregoing types of obligations.

“Unrestricted Cash” means (i) cash of the Borrower and its Subsidiaries that is classified, in accordance with GAAP, as “unrestricted” on the consolidated balance sheets of the Borrower and (ii) cash held in stores by the Borrower and its Subsidiaries.

“Unrestricted Subsidiary” means the Real Property Holding Company and its subsidiaries, if any.

“Voting Stock” of any Person as of any date means the Equity Interests of such Person that are at the time entitled to vote in the election of the Board of Directors (or equivalent body) of such Person.

21

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

“Working Capital” means, for any Person at any date, the amount, if any, by which the Consolidated Current Assets of such Person at such date exceeds the Consolidated Current Liabilities of such Person at such date.

SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.03. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Term Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Term Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then the Borrower, the Term Administrative Agent and the Lenders shall negotiate in good faith to amend such provision to preserve the original intent in light of such change in GAAP, and such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

ARTICLE II

The Amount and Terms of Term Commitment

SECTION 2.01. Term Commitments. Subject to the terms and conditions set forth herein, each Term Lender agrees to make term loans (individually, a “Term Loan”; collectively, the “Term Loans”) to the Borrower under its Term Commitment, which Term Loans shall be made in a single drawing on the Closing Date; provided, however, that the aggregate principal amount of the Term Loans made by each Term Lender shall not exceed such Term Lender’s Term Commitment. Amounts borrowed under this Section 2.01 and repaid or prepaid may not be reborrowed.

Subject to Section 2.14, the Term Loans may from time to time be ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith; provided that all Term Loans made on the Closing Date must be made as ABR Loans but may be converted into Eurodollar Loans in

22

accordance with Section 2.08. Each Term Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Term Lender to make such Term Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Term Loan in accordance with the terms of this Agreement.

SECTION 2.02. [Reserved.]

SECTION 2.03. Procedure for Borrowing. To request a borrowing under the Term Commitments on the Closing Date, the Borrower shall notify the Term Administrative Agent of such request either in writing (delivered by hand or facsimile) in a form reasonably approved by the Term Administrative Agent and signed by the Borrower or by telephone one Business Day before the date of the proposed Closing Date. The borrowing request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Term Administrative Agent in a form reasonably approved by the Term Administrative Agent and signed by the Borrower (the “Borrowing Request”). Each such telephonic and written Borrowing Request shall specify the aggregate amount of the requested Term Loan and the Closing Date, which shall be a Business Day.

Promptly following receipt of the Borrowing Request in accordance with this Section, the Term Administrative Agent shall advise each Term Lender of the details thereof and of the amount of such Term Lender’s Term Loan to be made as part of the requested borrowing.

SECTION 2.04. [Reserved]

SECTION 2.05. [Reserved]

SECTION 2.06. [Reserved]

SECTION 2.07. Funding of Term Loans. (a) Each Term Lender shall make each Term Loan to be made by it hereunder on the Closing Date by wire transfer of immediately available funds by 3:00 p.m., New York time, to the account of the Term Administrative Agent designated by it for such purpose by notice to the Term Lenders in an amount equal to such Term Lender’s Term Commitment. The Term Administrative Agent will make the proceeds of such Term Loans received by the Term Administrative Agent hereunder available to the Borrower by promptly crediting the amounts so received, in like funds, to the Funding Account.

(b) The failure of any Term Lender to make the Term Loan to be made by it on the Closing Date shall not relieve any other Term Lender of its obligation hereunder to make its Term Loan on the Closing Date, but no Term Lender shall be responsible for the failure of any other Term Lender to make the Term Loan to be made by such other Term Lender on the Closing Date.

SECTION 2.08. Interest Elections. (a) The Borrower may elect from time to time to convert outstanding Term Loans (i) from Eurodollar Loans to ABR Loans or (ii) from ABR Loans to Eurodollar Loans by giving the Term Administrative Agent notice of such election in accordance with clause (b) below. Any Term Loans which are Eurodollar Loans may be continued as such upon the expiration of an Interest Period with respect thereto by giving the Term Administrative Agent notice not later than 1:00 p.m. New York time, three Business Days’ prior to the continuation date. Upon receipt of such notice, the Term Administrative Agent shall promptly notify each affected Term Lender thereof. On the date on which such conversion or continuation is being made, each such affected Term Lender shall take such action as is necessary to effect such conversion or continuation. All or any part of the outstanding Term Loans may be converted or continued as provided herein.

23

(b) To make an election pursuant to this Section, the Borrower shall notify the Term Administrative Agent of such election by telephone, (i) in the case of conversion from ABR Loans to Eurodollar Loans or a continuation of Eurodollar Loans not later than 1:00 p.m. New York time, three Business Days prior to the conversion date and (ii) in the case of conversion from Eurodollar Loans to ABR Loans not later than 12:00 p.m. New York time, on the conversion date. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Term Administrative Agent of a written Interest Election Request in a form approved by the Term Administrative Agent and signed by the Borrower.

(c) Each telephonic and written Interest Election Request shall specify the following information:

(i) the Term Loans to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each Term Loan (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each Term Loan);

(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii) whether the Term Loan is to be converted to an ABR Loan or a Eurodollar Loan or continued as a Eurodollar Loan; and

(iv) if the Term Loans are to be converted into or continued as a Eurodollar Loan, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a Eurodollar Loan but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

(d) Promptly following receipt of an Interest Election Request, the Term Administrative Agent shall advise each Term Lender of the details thereof and of such Term Lender’s portion of each resulting conversion or continuation.

(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Loan prior to the end of the Interest Period applicable thereto, then, unless such Term Loan is repaid as provided herein, at the end of such Interest Period such Term Loan shall be converted to an ABR Loan. Notwithstanding any contrary provision hereof, if a Default has occurred and is continuing and the Term Administrative Agent, at the request of the Required Term Lenders, so notifies the Borrower, then, so long as a Default is continuing (i) no outstanding Term Loan may be converted to or continued as a Eurodollar Loan and (ii) unless repaid, each Eurodollar Loan shall be converted to an ABR Loan at the end of the Interest Period applicable thereto.

SECTION 2.09. [Reserved]

SECTION 2.10. Repayment of Term Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Term Administrative Agent for the account of each Term Lender (i) on the last Business Day of each April, July, October and January, commencing with the first such date to occur after the Closing Date, an aggregate amount equal to 0.25% of the aggregate amount of all Term Loans outstanding as of the Closing Date (which payments shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.11) and (ii) on

24

the Term Loan Maturity Date, the aggregate principal amount of all Term Loans outstanding on such date.

(b) Each Term Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Term Lender resulting from the Term Loan made by such Term Lender, including the amounts of principal and interest payable and paid to such Term Lender from time to time hereunder.

(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Term Loan made hereunder, whether such Term Loans are ABR Loans or Eurodollar Loans and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Term Lender hereunder and (iii) the amount of any sum received by the Term Administrative Agent hereunder for the account of the Term Lenders and each Term Lender’s share thereof.

(d) The entries made in the accounts maintained pursuant to clause (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Term Lender or the Term Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Term Loans in accordance with the terms of this Agreement.

(e) Any Term Lender may request that Term Loan made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Term Lender a promissory note payable to the order of such Term Lender (or, if requested by such Term Lender, to such Term Lender and its registered assigns) and in a form approved by the Term Administrative Agent. Thereafter, the Term Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

SECTION 2.11. Prepayment of Term Loans. (a) The Borrower shall have the right at any time and from time to time, subject to Section 2.16, to prepay any Term Loans borrowed by it which are then outstanding, in whole or in part, without premium or penalty, upon notice by telephone (confirmed by facsimile) to the Term Administrative Agent (i) in the case of prepayment of a Eurodollar Loan, not later than 1:00 p.m., New York time, three Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR Loan, not later than 1:00 p.m., New York time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify (i) the prepayment date, (ii) the principal amount of the Term Loans to be prepaid and (iii) whether the prepayment is of Eurodollar Loans or ABR Loans or a combination thereof, and, if of a combination thereof, the amount of prepayment allocable to each; provided, that in the case of a final prepayment in anticipation of a refinancing of the Borrower’s Indebtedness under this Agreement, any such notice may state that is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Term Administrative Agent on or prior to the specified date) if such condition is not satisfied. Promptly following receipt of any such notice, the Term Administrative Agent shall advise the Term Lenders of the contents thereof. If any such notice is given, the Borrower will make the prepayment specified therein, and such prepayment shall be due and payable on the date specified therein. Each partial prepayment pursuant to this Section 2.11(a) shall be in an amount equal to $1,000,000 or a whole multiple of $250,000 in excess thereof (or, if less, the entire amount reasonably outstanding). Any such optional prepayments of the Term Loans shall be applied to the remaining installments as determined by the Borrower. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13.

25

(b) In the event and on each occasion that any Net Proceeds are received by or on behalf of Holdings or any Loan Party from an Asset Sale, Property Loss Event or Debt Issuance, the Borrower shall, promptly after such Net Proceeds are received by Holdings or any Loan Party, prepay the Obligations as set forth in Section 2.11(d) below in an aggregate amount equal to 100% of such Net Proceeds; provided that, in the case of an Asset Sale or Property Loss Event, if the Borrower shall deliver to the Term Administrative Agent a certificate of a Financial Officer to the effect that the Loan Parties intend to apply the Net Proceeds from such event (or a portion thereof specified in such certificate), within 180 days after receipt of such Net Proceeds, to acquire (or replace) equipment or other tangible assets (excluding inventory) to be used in the business of the Loan Parties, and certifying that no Default has occurred and is continuing, then no prepayment shall be required pursuant to this clause in respect of the Net Proceeds specified in such certificate; provided, further, that to the extent that any such Net Proceeds therefrom have not been so reinvested by the end of such 180-day period, a prepayment shall be required at such time in an amount equal to such Net Proceeds that have not been so reinvested; and provided, further, that the total aggregate amount of Net Proceeds to be so reinvested by the Loan Parties pursuant to this Section 2.11(b) during the term of this Agreement shall not exceed $37,500,000.

(c) The Borrower shall prepay the Term Loans within 5 days after the date on which the Borrower is required to deliver its financial statements pursuant to Section 5.01(a) hereof, in an amount equal to (i) the ECF Percentage of Excess Cash Flow for the fiscal year covered by such financial statements minus (ii) the sum of all (x) voluntary prepayments of Term Loans during such fiscal year and (y) all voluntary prepayments of ABL Loans during such fiscal year to the extent the ABL Credit Commitments are permanently reduced by the amount of such prepayments. Any mandatory prepayment shall be applied as set forth in Section 2.11 (d) below.

(d) All Net Proceeds to be applied to the Obligations pursuant to Sections 2.11(b) and (c) shall be applied in the direct order of the installments thereof during the first twelve months after the payment date and ratably thereafter in accordance with the then outstanding amounts thereof and may not be reborrowed; provided that Net Proceeds of Asset Sales or Property Loss Events of Term Facility Primary Collateral and ABL Facility Primary Collateral shall be applied, as between the ABL Lenders and the Term Lenders, in the manner set forth in the Intercreditor Agreement.

SECTION 2.12. Fees.

(a) The Borrower agrees to pay to the Term Administrative Agent fees payable in the amounts and at the times separately agreed upon in writing between the Borrower and the Term Administrative Agent.

(b) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Term Administrative Agent. Fees paid shall not be refundable under any circumstances except where paid in error.

SECTION 2.13. Interest. (a) The ABR Loans shall bear interest at the Alternate Base Rate plus the Applicable Rate.

(b) The Eurodollar Loans shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Eurodollar Loan plus the Applicable Rate.

(c) Notwithstanding the foregoing, during the occurrence and continuance of an Event of Default pursuant to clauses (a), (b), (d) (with respect to Section 5.10), (g), (h) or (i) of Article VII, the Term Administrative Agent or the Required Term Lenders may, at their option, declare that all Term Loans shall bear interest at 2% plus the rate otherwise applicable to such Term Loans as provided in

26

the preceding clauses of this Section, provided that such declaration may be revoked at the option of the Required Term Lenders notwithstanding any provision of Section 9.02 requiring the consent of “each Term Lender affected thereby” for reductions in interest rates.

(d) Accrued interest on each Term Loan shall be payable in arrears on each Interest Payment Date for such Term Loan; provided that (i) interest accrued pursuant to clause (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Term Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Term Loan shall be payable on the effective date of such conversion.

(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Term Administrative Agent, and such determination shall be conclusive absent manifest error.

SECTION 2.14. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Loan:

(a) the Term Administrative Agent determines (which determination shall be conclusive absent manifest error) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or

(b) the Term Administrative Agent is advised by the Required Term Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Term Lenders (or Term Lender) of making or maintaining their Term Loans (or its Term Loan) for such Interest Period;

then the Term Administrative Agent shall give notice thereof to the Borrower and the Term Lenders by telephone or facsimile as promptly as practicable thereafter and, until the Term Administrative Agent notifies the Borrower and the Term Lenders that the circumstances giving rise to such notice no longer exist, any Interest Election Request that requests the conversion of any Term Loan to, or continuation of any Term Loan as, a Eurodollar Loan shall be ineffective.

SECTION 2.15. Increased Costs. (a) If any Change in Law made after the date hereof shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Term Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or

(ii) impose on any Term Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Term Lender;

and the result of any of the foregoing shall be, by an amount that such Term Lender deems to be material, to increase the cost to such Term Lender of making or maintaining any Eurodollar Loan (or of

27

maintaining its obligation to make any such Term Loan) or to reduce the amount of any sum received or receivable by such Term Lender hereunder (whether of principal, interest or otherwise) (in each case, other than with respect to any Taxes), then the Borrower will pay to such Term Lender, such additional amount or amounts as will compensate such Term Lender for such additional costs incurred or reduction suffered.

(b) If any Term Lender determines that any Change in Law made after the date hereof regarding capital requirements has or would have the effect of reducing the rate of return on such Term Lender’s capital or on the capital of such Term Lender’s holding company, if any, as a consequence of this Agreement or the Term Loans made by such Term Lender to a level below that which such Term Lender or such Term Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Term Lender’s policies and the policies of such Term Lender’s holding company with respect to capital adequacy), by an amount that such Term Lender deems to be material, then from time to time the Borrower will pay to such Term Lender such additional amount or amounts as will compensate such Term Lender or such Term Lender’s holding company for any such reduction suffered.

(c) A certificate of a Term Lender setting forth the amount or amounts necessary to compensate such Term Lender or its holding company, as the case may be, as specified in clause (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Term Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

(d) Failure or delay on the part of any Term Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Term Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Term Lender pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Term Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Term Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.

SECTION 2.16. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(a) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate each Term Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Term Lender shall be deemed to include an amount determined by such Term Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Term Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Term Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Term Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Term Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Term Lender setting forth any amount or amounts that such Term Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower

28

shall pay such Term Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

SECTION 2.17. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Term Administrative Agent, Term Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) The Borrower shall indemnify the Term Administrative Agent and each Term Lender within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Term Administrative Agent or such Term Lender on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Term Lender or by the Term Administrative Agent on its own behalf or on behalf of a Term Lender shall be conclusive absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Term Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Term Administrative Agent.

(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Term Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate.

(f) If any Term Lender or the Term Administrative Agent shall become aware that it is entitled to receive a refund in respect of amounts paid by the Borrower pursuant to this Section 2.17, which refund in the sole good faith judgment of such Term Lender or Term Administrative Agent is allocable to such payment, it shall promptly notify the Borrower of the availability of such refund and shall, within thirty (30) days after the receipt of a request by the Borrower, apply for such refund. If the Term Administrative Agent or a Term Lender determines, in its sole good faith discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.17, it shall pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.17 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Term Administrative Agent or such Term

29

Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that the Borrower, upon the request of the Term Administrative Agent or such Term Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Term Administrative Agent or such Term Lender in the event the Term Administrative Agent or such Term Lender is required to repay such refund to such Governmental Authority. This Section shall not be construed to require the Term Administrative Agent or any Term Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.

SECTION 2.18. Payments Generally; Allocation of Proceeds; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 1:00 p.m., New York time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Term Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Term Administrative Agent at its offices at 270 Park Avenue, New York, New York, except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Term Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars.

(b) Any proceeds of Collateral received by the Term Administrative Agent pursuant to the Collateral Documents (i) not constituting either (A) a specific payment of principal, interest, fees or other sum payable under the Loan Documents (which shall be applied as specified by the Borrower) or (B) a mandatory prepayment (which shall be applied in accordance with Section 2.11) or (ii) after an Event of Default has occurred and is continuing and the Term Administrative Agent so elects or the Required Term Lenders so direct, shall be applied ratably first, to pay any fees, indemnities, or expense reimbursements including amounts then due to the Term Administrative Agent from the Borrower, second, to pay any fees or expense reimbursements then due to the Term Lenders from the Borrower, third, to pay interest then due and payable on the Term Loans ratably, fourth, to prepay principal on the Term Loans ratably, and fifth, to the payment of any other Obligation due to the Term Administrative Agent or any Term Lender by the Borrower. Notwithstanding anything to the contrary contained in this Agreement, unless so directed by the Borrower, or unless a Default is in existence, neither the Term Administrative Agent nor any Term Lender shall apply any payment which it receives to any Eurodollar Loan, except (a) on the expiration date of the Interest Period applicable to any such Eurodollar Loan or (b) in the event, and only to the extent, that there are no outstanding ABR Loans and, in any event, the Borrower shall pay the break funding payment required in accordance with Section 2.16. The Term Administrative Agent and the Term Lenders shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Obligations. Notwithstanding the foregoing, the proceeds of Term Facility Primary Collateral and ABL Facility Primary Collateral shall be applied as between the ABL Lenders and the Term Lenders, in the manner set forth in the Intercreditor Agreement.

(c) If any Term Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Term Loans resulting in such Term Lender receiving payment of a greater proportion of the aggregate amount of its Term Loans and accrued interest thereon than the proportion received by any other Term Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Term Loans

30

of other Term Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Term Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Term Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this clause shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Term Lender as consideration for the assignment of or sale of a participation in any of its Term Loans to any assignee or participant, other than to the Borrower or any Restricted Subsidiary or Affiliate thereof (as to which the provisions of this clause shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Term Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Term Lender were a direct creditor of the Borrower in the amount of such participation.

(d) Unless the Term Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Term Administrative Agent for the account of the Term Lenders hereunder that the Borrower will not make such payment, the Term Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Term Lenders on such due date the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Term Lenders severally agrees to repay to the Term Administrative Agent forthwith on demand the amount so distributed to such Term Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Term Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Term Administrative Agent in accordance with banking industry rules on interbank compensation.

(e) If any Term Lender shall fail to make any payment required to be made by it hereunder, then the Term Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Term Administrative Agent for the account of such Term Lender to satisfy such Term Lender’s obligations hereunder until all such unsatisfied obligations are fully paid.

SECTION 2.19. Mitigation Obligations; Replacement of Term Lenders. If any Term Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Term Lender or any Governmental Authority for the account of any Term Lender pursuant to Section 2.17, then:

(a) such Term Lender shall use reasonable efforts to designate a different lending office for funding or booking its Term Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Term Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Term Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Term Lender (and the Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Term Lender in connection with any such designation or assignment);

(b) the Borrower may, at its sole expense and effort, require such Term Lender or any Term Lender that defaults in its obligation to fund Term Loans hereunder (herein, a “Departing Lender”), upon notice to the Departing Lender and the Term Administrative Agent, to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04),

31

all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Term Lender, if a Term Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Term Administrative Agent, which consent shall not unreasonably be withheld, (ii) the Departing Lender shall have received payment of an amount equal to the outstanding principal of its Term Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. A Departing Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Term Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

SECTION 2.20. Returned Payments. If after receipt of any payment which is applied to the payment of all or any part of the Obligations, the Term Administrative Agent or any Term Lender is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason, then the Obligations or part thereof intended to be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment or proceeds had not been received by the Term Administrative Agent or such Term Lender. The provisions of this Section 2.20 shall be and remain effective notwithstanding any contrary action which may have been taken by the Term Administrative Agent or any Term Lender in reliance upon such payment or application of proceeds. The provisions of this Section 2.20 shall survive the termination of this Agreement.

ARTICLE III

Representations and Warranties

Each Loan Party jointly and severally represents and warrants to the Term Administrative Agent and the Term Lenders that:

SECTION 3.01. Organization; Powers. Each of the Loan Parties and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required (except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect).

SECTION 3.02. Authorization; Enforceability. Execution, delivery and performance of this Agreement and the other Loan Documents and the Related Documents are within each Loan Party’s corporate or limited liability company powers and have been duly authorized by all necessary corporate or limited liability company and, if required, stockholder action. The Loan Documents to which each Loan Party is a party have been duly executed and delivered by such Loan Party and constitute a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

SECTION 3.03. Governmental Approvals; No Conflicts. Execution, delivery and performance of this Agreement, the other Loan Documents and the Related Documents and the

32

consummation of the Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other Person, except such as have been obtained or made and are in full force and effect and except for filings necessary to perfect Liens created pursuant to the Loan Documents, (b) will not violate any Requirement of Law applicable to any Loan Party or any of its Subsidiaries, (c) do not conflict with or will not violate or result in a default under any material indenture, material agreement or other material instrument binding upon any Loan Party or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by any Loan Party or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of any Loan Party or any of its Subsidiaries, except Liens created pursuant to the Loan Documents. On the Closing Date, any appeal and waiting periods shall have expired without any judicial or regulatory action that would reasonably be expected to restrict or impose burdensome conditions on the Transactions.

SECTION 3.04. Financial Condition; No Material Adverse Change. (a) Holdings has heretofore furnished to the Term Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended January 28, 2006, reported on by Deloitte & Touche, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended October 28, 2006, certified by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of Holdings and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above.

(b) No event, change or condition has occurred that has had, or could reasonably be expected to have, a Material Adverse Effect, since January 28, 2006.

SECTION 3.05. Properties. (a) As of the date of this Agreement, Schedule 3.05 sets forth the address of each parcel of real property that is owned or leased by each Loan Party. Each of the Loan Parties and its Subsidiaries has good and indefeasible title to, or valid and enforceable leasehold interests in, all real and personal property necessary for the conduct of its business, free of all Liens other than those permitted by Section 6.02 of this Agreement.

(b) Each Loan Party and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property necessary to its business as currently conducted, a correct and complete list of which, as of the date of this Agreement, is set forth on Schedule 3.05, and the use thereof by the Loan Parties and its Subsidiaries does not infringe in any material respect upon the rights of any other Person, and the Loan Parties’ rights thereto are not subject to any licensing agreement or similar arrangement affecting any material portion of the Collateral.

SECTION 3.06. Litigation and Environmental Matters. (a) There are no actions, investigations, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Loan Party, threatened against or affecting the Loan Parties or any of their Subsidiaries (i) that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that could reasonably be expected to have a material adverse effect on the ability of the parties to consummate the Transaction or the funding of the Term Loans.

(b) Except for the Disclosed Matters and, except for matters that both could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect and could not reasonably be expected to have a material adverse effect on the ability of the parties to consummate the Transaction or the funding of the Term Loans, (i) no Loan Party nor any of its Subsidiaries has

33

received notice of any claim with respect to any Environmental Liability or knows of any basis for any Environmental Liability and (ii) no Loan Party nor any of its Subsidiaries (1) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law or (2) has become subject to any Environmental Liability.

SECTION 3.07. Compliance with Laws and Agreements. Each Loan Party and its Subsidiaries is in compliance with all Requirements of Law applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing under this Agreement. No default has occurred and is continuing under any indenture, agreement or other instrument binding upon any Loan Party or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect.

SECTION 3.08. Investment and Holding Company Status. No Loan Party nor any of its Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

SECTION 3.09. Taxes. Each Loan Party and its Subsidiaries has timely filed or caused to be filed all material Tax returns and reports required to have been filed and has paid or caused to be paid all material Taxes required to have been paid by it, except Taxes that are being contested in good faith by appropriate proceedings and for which such Loan Party or such Subsidiary, as applicable, has set aside on its books adequate reserves. No tax liens have been filed and no claims are being asserted with respect to any such taxes.

SECTION 3.10. ERISA. (a) No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect.

(b) Each employee benefit plan of Holdings, the Borrower or any of the Borrower’s Subsidiaries intended to qualify under Section 401 of the Code does so qualify, and any trust created thereunder is exempt from tax under the provisions of Section 501 of the Code, except where such failures, in the aggregate, would not have a Material Adverse Effect.

(c) Each Plan is in compliance in all material respects with applicable provisions of ERISA, the Code and other Requirements of Law except for non-compliances that, in the aggregate, would not have a Material Adverse Effect.

SECTION 3.11. Disclosure. The Borrower and Holdings have disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any Subsidiary is subject, and all other matters known to it, in relation to the Transactions that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither the Information Memorandum nor any of the other written reports, financial statements, certificates or other written information furnished by or on behalf of the any Loan Party to the Term Administrative Agent or any Term Lender in connection with the negotiation of this Agreement or any other Loan Document (as modified or supplemented by other written information so furnished) contained as of the date such report, statement, certificate or information was so furnished (or, in the case of the Information Memorandum, as of the Closing Date) any material misstatement of fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading; provided that, with respect to projected financial information, the Borrower and Holdings represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time delivered and, if such projected financial information was delivered prior to the

34

Closing Date, as of the Closing Date, it being recognized by the Term Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount.

SECTION 3.12. Solvency. Immediately after the consummation of the Transactions to occur on the Closing Date, (i) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) each Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted after the Closing Date.

SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of all insurance maintained by or on behalf of the Loan Parties and the Subsidiaries as of the Closing Date. As of the Closing Date, all premiums in respect of such material insurance have been paid. The Borrower and Holdings believe that the insurance maintained by or on behalf of the Borrower and the Subsidiaries is adequate.

SECTION 3.14. Capitalization and Subsidiaries. (a) All of the outstanding Equity Interests of the Borrower are owned beneficially and of record by Holdings, free and clear of all Liens other than the Liens in favor of the Collateral Agent, the Term Lenders and the ABL Lenders created by the Security Agreements and non-consensual Liens created by operation of law. No Equity Interest of the Borrower is subject to any option, warrant, right of conversion or purchase or any similar right. Other than the Borrower’s LLC agreement, there are no agreements or understandings to which the Borrower is a party with respect to the voting, sale or transfer of any Equity Interest of the Borrower or any agreement restricting the transfer or hypothecation of any such shares.

(b) Schedule 3.14 sets forth as of the date of this Agreement, (i) a correct and complete list showing, the name and relationship to the Borrower of each and all of the Borrower’s Subsidiaries, (ii) a true and complete listing of each class of each of such Subsidiaries’ authorized Equity Interests, of which all of such issued shares are validly issued, outstanding, fully paid and non-assessable, and owned beneficially and of record by the Persons identified on Schedule 3.14, and (iii) the type of entity of the Borrower and each of its Subsidiaries.

SECTION 3.15. Security Interest in Collateral. The provisions of this Agreement and the other Loan Documents create legal and valid Liens on all the Collateral in favor of the Collateral Agent, for the benefit of the Collateral Agent, the Term Administrative Agent and the Term Lenders. In the case of the Pledged Collateral described in the Term Loan Security Agreement which is required to be delivered to the Collateral Agent, when stock certificates representing such Pledged Collateral are delivered to the Collateral Agent together with appropriate instruments of transfer duly executed in blank, and in the case of the other Collateral described in the Term Loan Security Agreement, when financing statements and other filings specified on Schedule 3.15 in appropriate form are filed in the offices specified on Schedule 3.15, the Term Loan Security Agreement shall constitute a fully perfected and continuing Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, securing the Obligations, enforceable against the applicable Loan Party and all third parties, and having priority over all other Liens on the Collateral except in the case of (a) Permitted Encumbrances, to the extent any such Permitted Encumbrances would have priority over the

35

Liens in favor of the Collateral Agent pursuant to any applicable law or agreement, (b) Liens permitted by Section 6.02 other than pursuant to clauses (g) or (j) thereof and (c) Liens perfected only by possession (including possession of any certificate of title) to the extent the Collateral Agent has not obtained or does not maintain possession of such Collateral.

SECTION 3.16. Labor Disputes. As of the Closing Date, there are no strikes, lockouts or slowdowns against any Loan Party or any Subsidiary pending or, to the knowledge of the Borrower, threatened. All payments due from any Loan Party or any Subsidiary or for which any claim may be made against any Loan Party or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of such Loan Party or such Subsidiary, except as in the aggregate would not reasonably be expected to have a Material Adverse Effect.

SECTION 3.17. Margin Regulations. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Federal Reserve Board), and no proceeds of any Term Loan will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock in contravention of Regulation T, U or X of the Federal Reserve Board.

SECTION 3.18. Use of Proceeds. The proceeds of the Term Loans are being used by Borrower on the Closing Date (i) to repay a portion of the Sears Note and (ii) for the payment of costs, fees and expenses, incurred in connection with the Transactions.

SECTION 3.19. [Reserved].

SECTION 3.20. Corporate Names; Prior Transactions. As of the date hereof, no Loan Party has, during the past five years, been known by or used any other corporate or fictitious name (other than as set forth in Schedule 3.20 hereto) or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or acquired any of its property or assets out of the ordinary course of business.

SECTION 3.21. [Reserved].

SECTION 3.22. Related Documents. None of the Related Documents has been amended or modified in any respect and no provision therein has been waived, except in each case where a copy of such amendment or waiver has been provided by the Borrower to the Term Administrative Agent.

SECTION 3.23. Survival of Warranties; Cumulative. All representations and warranties contained in this Agreement or any of the other Loan Documents shall survive the execution and delivery of this Agreement and shall be conclusively presumed to have been relied on by the Term Administrative Agent regardless of any investigation made or information possessed by the Term Administrative Agent or any Term Lender.

ARTICLE IV

Conditions

SECTION 4.01. Closing Date. The obligations of the Term Lenders to make Term Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):

36

(a) Credit Agreement and Loan Documents. The Term Administrative Agent (or its counsel) shall have received (i) from each party hereto either (A) a counterpart of this Agreement signed on behalf of such party or (B) written evidence satisfactory to the Term Administrative Agent (which may include facsimile transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (ii) duly executed copies of the Loan Documents (other than the Leasehold Mortgages and the Leasehold Mortgage Supporting Documents) and such other certificates, documents, instruments and agreements as the Term Administrative Agent shall reasonably request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including any promissory notes requested by a Term Lender pursuant to Section 2.10 payable to the order of each such requesting Term Lender.

(b) Financial Statements and Projections. The Term Administrative Agent shall have received (i) audited financial statements of Holdings and its subsidiaries for the fiscal period ending January 28, 2006 by Deloitte & Touche which statements shall be unqualified, (ii) interim unaudited financial statements of Holdings and its subsidiaries for each completed fiscal quarter since the date of such audited financial statements ended at least 50 days before the Closing Date (and, to the extent available, for each completed month since the last such quarter ended at least 20 days before the Closing Date), which unaudited financial statements shall be prepared in accordance with GAAP and with Regulation S-X under the Securities Act and (iii) Holdings’ most recent projections which shall include a financial forecast on a quarterly basis for the first twelve months after the Closing Date and on an annual basis thereafter through fiscal year 2011 prepared by Holdings’ management.

(c) Existing Debt. The Term Administrative Agent shall be satisfied in its reasonable judgment that the Borrower’s, the Loan Guarantors’, and their respective subsidiaries’ existing debts (other than pursuant to the Real Estate Credit Agreement and the ABL Credit Agreement) do not exceed $75,000,000.

(d) Closing Certificates; Certified Certificate of Incorporation; Good Standing Certificates. The Term Administrative Agent shall have received (i) a certificate of each Loan Party, dated the Closing Date and executed by its Secretary or Assistant Secretary, which shall (A) certify the resolutions of its Board of Directors, members or other body authorizing the execution, delivery and performance of the Loan Documents to which it is a party, (B) identify by name and title and bear the signatures of the Financial Officers and any other officers of such Loan Party authorized to sign the Loan Documents to which it is a party, and (C) contain appropriate attachments, including the certificate or articles of incorporation or organization of each Loan Party certified by the relevant authority of the jurisdiction of organization of such Loan Party and a true and correct copy of its by-laws or operating, management or partnership agreement, and (ii) a long form good standing certificate for each Loan Party from its jurisdiction of organization.

(e) No Default Certificate. The Term Administrative Agent shall have received a certificate, signed by a Secretary or Assistant Secretary, on the Closing Date (i) stating that no Default has occurred and is continuing, (ii) stating that the representations and warranties contained in Article III are true and correct as of such date, and (iii) certifying any other factual matters as may be reasonably requested by the Term Administrative Agent.

(f) Fees. The Term Lenders and the Term Administrative Agent shall have received all fees required to be paid and all expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel and reasonable fees and expenses of Trade Settlement, Inc. for services rendered in respect of assignments of primary allocation after the

37

Closing Date but requiring payment on or before the Closing Date) on or before the Closing Date. All such amounts will be paid with proceeds of the Term Loans made on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Term Administrative Agent on or before the Closing Date).

(g) Lien Searches. The Term Administrative Agent shall have received the results of a recent lien search in each of the jurisdictions where assets of the Loan Parties are located, and such search shall reveal no liens on any of the assets of the Loan Parties except for liens permitted by Section 6.02 or discharged on or prior to the Closing Date pursuant to a pay-off letter or other documentation satisfactory to the Term Administrative Agent.

(h) Funding Account. The Term Administrative Agent shall have received a notice setting forth the deposit account of the Borrower (the “Funding Account”) to which the Term Administrative Agent is authorized by the Borrower to transfer the proceeds of the Term Loans requested pursuant to this Agreement.

(i) [Reserved].

(j) Solvency. The Term Administrative Agent shall have received a solvency certificate from the chief financial officer in form and substance reasonably satisfactory to the Term Administrative Agent, confirming the solvency of the Borrower and the Borrower and the Loan Guarantors taken as a whole after giving effect to the Transactions.

(k) Pledged Stock; Stock Powers; Pledged Notes. The Collateral Agent shall have received (i) the certificates representing the shares of certificated Equity Interests pledged pursuant to the Term Loan Security Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note (if any) pledged to the Collateral Agent pursuant to the Term Loan Security Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof.

(l) Filings, Registrations and Recordings. The Term Lenders shall have a valid and perfected first priority lien on and security interest in the Term Facility Primary Collateral (other than as permitted to be delivered after the Closing Date pursuant to Section 5.14(c)) and a valid and perfected second priority lien on and security interest in the ABL Facility Primary Collateral; all filings, recordations and searches necessary or desirable in connection with such liens and security interests shall have been duly made; and all filing and recording fees and taxes shall have been duly paid. Each document (including any Uniform Commercial Code financing statement) required by the Collateral Documents (other than the Leasehold Mortgages and Leasehold Mortgage Supporting Documents) or under law or reasonably requested by the Term Administrative Agent to be filed, registered or recorded in order to create in favor of the Term Administrative Agent, for the benefit of the Term Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 6.02), shall be in proper form for filing, registration or recordation.

(m) Insurance. The Term Administrative Agent shall have received evidence of insurance coverage in form, scope, and substance reasonably satisfactory to the Term Administrative Agent. The Collateral Agent shall have received endorsements naming the Collateral Agent, on behalf of the Term Administrative Agent and the Term Lenders, as an additional insured and loss payee under all insurance policies to be maintained with respect to the

38

properties of the Borrower, the Guarantors and their respective subsidiaries forming part of the Term Lenders’ Collateral.

(n) Opinions. The Term Administrative Agent shall have received reasonably satisfactory customary opinions of independent counsel to the Borrower and the Loan Guarantors, addressing such matters as the Term Lenders shall reasonably request.

(o) Repayment of Sears Note. The Sears Note shall have been paid in full and terminated pursuant to a pay-off letter in form and substance reasonably satisfactory to the Term Administrative Agent.

(p) ABL Credit Agreement. The ABL Credit Agreement shall have been duly executed by the parties thereto and liens granted thereunder with respect to the Term Facility Primary Collateral shall have been released in form and substance satisfactory to the Term Lenders. The Term Administrative Agent shall be reasonably satisfied that the conditions precedent to the initial borrowing under the ABL Facility have been satisfied.

(q) Deposit Account Control Agreements. Each Loan Party shall have provided to the Term Administrative Agent an amendment to the existing Deposit Account Control Agreements.

(r) Intercreditor Agreement. The Intercreditor Agreement shall have been duly executed by the parties thereto.

(s) Other Documents. The Administrative Agent shall have received such other documents as the Term Administrative Agent, any Term Lender or their respective counsel may have reasonably requested.

The Term Administrative Agent shall notify the Borrower and the Term Lenders of the Closing Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Term Lenders to make Term Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 2:00 p.m., New York time, on December 31, 2006 (and, in the event such conditions are not so satisfied or waived, the Term Commitments shall terminate at such time).

ARTICLE V

Affirmative Covenants

Until the principal of and interest on the Term Loans and all fees payable hereunder shall have been paid in full, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the Loan Parties, with the Term Lenders that:

SECTION 5.01. Financial Statements and Other Information. The Borrower or Holdings will furnish to the Term Administrative Agent and each Term Lender:

(a) as soon as available and in any event within 95 days after the end of each fiscal year of Holdings, its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by independent public accountants of recognized national standing (without a “going concern” or like qualification or

39

exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;

(b) as soon as available and in any event within 50 days after the end of each of the first three fiscal quarters of the Borrower, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied subject to normal year-end audit adjustments and the absence of footnotes;

(c) if the ABL Administrative Agent so requests under the ABL Credit Agreement, within 20 days after the end of each fiscal month of the Borrower, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal month and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;

(d) concurrently with the delivery of each set of consolidated financial statements referred to in Section 5.01(a) and (b) above, a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of Holdings and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiary of Holdings;

(e) concurrently with any delivery of financial statements under clause (a) or (b) or (c) above, a certificate of a Financial Officer of the Borrower in substantially the form of Exhibit C (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 5.10, and (iii) in the case of quarterly or annual financial statements, setting forth reasonably detailed calculations for the Adjusted Leverage Ratio;

(f) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines);

(g) as soon as available but in any event not later than 30 days after the end of each fiscal year of the Borrower, and containing substantially the types of financial information contained in the projections, (i) the annual business plan of the Borrower and its Subsidiaries for the next succeeding fiscal year approved by the board of directors or equivalent of the Borrower,

40

(ii) forecasts prepared by management of the Borrower for each fiscal quarter in the next succeeding fiscal year and (iii) forecasts prepared by management of the Borrower for each fiscal year subsequent to the next succeeding fiscal year through the fiscal year in which the Term Loan Maturity Date is scheduled to occur, including, in each instance described in clauses (ii) and (iii) above, (x) a projected year-end consolidated balance sheet and income statement and statement of cash flows and (y) a statement of all of the material assumptions on which such forecasts are based (the “Projections”);

(h) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Holdings or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or, after a Public Equity Offering, distributed by the Borrower to its shareholders generally, as the case may be; and

(i) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, as the Term Administrative Agent or any Term Lender may reasonably request.

SECTION 5.02. Notices of Material Events. The Borrower and Holdings will furnish to the Term Administrative Agent and each Term Lender prompt written notice of the following:

(a) the occurrence of any Default promptly upon becoming aware of it;

(b) receipt of any notice of any governmental investigation or any litigation or proceeding commenced or threatened against any Loan Party that (i) seeks damages in excess of $10,000,000 and is not covered by insurance, (ii) seeks injunctive relief which, if granted, would reasonably be expected to have a Material Adverse Effect;

(c) (i) any Lien (other than Liens permitted under Section 6.02) or claim made or asserted against any of the Collateral, (ii) any loss, damage, or destruction to the Collateral whether or not covered by insurance or the commencement of any action or proceeding for the taking of any material portion of the Collateral or interest therein under power of eminent domain or by condemnation or similar proceeding and (iii) any and all default notices received under or with respect to any leased location or public warehouse where Collateral is located (which shall be delivered within two Business Days after receipt thereof), in each case in relation to Collateral in the aggregate amount of $10,000,000 or more;

(d) the receipt by any Loan Party of any written notice of violation of or potential liability under, or knowledge by such Loan Party that there exists a condition that could reasonably be expected to result in a violation of or liability under, any Environmental Law, except for violations and liabilities the consequence of which would not be reasonably likely to subject the Loan Parties to liabilities exceeding $5,000,000 individually or in the aggregate;

(e) obtaining knowledge of the commencement of any judicial or administrative proceeding or investigation alleging a violation of or liability under any Environmental Law, that has a reasonable likelihood of being adversely determined and that, in the aggregate, if adversely determined, would have a reasonable likelihood of subjecting the Loan Party to liabilities exceeding $5,000,000 individually or in the aggregate;

41

(f) upon written request by any Term Lender through the Term Administrative Agent, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any notice or report delivered pursuant to this Agreement; and

(g) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

SECTION 5.03. Existence; Conduct of Business. Each Loan Party will, and will cause each Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect (i) its legal existence and (ii) the rights, qualifications, licenses, permits, franchises, governmental authorizations, intellectual property rights, licenses and permits material to the conduct of its business, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03 and, in the case of clause (ii) above, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

SECTION 5.04. Payment of Obligations. Each Loan Party will, and will cause each Subsidiary to, pay or discharge all Material Indebtedness and all other material liabilities and obligations, including Taxes, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, and (b) such Loan Party or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP.

SECTION 5.05. Maintenance of Properties. Each Loan Party will, and will cause each Subsidiary to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted.

SECTION 5.06. Books and Records; Inspection Rights. Each Loan Party will, and will cause each Restricted Subsidiary to, (i) keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities and (ii) permit any representatives designated by the Term Administrative Agent or any Term Lender (including employees of the Term Administrative Agent, any Term Lender or any consultants, accountants, lawyers and appraisers retained by the Term Administrative Agent), upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, including environmental assessment reports and Phase I or Phase II studies, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested.

SECTION 5.07. Compliance with Laws. Each Loan Party will, and will cause each Subsidiary to, comply with all Requirements of Law applicable to it or its property except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

SECTION 5.08. Use of Proceeds. The proceeds of the Term Loans will be used only as described in Section 3.18. No part of the proceeds of any Term Loan will be used, whether directly or

42

indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X.

SECTION 5.09. Insurance. (a) Each Loan Party will, and will cause each Subsidiary to, maintain insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is consistent with prudent business practice; provided that each Loan Party and its Subsidiaries may self insure to the extent consistent with prudent business practice. The Borrower will furnish to the Term Lenders, upon request of the Term Administrative Agent, information in reasonable detail as to the insurance so maintained.

(b) Within 10 Business Days of the Closing Date, in respect of all insurance policies maintained by any Loan Party, each Loan Party shall name the Collateral Agent (for the benefit of the Collateral Agent, the Term Administrative Agent and the Term Lenders) as an additional insured or as loss payee, as applicable, and shall contain loss payable clauses or mortgagee clauses, through endorsements in form and substance satisfactory to the Term Administrative Agent.

SECTION 5.10. Maximum Adjusted Leverage Ratio. The Borrower shall maintain, on the last day of each fiscal quarter set forth below, an Adjusted Leverage Ratio as determined for the Borrower and its Subsidiaries of not more than the maximum ratio set forth below opposite such fiscal quarter:

Fiscal Quarter Ending	Maximum Adjusted Leverage Ratio
February 3, 2007	5.75x
May 5, 2007	5.75x
August 4, 2007	5.75x
November 3, 2007	5.75x
February 2, 2008	5.75x
May 3, 2008	5.50x
August 2, 2008	5.50x
November 1, 2008	5.50x
January 31, 2009	5.50x
May 2, 2009	5.25x
August 1, 2009	5.25x
October 31, 2009	5.25x
January 30, 2010	5.25x
May 1, 2010	5.00x
July 31, 2010	5.00x
October 30, 2010	5.00x
January 29, 2011	5.00x
April 30, 2011	4.75x

43

July 30, 2011	4.75x
October 29, 2011	4.75x
February 4, 2012	4.75x
May 5, 2012	4.75x
August 4, 2012	4.75x
November 3, 2012	4.75x
February 2, 2013	4.75x
May 4, 2013	4.75x
August 3, 2013	4.75x
November 2, 2013	4.75x
February 1, 2014	4.75x

SECTION 5.11. Additional Collateral; Further Assurances. (a) Subject to applicable law, the Borrower and each Restricted Subsidiary that is a Loan Party shall cause each of its domestic Restricted Subsidiaries formed or acquired after the date of this Agreement in accordance with the terms of this Agreement to become a Loan Party by executing the Joinder Agreement set forth as Exhibit D hereto (the “Joinder Agreement”). Upon execution and delivery thereof, each such Person (i) shall automatically become a Loan Guarantor hereunder and thereupon shall have all of the rights, benefits, duties, and obligations in such capacity under the Loan Documents and (ii) will grant Liens to the Collateral Agent, for the benefit of the Collateral Agent, the Term Administrative Agent and the Term Lenders, in any property of such Loan Party which constitutes Collateral, including any parcel of real property with a fair market value in excess of $250,000 located in the U.S. owned by any Loan Party.

(b) The Borrower and each Restricted Subsidiary that is a Loan Party will cause (i) 100% of the issued and outstanding Equity Interests of each of its domestic Restricted Subsidiaries and (ii) 65% (or such greater percentage that, due to a change in applicable law after the date hereof, (1) could not reasonably be expected to cause the undistributed earnings of such foreign Restricted Subsidiary as determined for U.S. federal income tax purposes to be treated as a deemed dividend to such foreign Restricted Subsidiary’s U.S. parent and (2) could not reasonably be expected to cause any adverse tax consequences) of the issued and outstanding Equity Interests in each foreign Restricted Subsidiary directly owned by the Borrower or any domestic Restricted Subsidiary to be subject at all times to (i) a first priority, perfected Lien in favor of the Collateral Agent for the benefit of the Term Lenders and (ii) a second priority, perfected Lien in favor of the Collateral Agent for the benefit of the ABL Lenders, in each case pursuant to the terms and conditions of the Loan Documents and the ABL Loan Documents or other security documents, subject to the Intercreditor Agreement, as the Term Administrative Agent shall reasonably request.

(c) Without limiting the foregoing, each Loan Party will, and will cause each Restricted Subsidiary to, execute and deliver, or cause to be executed and delivered, to the Term Administrative Agent such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and such other actions or deliveries of the type required by Article IV, as applicable), which may be required by law or which the Term Administrative Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan

44

Documents and to ensure perfection and priority of the Liens created or intended to be created by the Collateral Documents, all at the expense of the Loan Parties.

(d) If any material assets (including any real property or improvements thereto or any interest therein with a fair market value in excess of $250,000) are acquired by the Borrower or any Restricted Subsidiary that is a Loan Party after the Closing Date (other than assets constituting Collateral under the Term Loan Security Agreement that become subject to the Lien in favor of the Collateral Agent upon acquisition thereof and Excluded Property (as defined in the Term Loan Security Agreement)), the Borrower will notify the Term Administrative Agent and the Term Lenders thereof, and, if requested by the Term Administrative Agent or the Required Term Lenders, the Borrower will cause such assets to be subjected to a Lien securing the Obligations and will take, and cause the Restricted Subsidiary Loan Parties to take, such actions as shall be necessary or reasonably requested by the Term Administrative Agent to grant and perfect such Liens, including actions described in clause (c) of this Section, all at the expense of the Loan Parties.

SECTION 5.12. Cash Management. Each Loan Party shall provide to the Collateral Agent a Deposit Account Control Agreement with respect to each new deposit account of such Loan Party within 60 days after opening such new deposit account, other than any deposit account (i) in which the average monthly balance on deposit is less than $100,000 individually or $1,000,000 for all such deposit accounts, (ii) with respect to which the granting of a security interest and the entering into of a Deposit Account Control Agreement is prohibited by Requirements of Law or (iii) with respect to which the Collateral Agent has otherwise agreed not to require a Deposit Account Control Agreement.

SECTION 5.13. Collateral Access Agreements.

(a) Within 15 Business Days after the Closing Date (or such later date as the Term Administrative Agent may agree), the Borrower shall deliver to the Term Administrative Agent amendments to, or restatements of, each Primary Collateral Access Agreement delivered by the Borrower to the Collateral Agent pursuant to the Existing Credit Agreement.

(b) Within 90 days after the Closing Date, each Loan Party shall use its commercially reasonable efforts to provide to the Collateral Agent a Collateral Access Agreement, or to amend and restate any such Collateral Access Agreement executed and delivered pursuant to the Existing Credit Agreement, with respect to each location listed on Exhibit A of the Term Loan Security Agreement (except for the Primary Collateral Access Agreements which shall be delivered on the Closing Date). Thereafter, with respect to any other location, the Borrower shall, within 30 days of the placement of any tangible Collateral at such location, use its commercially reasonable efforts to provide to the Collateral Agent a Collateral Access Agreement with respect to such location unless (i) such location is owned by a Loan Party or (ii) the Collateral placed in such location is Inventory of $1,000,000 or less. No Collateral shall be located at any location outside of the continental United States.

SECTION 5.14. Real Property.

(a) The Borrower shall, and shall cause each of its Subsidiaries to, (i) comply in all material respects with all of their respective obligations under all of their material Leases having annual rentals in excess of $400,000 now or hereafter held respectively by them, including the Leases set forth on the Leasehold Property Schedule, (ii) not modify, amend, cancel, extend or otherwise change in any materially adverse manner any term, covenant or condition of any such material Lease, (iii) not assign or sublet any other Lease if such assignment or sublet would have a Material Adverse Effect, (iv) provide the Term Administrative Agent with a copy of each notice of default under any material Lease received by the Borrower or any Subsidiary of the Borrower promptly upon receipt thereof and (v) notify the Term

45

Administrative Agent at least 14 days prior to the date the Borrower or any Subsidiary takes possession of, or becomes liable under, any new leased premises or Lease, whichever is earlier.

(b) At least 15 Business Days prior to (i) entering into any Lease (other than a renewal of an existing Lease) for the principal place of business and chief executive office of the Borrower or any other Loan Guarantor or any other Lease (including any renewal) in which the annual rental payments are anticipated to equal or exceed $400,000 or (ii) acquiring any material owned Real Property, the Borrower shall, and shall cause such Loan Guarantor to, provide the Term Administrative Agent written notice thereof.

(c) Within 60 days of the Closing Date (or such later date as the Term Administrative Agent may agree in its sole discretion, which later date shall not be more than 150 days after the Closing Date), the Borrower shall, and shall cause each Loan Guarantor to, execute and deliver to the Collateral Agent, for the benefit of the Term Administrative Agent, the Term Lenders, the ABL Administrative Agent and the ABL Lenders, Leasehold Mortgages for all of the properties identified on the Leasehold Property Schedule (except as may be agreed to by the Term Administrative Agent), together with all Leasehold Mortgage Supporting Documents relating thereto; provided, that with respect to any properties identified on the Leasehold Property Schedule, the foregoing is subject to the Borrower obtaining (i) any required landlord consent and/or (ii) a recordable lease or memorandum of lease, if necessary, with respect thereto, which, in each case, the Borrower shall use commercially reasonable efforts to obtain.

(d) If at any time after the Closing Date, the Borrower or any Loan Guarantor shall acquire fee simple title to any material Real Property having a purchase price in excess of $400,000 or acquire or enter into any material Lease having annual rental in excess of $400,000, upon written request of the Term Administrative Agent, the Borrower shall, and shall cause each Loan Guarantor to, execute and deliver to the Collateral Agent, for the benefit of the Term Administrative Agent, the Term Lenders, the ABL Administrative Agent and the ABL Lenders, promptly and in any event not later than 45 days after receipt of such notice (or, if such notice is given by the Term Administrative Agent prior to the acquisition of such Real Property or Lease, immediately upon such acquisition), a mortgage on any owned Real Property or a Leasehold Mortgage on any Lease of the Borrower or such Loan Guarantor, together with (i) if requested by the Term Administrative Agent and such Real Property is located in the United States or is a Lease of Real Property located in the United States, all Leasehold Mortgage Supporting Documents relating thereto or (ii) otherwise, documents similar to Leasehold Mortgage Supporting Documents deemed by the Term Administrative Agent to be appropriate in the applicable jurisdiction to obtain the equivalent in such jurisdiction of a first-priority mortgage on such Real Property or Lease; provided, that with respect to any properties identified on the Leasehold Property Schedule, the foregoing is subject to the Borrower obtaining (i) any required landlord consent and/or (ii) a recordable lease or memorandum of lease, if necessary, with respect thereto, which, in each case, the Borrower shall use commercially reasonable efforts to obtain.

ARTICLE VI

Negative Covenants

Until the principal of and interest on the Term Loans and all fees, expenses and other amounts payable under any Loan Document have been paid in full, the Loan Parties covenant and agree, jointly and severally, with the Term Lenders that:

46

SECTION 6.01. Indebtedness. No Loan Party will, nor will it permit any Restricted Subsidiary to, create, incur or suffer to exist any Indebtedness, except:

(a) Indebtedness incurred pursuant to any Loan Document;

(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01 and extensions, renewals, refinancings and replacements of any such Indebtedness in accordance with clause (f) hereof;

(c) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other Subsidiary, provided that (i) Indebtedness of any Subsidiary that is not a Loan Party to the Borrower or any Subsidiary that is a Loan Party shall be subject to Section 6.04 and (ii) Indebtedness of the Borrower to any Subsidiary and Indebtedness of any Subsidiary that is a Loan Party to any Subsidiary that is not a Loan Party shall be subordinated to the Obligations on terms reasonably satisfactory to the Term Administrative Agent;

(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Restricted Subsidiary of Indebtedness of the Borrower or any other Subsidiary, provided that (i) the Indebtedness so Guaranteed is permitted by this Section 6.01, (ii) Guarantees by the Borrower or any Subsidiary that is a Loan Party of Indebtedness of any Restricted Subsidiary that is not a Loan Party shall be subject to Section 6.04 (without giving effect to clause (p) thereof) and (iii) Guarantees permitted under this clause (d) shall be subordinated to the Obligations of the applicable Restricted Subsidiary on the same terms as the Indebtedness so Guaranteed is subordinated to the Obligations;

(e) Indebtedness of the Borrower or any Restricted Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets (whether or not constituting purchase money Indebtedness), including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness in accordance with clause (f) hereof; provided that such Indebtedness is incurred prior to, concurrently with or within 180 days after such acquisition or the completion of such construction or improvement;

(f) (A) Indebtedness which represents an extension, refinancing, or renewal of any of the Indebtedness described in clauses (b), (e), (i) and (j) hereof; provided that (i) the principal amount of such Indebtedness is not increased except by an amount equal to accrued but unpaid interest and premiums thereon, (ii) any Liens securing such Indebtedness are not extended to any additional property of any Loan Party, (iii) no Loan Party that is not originally obligated with respect to repayment of such Indebtedness is required to become obligated with respect thereto, (iv) such extension, refinancing or renewal does not result in a shortening of the average weighted maturity of the Indebtedness so extended, refinanced or renewed, (v) the terms and conditions, including the covenants and event of default provisions of such extension, refinancing, or renewal are market terms and conditions at the time of such extension, refinancing or renewal, and (vi) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include subordination terms and conditions that are at least as favorable to the Term Administrative Agent and the Term Lenders as those that were applicable to the refinanced, renewed, or extended Indebtedness;

47

(g) Indebtedness owed to any person providing workers’ compensation, health, disability or other employee benefits or property, casualty or liability insurance, pursuant to reimbursement or indemnification obligations to such person, in each case incurred in the ordinary course of business;

(h) Indebtedness of the Borrower or any Restricted Subsidiary in respect of performance bonds, bid bonds, appeal bonds, surety bonds and similar obligations, in each case provided in the ordinary course of business;

(i) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided that (i) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (ii) the aggregate principal amount of Indebtedness permitted by this clause (i) shall not exceed $ 10,000,000 at any time outstanding;

(j) Indebtedness incurred pursuant to the ABL Credit Agreement;

(k) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within two Business Days of its incurrence;

(l) Indebtedness representing deferred compensation to employees of the Borrower and the Restricted Subsidiaries incurred in the ordinary course of business;

(m) Indebtedness supported by a letter of credit (for so long as supported by such letter of credit) in a principal amount not to exceed the face amount of such letter of credit;

(n) any “bad acts” Guarantee and any environmental indemnity issued by the Borrower in connection with the Real Estate Debt pursuant to which the Unrestricted Subsidiary is borrower; and

(o) other (i) unsecured Indebtedness of the Borrower or any Restricted Subsidiary in an aggregate principal amount not exceeding $140,000,000, of which a maximum aggregate principal amount of $50,000,000 may be senior unsecured Indebtedness, provided that other than in the event that such Restricted Subsidiary is a corporate co-issuer with the Borrower of such Indebtedness, the maximum aggregate amount of Indebtedness that may be incurred by Restricted Subsidiaries pursuant to this clause (i) shall be $10,000,000 and (ii) Indebtedness of the Borrower or any Restricted Subsidiary (but only in the event that such Restricted Subsidiary is a corporate co-issuer with the Borrower of such Indebtedness) in an aggregate principal amount not exceeding $10,000,000 provided that such Indebtedness may only be secured in accordance with Section 6.020).

In addition, the Borrower shall, within five (5) Business Days following the consummation of any stock purchase or acquisition by an Unrestricted Subsidiary pursuant to which such Unrestricted Subsidiary shall incur any Indebtedness, report the amount of such Indebtedness to the Term Administrative Agent and immediately after giving pro forma effect to any such purchase or acquisition, the Borrower shall be in compliance with Section 5.10.

SECTION 6.02. Liens. No Loan Party will, nor will it permit any Restricted Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or

48

hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:

(a) Liens created pursuant to any Loan Document;

(b) Permitted Encumbrances;

(c) any Lien on any property or asset of the Borrower or any Restricted Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or Restricted Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof and which are permitted by clause (f) of Section 6.01;

(d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Restricted Subsidiary or arising out of sale and leaseback transactions permitted by Section 6.06; provided that (i) such security interests secure Indebtedness permitted by clause (e) of Section 6.01, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or concurrently with or within 180 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Borrower or Restricted Subsidiary;

(e) any Lien existing on any property or asset (other than Accounts, Credit Card Account Receivable and Inventory) prior to the acquisition thereof by the Borrower or any Restricted Subsidiary or existing on any property or asset (other than Accounts, Credit Card Account Receivable and Inventory) of any Person that becomes a Loan Party after the date hereof prior to the time such Person becomes a Loan Party; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Loan Party, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Loan Party (other than proceeds) and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Loan Party, as the case may be and such Indebtedness is permitted by clause (i) of Section 6.01 and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof (plus accrued interest and premiums) and which are permitted by clauses (f) of Section 6.01;

(f) Liens of a collecting bank arising in the ordinary course of business under Section 4-208 of the Uniform Commercial Code in effect in the relevant jurisdiction covering only the items being collected upon;

(g) Liens granted by a Restricted Subsidiary that is not a Loan Party in favor of the Borrower or another Loan Party in respect of Indebtedness owed by such Restricted Subsidiary or Liens on Fixtures (as defined in the Term Loan Security Agreement) to the extent granted to secure the Real Estate Debt;

(h) Liens on securities held by the Borrower or any of its Restricted Subsidiaries representing an interest in a joint venture to which the Borrower or such Restricted Subsidiary is a party (provided that such joint venture is not a Subsidiary of the Borrower) to the extent that (i) such Liens constitute purchase options, calls or similar rights of a counterparty to such joint venture and (ii) such Liens are granted pursuant to the terms of the partnership agreement, joint

49

venture agreement or other similar document or documents pursuant to which such joint venture was created or otherwise governing the rights and obligations of the parties to such joint venture;

(i) Liens created pursuant to any ABL Loan Document; and

(j) Liens with respect to property or assets of the Borrower or any Restricted Subsidiary not constituting Eligible Accounts, Eligible Credit Card Account Receivable or Eligible Inventory with an aggregate fair market value (valued at the time of creation of the Liens) of not more than $10,000,000 at any time.

SECTION 6.03. Fundamental Changes. (a) No Loan Party will, nor will it permit any Restricted Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) any Restricted Subsidiary of the Borrower may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Loan Party (other than the Borrower) may merge into any Loan Party in a transaction in which the surviving entity is a Loan Party, (iii) any Restricted Subsidiary may merge into another Restricted Subsidiary, provided that if one is a Loan Party the surviving company must be a Loan Party, (iv) any Restricted Subsidiary that is not a Loan Party may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Term Lenders, and (v) any investment permitted by Section 6.04 may be structured as a merger or consolidation.

(b) No Loan Party will, nor will it permit any of its Restricted Subsidiaries to, engage in any business other than businesses of the type conducted by the Borrower and its Restricted Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto.

(c) Holdings will not engage in any business or activity other than the ownership of all the outstanding Equity Interests of the Borrower and activities incidental thereto, including (i) paying taxes, (ii) preparing reports to Governmental Authorities and to its shareholders and (iii) holding directors and shareholders meetings, preparing corporate records and other activities permitted by this Agreement. Holdings will not own or acquire any assets (other than Equity Interests of the Borrower, the cash proceeds of any Restricted Payments permitted by Section 6.08 and cash contributions received from the holders of Equity Interest of Holdings provided that such contributions shall be immediately contributed to the Borrower) or incur any liabilities (other than liabilities under the Loan Documents, liabilities reasonably incurred in connection with its maintenance of its existence, nonconsensual obligations imposed by law and obligations with respect to its Equity Interests (including pursuant to its stockholders’ agreement).

SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. No Loan Party will, nor will it permit any Restricted Subsidiary to, purchase, hold or acquire any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit (whether through purchase of assets, merger or otherwise), except:

(a) Permitted Investments;

(b) investments in existence on the date of this Agreement and described in Schedule 6.04;

50

(c) investments by Holdings in the Borrower and by the Borrower and the Restricted Subsidiaries in Equity Interests in their respective Restricted Subsidiaries, provided that (A) any such Equity Interests held by a Loan Party shall be pledged pursuant to the Term Loan Security Agreement (subject to the limitations applicable to common stock of a foreign Restricted Subsidiary referred to in Section 5.11) and (B) the aggregate amount of investments by Loan Parties in Restricted Subsidiaries that are not Loan Parties (together with outstanding intercompany loans permitted under clause (B) to the proviso to Section 6.04(d), outstanding Guarantees permitted under the proviso to Section 6.04(e), investments permitted under clause (i) of Section 6.04 and investments permitted under clause (j) of Section 6.04) shall not exceed $10,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs);

(d) loans or advances made by the Borrower to any Restricted Subsidiary and made by any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary, provided that (A) any such loans and advances made by a Loan Party shall be evidenced by a promissory note pledged pursuant to the Term Loan Security Agreement and (B) the amount of such loans and advances made by Loan Parties to Restricted Subsidiaries that are not Loan Parties (together with outstanding investments permitted under clause (B) to the proviso to Section 6.04(c), outstanding Guarantees permitted under the proviso to Section 6.04(e), investments permitted under clause (i) of Section 6.04 and investments permitted under clause (j) of Section 6.04) shall not exceed $10,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs);

(e) Guarantees constituting Indebtedness permitted by Section 6.01, provided that the aggregate principal amount of Indebtedness of Restricted Subsidiaries that are not Loan Parties that is Guaranteed by any Loan Party (together with outstanding investments permitted under clause (B) to the proviso to Section 6.04(c), outstanding intercompany loans permitted under clause (B) to the proviso to Section 6.04(d), investments permitted under clause (i) of Section 6.04 and investments permitted under clause (j) of Section 6.04) shall not exceed $10,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs);

(f) loans or advances made by a Loan Party to its employees on an arms-length basis in the ordinary course of business consistent with past practices (including for travel and entertainment expenses, relocation costs and similar purposes) up to a maximum aggregate amount of $5,000,000 for the Loan Parties taken as a whole;

(g) (i) extensions of trade credit in the ordinary course of business and (ii) subject to Sections 4.2(a) and 4.4 of the Term Loan Security Agreement, notes payable, or stock or other securities issued by Account Debtors to a Loan Party pursuant to negotiated agreements with respect to settlement of such Account Debtor’s Accounts and Credit Card Account Receivable in the ordinary course of business, consistent with past practices;

(h) investments in the form of Swap Agreements permitted by Section 6.07;

(i) investments of any Person existing at the time such Person becomes a Restricted Subsidiary of the Borrower or consolidates or merges with the Borrower or any of the Restricted Subsidiaries (including in connection with a Permitted Acquisition) so long as such investments were not made in contemplation of such Person becoming a Restricted Subsidiary or of such merger provided that, the amount of such investments (together with outstanding investments permitted under clause (B) to the proviso to Section 6.04(c), outstanding intercompany loans

51

permitted under clause (B) to the proviso to Section 6.04(d), outstanding Guarantees permitted under the proviso to Section 6.04(e) and outstanding investments permitted under clause (j) of Section 6.04) shall not exceed $10,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs);

(j) investments received in connection with the dispositions of assets permitted by Section 6.05; provided that, the amount of such investments (together with outstanding investments permitted under clause (B) to the proviso to Section 6.04(c), outstanding intercompany loans permitted under clause (B) to the proviso to Section 6.04(d), outstanding Guarantees permitted under the proviso to Section 6.04(e) and outstanding investments permitted under clause (i) of Section 6.04) shall not exceed $10,000,000 at any time outstanding (in each case determined without regard to any write-downs or write-offs); and

(k) investments constituting deposits described in clauses (c) and (d) of the definition of the term “Permitted Encumbrances”;

(l) any “bad acts” Guarantee and any environmental indemnity issued by the Borrower in connection with the Real Estate Debt pursuant to which the Unrestricted Subsidiary is borrower;

(m) the purchase or other acquisition by the Borrower or any of its Restricted Subsidiaries of all of the Equity Interests in any Person that upon consummation thereof will be wholly owned, directly or indirectly, by the Borrower (including as a result of a merger or consolidation), or the purchase or other acquisition by the Borrower or any of its Restricted Subsidiaries of all or substantially all of the property and assets of any Person or a division or business unit of any Person; provided that (i) the lines of business of the Person to be (or the property and assets of which are to be) so purchased or otherwise acquired shall be substantially the same lines of business as those of the Borrower and its Restricted Subsidiaries or reasonably related thereto, (ii) the total cash consideration paid by or on behalf of the Borrower and its Restricted Subsidiaries for any such purchase or acquisition, when aggregated with the total cash consideration paid by or on behalf of the Borrower and its Restricted Subsidiaries for all other purchases and acquisitions made pursuant to this Section 6.04(m), shall not exceed $50,000,000, (iii) immediately before and immediately after giving pro forma effect to any such purchase or acquisition, no Event of Default shall have occurred and be continuing, (iv) at least five Business Days prior to the date upon which any such purchase or acquisition is to be consummated, the Borrower shall have delivered to the Term Administrative Agent a certificate of a Financial Officer certifying that all the requirements set forth in this Section 6.04(m) have been satisfied or will be satisfied on or prior to the consummation of such purchase or acquisition;

(n) investments made with the proceeds of equity issuances;

(o) in addition to investments, loans and advances otherwise expressly permitted pursuant to this Section 6.04, investments, loans and advances by the Borrower or any of its Restricted Subsidiaries in an aggregate amount (valued at cost) not to exceed during the term of this Agreement the sum of (i) $2,000,000 plus (ii) an amount equal to any returns of capital actually received in cash in respect of any such investments (which amount shall not exceed the amount of such investment valued at cost at the time such investment was made) plus (iii) to the extent no Default or Event of Default is continuing at the date of such investment, loan or advance (or would result therefrom), an amount up to 50% of the remaining cumulative Excess Cash Flow since the Closing Date (after giving effect to any prepayments required to be made pursuant to Section 2.11(c), any Restricted Payments or payments made pursuant to Section

52

6.08(c)(ii) and any previous investments, loans or advances made pursuant to this clause (o)(iii)); provided, however, that on the date of any such investment, loan or advance utilizing this clause (o)(iii), the Borrower and its Subsidiaries shall be in pro forma compliance with Section 5.10;

(p) any investment or loan not otherwise permitted by this Section 6.04; provided that after giving effect to such investment or loan on a pro forma basis the Available Credit Condition (as such term is defined under the ABL Credit Agreement) shall be satisfied.

SECTION 6.05. Asset Sales. No Loan Party will, nor will it permit any Restricted Subsidiary to, sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by it, nor will the Borrower permit any Restricted Subsidiary to issue any additional Equity Interest in such Restricted Subsidiary (other than to the Borrower or another Restricted Subsidiary in compliance with Section 6.04), except:

(a) sales, transfers and dispositions of (i) Inventory in the ordinary course of business and (ii) used, obsolete, worn out or surplus equipment or property in the ordinary course of business;

(b) sales, transfers and dispositions to the Borrower or any Restricted Subsidiary, provided that any such sales, transfers or dispositions involving a Restricted Subsidiary that is not a Loan Party shall be made in compliance with Section 6.09;

(c) sales, transfers and dispositions of accounts receivable in connection with the compromise, settlement or collection thereof;

(d) sales, transfers and dispositions of investments permitted by clauses (j) and (k) of Section 6.04;

(e) sale and leaseback transactions permitted by Section 6.06;

(f) dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Borrower or any Restricted Subsidiary;

(g) licensing and cross-licensing arrangements entered into in the ordinary course of business involving any technology or other intellectual property of the Borrower or any Restricted Subsidiary;

(h) (i) dispositions of Permitted Investments for fair market value and (ii) leases and subleases not materially interfering with the ordinary course of business; and

(i) sales, transfers and other dispositions of assets (other than Equity Interests in a Restricted Subsidiary unless all Equity Interests in such Restricted Subsidiary are sold) that are not permitted by any other clause of this Section, provided that the aggregate fair market value of all assets sold, transferred or otherwise disposed of in reliance upon this clause (i) shall not exceed $20,000,000 during any fiscal year of the Borrower or $75,000,000 during the term of this Agreement;

provided that all sales, transfers, leases and other dispositions permitted hereby (other than those permitted by clauses (b), (f), (g) and (h)(ii) above) shall be made for fair value and for at least 75% cash consideration.

53

SECTION 6.06. Sale and Leaseback Transactions. No Loan Party will, nor will it permit any Restricted Subsidiary to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred, except for any such sale of any fixed or capital assets by the Borrower or any Restricted Subsidiary that is made for cash consideration in an amount not less than the fair value of such fixed or capital asset and is consummated within 180 days after the Borrower or such Restricted Subsidiary acquires or completes the construction of such fixed or capital asset.

SECTION 6.07. Swap Agreements. No Loan Party will, nor will it permit any Restricted Subsidiary to, enter into any Swap Agreement or any speculative transaction except (a) Swap Agreements entered into to hedge or mitigate risks to which the Borrower or any Restricted Subsidiary has actual exposure (other than those in respect of Equity Interests of the Borrower or any of its Restricted Subsidiaries), and (b) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of the Borrower or any Restricted Subsidiary, in each case for the sole purpose of hedging in the ordinary course of business.

SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness. (a) No Loan Party will, nor will it permit any Restricted Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, or to make, or agree to make any redemptions or repurchases with respect to its capital stock, or incur any obligation (contingent or otherwise) to do so, except (i) each of Holdings and the Borrower may make Restricted Payments with respect to its common Equity Interests payable solely in additional shares of its common Equity Interests, and, with respect to its preferred Equity Interests, payable solely in additional shares of such preferred Equity Interests or in shares of its common Equity Interests, (ii) Restricted Subsidiaries may declare and pay dividends ratably with respect to their Equity Interests, (iii) Each of Holdings and the Borrower may make Restricted Payments, not exceeding $5,000,000 during any fiscal year, pursuant to and in accordance with stock option plans or other benefit plans for management or employees of Holdings, the Borrower and its Restricted Subsidiaries, (iv) each of Holdings and the Borrower may pay dividends or make distributions to the Persons holding its Equity Interests in an aggregate amount such that such Persons may pay (x) franchise taxes and other fees, taxes and expenses to maintain their legal existence and (y) federal, state and local income taxes to the extent attributable to Holdings and its Subsidiaries or to the Borrower and its Subsidiaries as the case may be, provided that in all events the amounts paid pursuant to clause (y) shall be amounts sufficient to pay the direct obligations of such Persons for such taxes and obligations of the Borrower and Holdings under the Tax Sharing Agreement, provided, however, that (aa) the amounts paid under clause (y) shall not exceed the amount that would be payable, on a consolidated or combined basis, were Holdings the common parent of a separate federal consolidated group or state combined group including the Borrower and its Subsidiaries and (bb) in the case of taxes attributable to the Unrestricted Subsidiary, an amount equal to the amount of such tax payment has been received by the Borrower from the Unrestricted Subsidiary prior to such payment being made; and (v) so long as there exists no Event of Default, each of Holdings and the Borrower may pay dividends or make distributions to the Persons holding its Equity Interests in an aggregate amount such that such Persons may pay officers, directors and corporate overhead expenses incurred in the ordinary course of business up to a maximum aggregate amount of $2,500,000 in any fiscal year.

(b) No Loan Party will, nor will it permit any Restricted Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Indebtedness, or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit,

54

on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Indebtedness, except:

(i) payment of Indebtedness created under the Loan Documents and the ABL Loan Documents;

(ii) payment of regularly scheduled interest and principal payments and any mandatory prepayments or redemptions provided no Default has occurred and is continuing hereunder, as and when due in respect of any Indebtedness, other than payments in respect of the Subordinated Indebtedness prohibited by the subordination provisions thereof;

(iii) refinancings of Indebtedness to the extent permitted by Section 6.01;

(iv) payments or prepayments made with the proceeds of equity issuances; and

(v) payment of secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness.

(c) In addition to Restricted Payments permitted under Section 6.08(a) and payments on or in respect of Indebtedness permitted under Section 6.08(b), any Loan Party may make Restricted Payments and payments of or in respect of Indebtedness, to the extent no Default or Event of Default is continuing at the date of declaration or payment thereof (or would result therefrom), in an amount up to (i) $2,000,000 in any fiscal year plus (ii) 50% of the remaining cumulative Excess Cash Flow since the Closing Date (after giving effect to any prepayments required to be made pursuant to Section 2.11(c), any investments, loans or advances made pursuant to Section 6.04(o)(iii), any previous Restricted Payments or payments made pursuant to this clause (c)(ii)); provided, however, that, on the date of any such declaration or payment utilizing this clause (c), the Borrower and its Subsidiaries shall be in pro forma compliance with Section 5.10.

SECTION 6.09. Transactions with Affiliates. No Loan Party will, nor will it permit any Restricted Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that (i) are in the ordinary course of business and (ii) are at prices and on terms and conditions not less favorable to the Borrower or such Restricted Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties, (b) transactions between or among the Borrower and any Restricted Subsidiary that is a Loan Party not involving any other Affiliate, (c) transactions otherwise permitted by this Agreement, (d) the payment of reasonable fees to directors of the Borrower or any Restricted Subsidiary who are not employees of the Borrower or any Restricted Subsidiary, and compensation and employee benefit arrangements paid to, and indemnities provided for the benefit of, directors, officers or employees of the Borrower or its Restricted Subsidiaries in the ordinary course of business, (e) any issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment agreements, stock options and stock ownership plans approved by the Borrower’s board of directors and (i) transactions pursuant to the Related Documents and the Management Services Agreement.

SECTION 6.10. Restrictive Agreements. No Loan Party will, nor will it permit any Restricted Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of such Loan Party or any of its Restricted Subsidiaries to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Restricted Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances or to transfer any assets to the

55

Borrower or any other Restricted Subsidiary or to Guarantee Indebtedness of the Borrower or any other Restricted Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.10 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Restricted Subsidiary or substantially all its assets pending such sale, provided such restrictions and conditions apply only to the Restricted Subsidiary or such assets that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (v) clause (a) of the foregoing shall not apply to customary provisions in leases or licenses restricting the assignment thereof, and (vi) the foregoing shall not apply to (x) restrictions contained in assumed documents in connection with assumed Indebtedness incurred pursuant to Section 6.01(i), (y) restrictions contained in documents in connection with Indebtedness incurred pursuant to Section 6.01(o) provided that such restrictions are no more onerous than market terms and conditions for such type of Indebtedness incurred at the time such Indebtedness is incurred, and provided in any case such subordination provisions are on terms satisfactory to the Administrative Agent and (z) the ABL Loan Documents.

SECTION 6.11. Amendment of Material Documents. No Loan Party will, nor will it permit any Restricted Subsidiary to, amend, modify or waive any of its rights under (a) agreement relating to any Subordinated Indebtedness, (b) its certificate of incorporation, by-laws, operating, management or partnership agreement or other organizational documents, (c) any Related Document, in each case to the extent any such amendment, modification or waiver would reasonably be expected to be materially adverse to the Lenders.

SECTION 6.12. Accounting; Fiscal Year. Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary of the Borrower to, change its (a) accounting treatment and reporting practices or tax reporting treatment, except as required by GAAP or any Requirement of Law and disclosed to the Administrative Agent and provided that any such changes are reconciled against the accounting treatment and reporting practices or tax reporting treatment used by such entity at the date of this Agreement or (b) fiscal year.

SECTION 6.13. Margin Regulations. Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary of the Borrower to, use all or any portion of the proceeds of any credit extended hereunder to purchase or carry margin stock (within the meaning of Regulation U of the Federal Reserve Board) in contravention of Regulation U of the Federal Reserve Board.

ARTICLE VII

Events of Default

If any of the following events (“Events of Default”) shall occur:

(a) the Borrower shall fail to pay any principal of any Term Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;

(b) the Borrower shall fail to pay any interest on any Term Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this

56

Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days;

(c) any representation or warranty made or deemed made by or on behalf of any Loan Party or any Restricted Subsidiary in or in connection with this Agreement or any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been materially incorrect when made or deemed made;

(d) any Loan Party shall fail to observe or perform (i) any covenant, condition or agreement contained in Section 5.02(a), 5.03 (with respect to a Loan Party’s existence) 5.08, 5.10 or 5.12 or Article VI, or (ii) any other covenant, condition or agreement contained in this Agreement and such failure shall continue unremedied for a period of 30 days after the earlier of such breach or notice thereof from the Term Administrative Agent (which notice will be given at the request of any Term Lender);

(e) any Loan Party or any Subsidiary of the Borrower shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, and such failure relates to Indebtedness having a principal amount of $10,000,000 or more, when and as the same shall become due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise);

(f) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity;

(g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of a Loan Party or any Subsidiary of any Loan Party or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Loan Party or any Subsidiary of any Loan Party or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;

(h) any Loan Party or any Subsidiary of any Loan Party shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Loan Party or Subsidiary of any Loan Party or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

(i) any Loan Party or any Subsidiary of any Loan Party shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;

57

(j) one or more judgments for the payment of money in each case an aggregate amount in excess of $10,000,000 (not covered by insurance as to which the insurer has been notified and has not denied coverage) shall be rendered against any Loan Party, any Restricted Subsidiary of any Loan Party or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed or bonded pending appeal, or any Loan Party or any Restricted Subsidiary of any Loan Party shall fail within 30 days to discharge one or more non-monetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgments or orders, in any such case, are not stayed on appeal or otherwise being appropriately contested in good faith by proper proceedings diligently pursued;

(k) an ERISA Event shall have occurred that individually or when taken together with any other ERISA Events that have occurred, could reasonably be expected to have a Material Adverse Effect;

(l) a Change in Control (or a “Change in Control” as such term is defined in the ABL Credit Agreement) shall occur;

(m) the occurrence of (i) any material “default”, as defined in any Loan Document (other than this Agreement) or the breach of any of the material terms or provisions of any Loan Document (other than this Agreement), which default or breach continues beyond any period of grace therein provided and (ii) any other “default”, as defined in any Loan Document (other than this Agreement) or the breach of any other terms or provisions of any Loan Document (other than this Agreement), which default or default or breach continues unremedied for a period of 30 days;

(n) the Loan Guaranty shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Loan Guaranty, or any Loan Guarantor shall fail to comply with any of the terms or provisions of the Loan Guaranty to which it is a party, or any Loan Guarantor shall deny that it has any further liability under the Loan Guaranty to which it is a party, or shall give notice to such effect;

(o) any Collateral Document shall for any reason fail to create a valid and perfected first priority security interest in any Collateral purported to be covered thereby, except as permitted by the terms of any Loan Document, or any Collateral Document shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of any Collateral Document, or any Loan Party shall fail to comply with any of the terms or provisions of any Collateral Document; or

(p) any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in accordance with its terms (or any Loan Party shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms),

then, and in every such event (other than an event with respect to the Borrower described in clause (g) or (h) of this Article), and at any time thereafter during the continuance of such event, with the consent of the Required Term Lenders, the Term Administrative Agent may, and at the request of the Required Term Lenders shall, by notice to the Borrower, declare the Term Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Term Loans so declared to be due and payable, together with accrued interest

58

thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (g) or (h) of this Article, the Term Commitments shall automatically terminate and the principal of the Term Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Upon the occurrence and the continuance of an Event of Default, the Term Administrative Agent may, and at the request of the Required Term Lenders shall, exercise any rights and remedies provided to the Term Administrative Agent under the Loan Documents or at law or equity, including all remedies provided under the UCC.

ARTICLE VIII

The Administrative Agent

(a) Appointment and Duties of Term Administrative Agent. Each of the Term Lenders hereby irrevocably appoints the Term Administrative Agent as its agent and authorizes the Term Administrative Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to the Term Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. Each of the Term Lenders hereby irrevocably appoints Chase as its Collateral Agent for purposes of the perfection of all Liens created by the Loan Documents an all other purposes stated therein and authorizes Collateral Agent to enter into and exercise such powers as set forth in the Intercreditor Agreement.

The bank serving as the Term Administrative Agent hereunder shall have the same rights and powers in its capacity as a Term Lender as any other Term Lender and may exercise the same as though it were not the Term Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Loan Parties or any Subsidiary of a Loan Party or other Affiliate thereof as if it were not the Term Administrative Agent hereunder.

(b) Limited Duties. The Term Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Term Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Term Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Term Administrative Agent is required to exercise in writing as directed by the Required Term Lenders (or such other number or percentage of the Term Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth in the Loan Documents, the Term Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any of its Subsidiaries that is communicated to or obtained by the bank serving as Term Administrative Agent or any of their Affiliates in any capacity. The Term Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Term Lenders (or such other number or percentage of the Term Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful misconduct. The Term Administrative Agent shall be deemed not to

59

have knowledge of any Default unless and until written notice thereof is given to the Term Administrative Agent by the Borrower or a Term Lender. The Term Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection” with any Loan Document, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Term Administrative Agent.

(c) Reliance. The Term Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Term Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Term Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

(d) Delegation of Rights and Duties. The Term Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Term Administrative Agent. The Term Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding clauses shall apply to any such sub-agent and to the Related Parties of the Term Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Term Administrative Agent.

(e) Resignation of Term Administrative Agent. Subject to the appointment and acceptance of a successor Term Administrative Agent as provided in this clause, the Term Administrative Agent may resign at any time by notifying the Term Lenders and the Borrower. Upon any such resignation, the Required Term Lenders shall have the right, with the consent of the Borrower (such consent not to be unreasonably withheld), to appoint a successor. If no successor shall have been so appointed by the Required Term Lenders and shall have accepted such appointment within 30 days after the retiring Term Administrative Agent gives notice of its resignation, then the retiring Term Administrative Agent may, on behalf of the Term Lenders, appoint a successor Term Administrative Agent which shall be a commercial bank or an Affiliate of any such commercial bank. Upon the acceptance of its appointment as Term Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Term Administrative Agent and the retiring Term Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Term Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Term Administrative Agent’s resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Term Administrative Agent its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Term Administrative Agent.

60

(f) Lender Credit Decision. Each Term Lender acknowledges that it has, independently and without reliance upon the Term Administrative Agent or any other Term Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Term Lender also acknowledges that it will, independently and without reliance upon the Term Administrative Agent or any other Term Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder.

(g) Reports. Each Term Lender hereby agrees that (a) it has requested a copy of each Report prepared by or on behalf of the ABL Administrative Agent under the ABL Credit Agreement; (b) the ABL Administrative Agent (i) makes no representation or warranty, express or implied, as to the completeness or accuracy of any Report or any of the information contained therein or any inaccuracy or omission contained in or relating to a Report and (ii) shall not be liable for any information contained in any Report; (c) the Reports are not comprehensive audits or examinations, and that any Person performing any field examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties’ books and records, as well as on representations of the Loan Parties’ personnel and that the ABL Administrative Agent undertakes no obligation to update, correct or supplement the Reports; (d) it will keep all Reports confidential and strictly for its internal use, not share the Report with any Loan Party or any other Person except as otherwise permitted pursuant to the ABL Credit Agreement; and (e) without limiting the generality of any other indemnification provision contained in this Agreement, it will pay and protect, and indemnify, defend, and hold the ABL Administrative Agent and any such other Person preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including reasonable attorney fees) incurred by any such Person as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Term Lender.

(h) Agents Generally. The Agents shall not have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Term Lenders as such.

ARTICLE IX

Miscellaneous

SECTION 9.01. Notices. (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to clause (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:

(i) if to any Loan Party, to the Borrower at:

Orchard Supply Hardware LLC

6450 Via Del Oro

San Jose, CA 95119

Attention: Richard Gibson and Rob Lynch

Facsimile No: (408) 629-7174

61

(ii) if to the Term Administrative Agent, to JPMorgan Chase Bank, N.A., at:

Houston Loan and Agency Services

1111 Fannin Street, 10th Floor

Houston, Texas 77002

Tel: (713) 750-3803

Fax: (713) 750-2823

with copy to:

JPMorgan Chase Bank, N.A.

270 Park Avenue 4th Floor

New York, New York 10017

Attention: Barry Bergman

Tel: (212) 270-0203

Fax: (212) 270-3279

with copy to:

JPMorgan Chase Bank, N.A.

530 Fifth Avenue, 8th Floor

New York, New York 10036

Attention: Marie Espinal

Tel: (212) 837-3305

Fax: (212) 837-3333

(iii) if to any other Term Lender, to it at its address or facsimile number set forth in its Administrative Questionnaire.

All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received or (ii) sent by facsimile shall be deemed to have been given when sent, provided that if not given during normal business hours for the recipient, such notice shall be deemed to have been given at the opening of business on the next Business Day for the recipient.

(b) Notices and other communications to the Term Lenders hereunder may be delivered or furnished by electronic communications (including e-mail and internet or intranet websites) pursuant to procedures approved by the Term Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II or to compliance and no Event of Default certificates delivered pursuant to Section 5.01(e) unless otherwise agreed by the Term Administrative Agent and the applicable Term Lender. The Term Administrative Agent or the Borrower (on behalf of the Loan Parties) may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. All such notices and other communications (i) sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if not given during the normal business hours of the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day for the recipient, and (ii) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing

62

clause (b)(i) of notification that such notice or communication is available and identifying the website address therefor.

(c) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.

SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the Term Administrative Agent or any Term Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Term Administrative Agent and the Term Lenders hereunder and under any other Loan Document are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by clause (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Term Loan shall not be construed as a waiver of any Default, regardless of whether the Term Administrative Agent or any Term Lender may have had notice or knowledge of such Default at the time.

(b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (i) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Term Lenders or, (ii) in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Term Administrative Agent and the Loan Party or Loan Parties that are parties thereto, with the consent of the Required Term Lenders; provided that no such agreement shall (i) increase the Term Commitment of any Term Lender without the written consent of such Term Lender, (ii) reduce or forgive the principal amount of any Term Loan or reduce the rate of interest thereon, or reduce or forgive any interest or fees payable hereunder, without the written consent of each Term Lender directly affected thereby, (iii) postpone the Term Loan Maturity Date or any scheduled date of payment of the principal amount of any Term Loan, or any date for the payment of any interest, fees or other Obligations payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Term Commitment, without the written consent of each Term Lender directly affected thereby, (iv) change Section 2.18(b) or (d) in a manner that would alter the manner in which payments are shared, without the written consent of each Term Lender, (v) change any of the provisions of this Section or the definition of “Required Term Lenders” or any other provision of any Loan Document specifying the number or percentage of Term Lenders required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Term Lender, (vi) release all or substantially all of the Loan Guarantors from their obligations under the Loan Guaranty (except as otherwise permitted herein or in the other Loan Documents), without the written consent of each Term Lender, or (vii) except as provided in clauses (d) and (e) of this Section or in any Collateral Document, release all or substantially all of the Collateral, without the written consent of each Term Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Term Administrative Agent hereunder without the prior written consent of the Term Administrative Agent; and provided further, that with respect to any amendment, waiver or modification of this Agreement or any Loan Document requiring the consent of the Required Term Lenders or of all affected Term Lenders pursuant to this Section 9.02, Ares Capital Markets Group shall not be entitled to vote with respect to any Disqualified Ares Loans. The Term Administrative Agent may also amend the Commitment Schedule to reflect assignments entered into pursuant to Section 9.04.

63

(c) The Term Lenders hereby irrevocably authorize the Term Administrative Agent, at its option and in its sole discretion, to release any Loan Guarantor or any Liens granted to the Term Administrative Agent by the Loan Parties on any Collateral (i) upon the payment and satisfaction in full in cash of all Obligations (other than Unliquidated Obligations), (ii) constituting property being sold or disposed of if such sale or disposition is made in compliance with the terms of this Agreement, (iii) constituting property leased to a Loan Party under a lease which has expired or been terminated in a transaction permitted under this Agreement, or (iv) as required to effect any sale or other disposition of such Collateral in connection with any exercise of remedies of the Term Administrative Agent and the Term Lenders pursuant to Article VII. Except as provided in the preceding sentence, the Term Administrative Agent will not release any Liens on Collateral without the prior written authorization of the Required Term Lenders; provided that, the Term Administrative Agent may in its discretion, release its Liens on Collateral valued in the aggregate not in excess of $500,000 during any calendar year without the prior written authorization of the Required Term Lenders. Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by the Loan Parties, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral.

(d) If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Term Lender” or “each Term Lender affected thereby,” the consent of the Required Term Lenders is obtained, but the consent of other necessary Term Lenders is not obtained (any such Term Lender whose consent is necessary but not obtained being referred to herein as a “Non-Consenting Lender”), then the Borrower may elect to replace a Non-Consenting Lender as a Term Lender party to this Agreement, provided that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Borrower and the Term Administrative Agent shall agree, as of such date, to purchase for cash the Term Loans and other Obligations due to the Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 9.04, and (ii) the Borrower shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrower hereunder to and including the date of termination, including without limitation payments due to such Non-Consenting Lender under Sections 2.15 and 2.17, and (2) an amount, if any, equal to the payment which would have been due to such Term Lender on the day of such replacement under Section 2.16 had the Term Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Term Lender.

SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower and each other Loan Party shall jointly and severally pay (i) all reasonable out-of-pocket expenses incurred by the Term Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of one primary counsel and one local counsel in each relevant jurisdiction for the Term Administrative Agent, in connection with the syndication and distribution (including, without limitation, via the internet or through a service such as Intralinks) of the credit facilities provided for herein, the preparation and administration of the Loan Documents or any amendments, modifications or waivers of the provisions of the Loan Documents (whether or not the transactions contemplated hereby or thereby shall be consummated), and the creation, perfection or protection of the Liens under the Loan Documents (ii) all reasonable out-of-pocket expenses incurred by the Term Administrative Agent or any Term Lender, including the reasonable fees, charges and disbursements of any counsel for the Term Administrative Agent or any Term Lender, in connection with the enforcement, collection or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Term Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Term Loans. Expenses being reimbursed by the Borrower

64

under this Section include, without limiting the generality of the foregoing, costs and expenses incurred in connection with:

(i) lien and title searches and title insurance;

(ii) taxes, fees and other charges for filing financing statements and continuations, and other actions to perfect, protect, and continue the Collateral Agent’s Liens;

(iii) sums paid or incurred to take any action required of any Loan Party under the Loan Documents that such Loan Party fails to pay or take; and

(iv) forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining the accounts and lock boxes, and costs and expenses of preserving and protecting the Collateral.

(b) The Borrower shall indemnify the Term Administrative Agent, each Syndication Agent and each Term Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, penalties, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Term Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability to the extent related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee.

(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Term Administrative Agent under clause (a) or (b) of this Section, each Term Lender severally agrees to pay to the Term Administrative Agent, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against the Term Administrative Agent in its capacity as such.

(d) To the extent permitted by applicable law, no Loan Party shall assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Term Loan or the use of the proceeds thereof.

(e) All amounts due under this Section shall be payable promptly after written demand therefor.

65

SECTION 9.04. Successors and Assigns, (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Term Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Term Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in clause (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Term Administrative Agent and the Term Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) (i) Subject to the conditions set forth in clause (b)(ii) below, any Term Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of the Term Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:

(A) the Borrower, provided that no consent of the Borrower shall be required for an assignment to a Term Lender, an Affiliate of a Term Lender, an Approved Fund or, if an Event of Default pursuant to clauses (a), (b), (g), (h) or (i) of Article VII has occurred and is continuing, any other assignee; and

(B) the Term Administrative Agent, provided that no consent of the Term Administrative Agent shall be required for an assignment to a Term Lender, an Affiliate of a Term Lender or an Approved Fund.

(ii) Assignments shall be subject to the following additional conditions:

(A) no assignment may be made to any of (i) Holdings, (ii) any Permitted Holder or (iii) any Affiliate of Holdings or any Permitted Holder (other than Ares Capital Markets Group) if, after giving effect to such assignment, Holdings, the Permitted Holders and their Affiliates (other than Ares Capital Markets Group), collectively, would hold in excess of 10% of the total aggregate amount of the Term Commitments;

(B) except in the case of an assignment to a Term Lender or an Affiliate of a Term Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Term Lender’s Term Commitment or Term Loans of any Class, the amount of the Term Commitment or Term Loans of the assigning Term Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Term Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Term Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default pursuant to clauses (a), (b), (g), (h) or (i) of Article VII has occurred and is continuing;

(C) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Term Lender’s rights and obligations under this Agreement;

(D) the parties to each assignment shall execute and deliver to the Term Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; and

66

(E) the assignee, if it shall not be a Term Lender, shall deliver to the Term Administrative Agent an Administrative Questionnaire in which the assignee designates one or more Credit Contacts to whom all syndicate-level information (which may contain material nonpublic information about the Borrower, the Loan Parties and their related parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws.

For the purposes of this Section 9.04(b), the term “Approved Fund” has the following meaning:

“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Term Lender, (b) an Affiliate of a Term Lender or (c) an entity or an Affiliate of an entity that administers or manages a Term Lender.

(iii) Subject to acceptance and recording thereof pursuant to clause (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Term Lender under this Agreement, and the assigning Term Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Term Lender’s rights and obligations under this Agreement, such Term Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Term Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Term Lender of a participation in such rights and obligations in accordance with clause (c) of this Section.

(iv) The Term Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Term Lenders and principal amount of the Term Loans owing to, each Term Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Term Administrative Agent and the Term Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Term Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Term Lender, at any reasonable time and from time to time upon reasonable prior notice.

(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Term Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Term Lender hereunder), the processing and recordation fee referred to in clause (b) of this Section and any written consent to such assignment required by clause (b) of this Section, the Term Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.05, 2.06(d) or (e), 2.07(b), 2.18(d) or 9.03(c), the Term Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full,

67

together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this clause.

(c) (i) Any Term Lender may, without the consent of the Borrower or the Term Administrative Agent sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Term Lender’s rights and obligations under this Agreement (including all or a portion of its Term Loans owing to it); provided that (A) such Term Lender’s obligations under this Agreement shall remain unchanged, (B) such Term Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Term Administrative Agent and the other Term Lenders shall continue to deal solely and directly with such Term Lender in connection with such Term Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Term Lender sells such a participation shall provide that such Term Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Term Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to clause (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Term Lender and had acquired its interest by assignment pursuant to clause (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Term Lender, provided such Participant agrees to be subject to Section 2.18(c) as though it were a Term Lender.

(ii) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Term Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Term Lender shall not be entitled to the benefits of Section 2.17 unless such Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as though it were a Term Lender.

(d) Any Term Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Term Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Term Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Term Lender as a party hereto.

SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Term Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Term Administrative Agent or any Term Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Term Loan or any fee or any other amount payable under this Agreement is outstanding and so long as the Term Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Term Loans, the expiration or termination of the Revolving Commitments or the termination of this Agreement or any provision hereof.

68

SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Term Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Article IV, this Agreement shall become effective when it shall have been executed by the Term Administrative Agent and when the Term Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 9.07. Severability. Any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Term Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Term Lender or Affiliate to or for the credit or the account of the Borrower or such Loan Guarantor against any of and all the Obligations held by such Term Lender, irrespective of whether or not such Term Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured. The applicable Term Lender shall notify the Borrower and the Term Administrative Agent of such set-off or application, provided that any failure to give or any delay in giving such notice shall not affect the validity of any such set-off or application under this Section. The rights of each Term Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Term Lender may have.

SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) The Loan Documents (other than those containing a contrary express choice of law provision) shall be governed by and construed in accordance with the laws of the State of New York.

(b) Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any U.S. Federal or New York State court sitting in New York, New York in any action or proceeding arising out of or relating to any Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Term Administrative Agent or any Term Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.

69

(c) Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in clause (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

SECTION 9.12. Confidentiality. (a) Each of the Term Administrative Agent, the Issuing Bank and the Term Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) is or becomes publicly available other than as a result of a breach of this Section or (ii) is or becomes available to the Term Administrative Agent, the Issuing Bank or any Term Lender on a non-confidential basis from a source other than the Borrower. For the purposes of this Section, “Information” means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Term Administrative Agent, the Issuing Bank or any Term Lender on a non-confidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, the Borrower will notify the Term Administrative Agent if the information includes material non-public information (within the meaning of United States federal securities laws) with respect to Sears Holdings Corporation and its Affiliates (taken as a whole) and any of their respective securities. Any Person

70

required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to confidential information of a similar nature.

(b) EACH TERM LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN SECTION 9.12(a) FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NONPUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.

(c) ALL INFORMATION, INCLUDING WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWER OR THE TERM ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE BORROWER, THE LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES) AND ITS SECURITIES. ACCORDINGLY, EACH TERM LENDER REPRESENTS TO THE BORROWER AND THE TERM ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.

SECTION 9.13. Several Obligations; Nonreliance; Violation of Law. The respective obligations of the Term Lenders hereunder are several and not joint and the failure of any Term Lender to make any Term Loan or perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. Each Term Lender hereby represents that it is not relying on or looking to any margin stock for the repayment of the Term Loans provided for herein. Anything contained in this Agreement to the contrary notwithstanding, no Term Lender shall be obligated to extend credit to the Borrower in violation of any Requirement of Law.

SECTION 9.14. USA PATRIOT ACT. Each Term Lender that is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) hereby notifies the Borrower and each Guarantor that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Borrower and each Guarantor, which information includes the name and address of the Borrower and other information that will allow such Term Lender to identify the Borrower and each Guarantor in accordance with the Act.

SECTION 9.15. Disclosure. Each Loan Party and each Lender hereby acknowledges and agrees that the Term Administrative Agent and/or its Affiliates from time to time may hold investments in, make other loans to or have other relationships with any of the Loan Parties and their respective Affiliates.

SECTION 9.16. Appointment for Perfection. Each Term Lender hereby appoints each other Term Lender as its agent for the purpose of perfecting Liens, for the benefit of the Term Administrative Agent and the Term Lenders, in assets which, in accordance with Article 9 of the UCC or any other applicable law can be perfected only by possession. Should any Term Lender (other than the Term Administrative Agent) obtain possession of any such Collateral, such Term Lender shall notify the Term Administrative Agent thereof, and, promptly upon the Term Administrative Agent’s request

71

therefor shall deliver such Collateral to the Term Administrative Agent or otherwise deal with such Collateral in accordance with the Term Administrative Agent’s instructions.

SECTION 9.17. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Term Loan, together with all fees, charges and other amounts which are treated as interest on such Term Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Term Lender holding such Term Loan in accordance with applicable law, the rate of interest payable in respect of such Term Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Term Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Term Lender in respect of other Term Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Term Lender.

ARTICLE X

Loan Guaranty

SECTION 10.01. Guaranty. Each Loan Guarantor hereby agrees that it is jointly and severally liable for, and, as primary obligor and not merely as surety, absolutely and unconditionally guarantees to the Term Lenders the prompt payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, of the Obligations and all costs and expenses including, without limitation, all court costs and attorneys’ and paralegals’ fees (including allocated costs of in-house counsel and paralegals) and reasonable out-of-pocket expenses paid or incurred by the Term Administrative Agent and the Term Lenders in endeavoring to collect all or any part of the Obligations from, or in prosecuting any action against, the Borrower, any Loan Guarantor or any other guarantor of all or any part of the Obligations (such costs and expenses, together with the Obligations, collectively the “Guaranteed Obligations”). Each Loan Guarantor further agrees that the Guaranteed Obligations may be extended or renewed in whole or in part without notice to or further assent from it, and that it remains bound upon its guarantee notwithstanding any such extension or renewal. All terms of this Loan Guaranty apply to and may be enforced by or on behalf of any domestic or foreign branch or Affiliate of any Term Lender that extended any portion of the Guaranteed Obligations.

SECTION 10.02. Guaranty of Payment. This Loan Guaranty is a guaranty of payment and not of collection. Each Loan Guarantor waives any right to require the Term Administrative Agent or any Term Lender to sue the Borrower, any Loan Guarantor, any other guarantor, or any other person obligated for all or any part of the Guaranteed Obligations (each, an “Obligated Party”), or otherwise to enforce its payment against any collateral securing all or any part of the Guaranteed Obligations.

SECTION 10.03. No Discharge or Diminishment of Loan Guaranty. (a) Except as otherwise provided for herein, the obligations of each Loan Guarantor hereunder are unconditional and absolute and not subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Guaranteed Obligations), including: (i) any claim of waiver, release, extension, renewal, settlement, surrender, alteration, or compromise of any of the Guaranteed Obligations, by operation of law or otherwise; (ii) any change in the corporate existence, structure or ownership of the Borrower or any other guarantor of or other person liable for any of the Guaranteed Obligations; (iii) any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Obligated Party, or their assets or any resulting release or discharge of any obligation of any Obligated Party; or (iv) the existence of any claim, setoff or other rights which any Loan Guarantor may

72

have at any time against any Obligated Party, the Term Administrative Agent any Term Lender, or any other person, whether in connection herewith or in any unrelated transactions.

(b) The obligations of each Loan Guarantor hereunder are not subject to any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality, or unenforceability of any of the Guaranteed Obligations or otherwise (other than a defense of payment or performance), or any provision of applicable law or regulation purporting to prohibit payment by any Obligated Party, of the Guaranteed Obligations or any part thereof.

(c) Further, the obligations of any Loan Guarantor hereunder are not discharged or impaired or otherwise affected by: (i) the failure of the Term Administrative Agent or any Term Lender to assert any claim or demand or to enforce any remedy with respect to all or any part of the Guaranteed Obligations; (ii) any waiver or modification of or supplement to any provision of any agreement relating to the Guaranteed Obligations; (iii) any release, non-perfection, or invalidity of any indirect or direct security for the obligations of the Borrower for all or any part of the Guaranteed Obligations or any obligations of any other guarantor of or other person liable for any of the Guaranteed Obligations; (iv) any action or failure to act by the Term Administrative Agent or any Term Lender with respect to any collateral securing any part of the Guaranteed Obligations; or (v) any default, failure or delay, willful or otherwise, in the payment or performance of any of the Guaranteed Obligations, or any other circumstance, act, omission or delay that might in any manner or to any extent vary the risk of such Loan Guarantor or that would otherwise operate as a discharge of any Loan Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of the Guaranteed Obligations).

SECTION 10.04. Defenses Waived. To the fullest extent permitted by applicable law, each Loan Guarantor hereby waives any defense based on or arising out of any defense of the Borrower or any Loan Guarantor or the unenforceability of all or any part of the Guaranteed Obligations from any cause, or the cessation from any cause of the liability of the Borrower or any Loan Guarantor, other than the indefeasible payment in full in cash of the Guaranteed Obligations. Without limiting the generality of the foregoing, each Loan Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any person against any Obligated Party, or any other person. The Term Administrative Agent may, at its election, foreclose on any Collateral held by it by one or more judicial or nonjudicial sales, accept an assignment of any such Collateral in lieu of foreclosure or otherwise act or fail to act with respect to any collateral securing all or a part of the Guaranteed Obligations, compromise or adjust any part of the Guaranteed Obligations, make any other accommodation with any Obligated Party or exercise any other right or remedy available to it against any Obligated Party, without affecting or impairing in any way the liability of such Loan Guarantor under this Loan Guaranty except to the extent the Guaranteed Obligations have been fully and indefeasibly paid in cash. To the fullest extent permitted by applicable law, each Loan Guarantor waives any defense arising out of any such election even though that election may operate, pursuant to applicable law, to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Loan Guarantor against any Obligated Party or any security.

SECTION 10.05. Rights of Subrogation. No Loan Guarantor will assert any right, claim or cause of action, including, without limitation, a claim of subrogation, contribution or indemnification that it has against any Obligated Party, or any collateral, until the Loan Parties and the Loan Guarantors have fully performed all their obligations to the Term Administrative Agent and the Term Lenders.

SECTION 10.06. Reinstatement; Stay of Acceleration. If at any time any payment of any portion of the Guaranteed Obligations is rescinded or must otherwise be restored or returned upon the

73

insolvency, bankruptcy, or reorganization of the Borrower or otherwise, each Loan Guarantor’s obligations under this Loan Guaranty with respect to that payment shall be reinstated at such time as though the payment had not been made and whether or not the Term Administrative Agent and the Term Lenders are in possession of this Loan Guaranty. If acceleration of the time for payment of any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of any agreement relating to the Guaranteed Obligations shall nonetheless be payable by the Loan Guarantors forthwith on demand by the Term Lender.

SECTION 10.07. Information. Each Loan Guarantor assumes all responsibility for being and keeping itself informed of the Borrower’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that each Loan Guarantor assumes and incurs under this Loan Guaranty, and agrees that neither the Term Administrative Agent nor any Term Lender shall have any duty to advise any Loan Guarantor of information known to it regarding those circumstances or risks.

SECTION 10.08. Termination. Notwithstanding the receipt by the Term Administrative Agent of a notice of termination from any Loan Guarantor, each Loan Guarantor will continue to be liable to the Term Lenders for any Guaranteed Obligations created, assumed or committed to prior to the third day after the receipt of the notice, and all subsequent renewals, extensions, modifications and amendments with respect to, or substitutions for, all or any part of that Guaranteed Obligations.

SECTION 10.09. Taxes. Subject to the same exceptions and limitations applicable to the Borrower under Section 2.17 of the Agreement, mutatis mutandis, all payments of the Guaranteed Obligations will be made by each Loan Guarantor free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if any Loan Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Term Administrative Agent or Term Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Guarantor shall make such deductions and (iii) such Loan Guarantor shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

SECTION 10.10. Maximum Liability. The provisions of this Loan Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Loan Guarantor under this Loan Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Loan Guarantor’s liability under this Loan Guaranty, then, notwithstanding any other provision of this Loan Guaranty to the contrary, the amount of such liability shall, without any further action by the Loan Guarantors or the Term Lenders, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Loan Guarantor’s “Maximum Liability”). This Section with respect to the Maximum Liability of each Loan Guarantor is intended solely to preserve the rights of the Term Lenders to the maximum extent not subject to avoidance under applicable law, and no Loan Guarantor nor any other person or entity shall have any right or claim under this Section with respect to such Maximum Liability, except to the extent necessary so that the obligations of any Loan Guarantor hereunder shall not be rendered voidable under applicable law. Each Loan Guarantor agrees that the Guaranteed Obligations may at any time and from time to time exceed the Maximum Liability of each Loan Guarantor without impairing this Loan Guaranty or affecting the rights and remedies of the Term Lenders hereunder, provided that, nothing in this sentence shall be construed to increase any Loan Guarantor’s obligations hereunder beyond its Maximum Liability.

74

SECTION 10.11. Contribution. In the event any Loan Guarantor (a “Paying Guarantor”) shall make any payment or payments under this Loan Guaranty or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Loan Guaranty, each other Loan Guarantor (each a “Non-Paying Guarantor”) shall contribute to such Paying Guarantor an amount equal to such Non-Paying Guarantor’s “Applicable Percentage” of such payment or payments made, or losses suffered, by such Paying Guarantor. For purposes of this Article X, each Non- Paying Guarantor’s “Applicable Percentage” with respect to any such payment or loss by a Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such Non-Paying Guarantor’s Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such Non-Paying Guarantor’s Maximum Liability has not been determined, the aggregate amount of all monies received by such Non- Paying Guarantor from the Borrower after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate Maximum Liability of all Loan Guarantors hereunder (including such Paying Guarantor) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any Loan Guarantor, the aggregate amount of all monies received by such Loan Guarantors from the Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this provision shall affect any Loan Guarantor’s several liability for the entire amount of the Guaranteed Obligations (up to such Loan Guarantor’s Maximum Liability). Each of the Loan Guarantors covenants and agrees that its right to receive any contribution under this Loan Guaranty from a Non-Paying Guarantor shall be subordinate and junior in right of payment to the payment in full in cash of the Guaranteed Obligations. This provision is for the benefit of both the Term Administrative Agent, the Term Lenders and the Loan Guarantors and may be enforced by any one, or more, or all of them in accordance with the terms hereof.

SECTION 10.12. Liability Cumulative. The liability of each Loan Party as a Loan Guarantor under this Article X is in addition to and shall be cumulative with all liabilities of each Loan Party to the Term Administrative Agent and the Term Lenders under this Agreement and the other Loan Documents to which such Loan Party is a party or in respect of any obligations or liabilities of the other Loan Parties, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.

SECTION 10.13. Common Enterprise. The successful operation and condition of each of the Loan Parties is dependent on the continued successful performance of the functions of the group of the Loan Parties as a whole and the successful operation of each of the Loan Parties is dependent on the successful performance and operation of each other Loan Party. Each Loan Party expects to derive benefit, directly and indirectly, from (i) successful operations of each of the other Loan Parties and (ii) the credit extended by the Term Lenders to the Borrower hereunder, both in their separate capacities and as members of the group of companies.

75

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

ORCHARD SUPPLY HARDWARE LLC, as Borrower
By: Orchard Supply Hardware Stores Corporation, its Managing Member
By:	/s/ Robert M. Lynch
	Name: Robert M. Lynch
	Title:
ORCHARD SUPPLY HARDWARE STORES CORPORATION, as Holdings
By:	/s/ Robert M. Lynch
	Name: Robert M. Lynch
	Title:
OSH FINANCE CORPORATION, as Guarantor
By:	/s/ Robert M. Lynch
	Name: Robert M. Lynch
	Title:

[SIGNATURE PAGE TO TERM LOAN AGREEMENT]

JPMORGAN CHASE BANK, N.A., individually, as Term Administrative Agent, Collateral Agent and as Lender
By:	/s/ Barry Bergman
	Name:	Barry Bergman
	Title:	Managing Director

[SIGNATURE PAGE TO TERM LOAN AGREEMENT]

Commitment Schedule

Commitment Schedule

Lender	Total Allocation
JPMorgan Chase Bank, N.A.	$	200,000,000

Leasehold Property Schedule

Leased Property

STORE	ADDRESS	CITY	STATE		ZIP		LANDLORD
Alum Rock	3000 Alum Rock Ave.	San Jose		CA		95127	OSH Properties LLC
Antelope	4249 Elverta Road	Sacramento		CA		95843	OSH Properties LLC
Branham (Pick-up Station)	1130 Branham Lane	San Jose		CA		95118	OSH Properties LLC
Chico	231 W. East Avenue	Chico		CA		95926	OSH Properties LLC
Clovis	147 W. Shaw Avenue	Clovis		CA		93612	OSH Properties LLC
Cottle	5651 Cottle Road	San Jose		CA		95123	OSH Properties LLC
Folsom	905 E. Bidwell Street	Folsom		CA		95630	OSH Properties LLC
Hollywood	5525 Sunset Boulevard	Hollywood		CA		90028	OSH Properties LLC
Modesto	2800 Sisk Road	Modesto		CA		95350	OSH Properties LLC
Pinole	1440 Fitzgerald Drive	Pinole		CA		94564	OSH Properties LLC
Pismo Beach	853 Oak Park Road	Pismo Beach		CA		93449	OSH Properties LLC
San Carlos	720 West San Carlos Street	San Jose		CA		95126	OSH Properties LLC
San Lorenzo	177 Lewelling Boulevard	San Lorenzo		CA		94580	OSH Properties LLC

STORE	ADDRESS	CITY	STATE		ZIP		LANDLORD
Silver Creek	1751 East Capital Expressway	San Jose		CA		95121	OSH Properties LLC
Tracy Distribution Center	2650 MacArthur Drive	Tracy		CA		95376	OSH Properties LLC
Van Nuys	5960 Sepulveda Boulevard	Van Nuys		CA		91411	OSH Properties LLC
Branham	1130 Branham Lane	San Jose		CA		95118	Bank of the West Successor Trustee to the Edna M. Mullen Family Trust, c/o Biagini Properties, Inc. 333 W. El Camino Real, Suite 240, Sunnyvale, CA 94087
Sunnyvale (RR)	777 Sunnyvale-Saratoga Rd	Sunnyvale		CA		94087	Mardit Properties, P.O. Box 1309, Capitola, CA 95010
Huntington Beach	19930 Golden West St.	Huntington Beach		CA		92648	Seacliff Village LLC, c/o Cornerstone Real Estate Advisers, Inc., 10866 Wilshire Blvd., Suite 800, Los Angeles, CA 90024
Capitola	1601 41st Avenue (Office)	Capitola		CA		95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010
Capitola	Pick up station	Capitola		CA		95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010
Capitola	1601 41st Avenue (Main Building)	Capitola		CA		95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010
Capitola	1601 41st Avenue (Main Building, Additional Space)	Capitola		CA		95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010
Capitola	41st and Capitola Road (South and West perimeters of the Shell Station.)	Capitola		CA		95010	Raintree Enterprises Inc. (Plaza Shell) Licensor the Shell Station was demolished October 18, 1993
Livermore (RR)	1450 First Street	Livermore		CA		94550	Walter & Dorothy Anderson, 1091 Buckingham Drive, Los Altos, CA 94024
Midtown / Los Angeles	4801 Venice Blvd.	Los Angeles		CA		90019	Midtown Shopping Center, 4725 W. Venice Blvd., 2nd Floor, Los Angeles, CA 90019

STORE	ADDRESS	CITY	STATE		ZIP		LANDLORD
Elk Grove / Sacramento	7431 Laguna Blvd.	Elk Grove		CA		95758	Donahue Schriber, 200 E. Baker Street, Suite 100, Costa Mesa, CA 95626
Fremont	5130 Mowry Avenue	Fremont		CA		94538	Mowry East Shopping Center, c/o Biagini Properties, Inc., 333 W. El Camino Real, Suite 240, Sunnyvale, CA 94087
Citrus Heights / Sacramento Closed 5/21/05 Turn over 5/31/05	5425 Sunrise Blvd.	Citrus Heights		CA		95610	Sunrise Village Retail Center L.P., 2264 Fair Oaks Blvd., #100, Sacramento, CA 95825
San Lorenzo	Parking Lot	San Lorenzo		CA		94580	County of Alameda, Public Works Agency, Real Estate Division, 399 Elmhurst Street, Hayward, CA 94544
Dublin	7884 Dublin Blvd.	Dublin		CA		94568	Pan Pacific Retail Properties, 1631-B S. Melrose Drive, Vista, CA 92083
Stockton	1015 West Hammer Lane	Stockton		CA		95209	Fedi, Fedi, Jaworski & Santini, c/o Frank Jaworski, 635 Atheron Drive, Lodi, CA 95242
Milpitas	125 N. Milpitas Blvd.	Milpitas		CA		95035	Shappell Industries, 100 No. Milpitas Blvd., P.O. Box 361169, Milpitas, CA 95035
Gilroy (RR)	303 East 10th	Gilroy		CA		95020	Conrotto Family 1990 Trust, 1320 Cedar Court, Gilroy, CA 95020
Modesto, Eastgate	1800 Oakdale Rd	Modesto		CA		95355	Nora Naraghi, P.O. Box 602, Denair, CA 95316
Modesto, Eastgate - Appliances	1800 Oakdale Rd	Modesto		CA		95355	Nora Naraghi, P.O. Box 602, Denair, CA 95316
Millbrae	900 El Camino Real	Millbrae		CA		94030	San Francisco Public Utilities Commission, 1000 El Camino Real, P.O. Box 730, Millbrae, CA 94030
Milbrae - PGE	900 El Camino Real	Millbrae		CA		94030	PG & E, Non-Energy Collection Unit, P.O. Box 8329, Stockton, CA 95208-8329
Redwood City	2110 Middlefield Road	Redwood City		CA		94063	PL Redwood City LP, 3333 New Hyde Park Road, Suite 100, New Hyde Park NY 11042

STORE	ADDRESS	CITY	STATE		ZIP		LANDLORD
La Verne	2244 Foothill Blvd	La Veme		CA		91750	La Veme Courtyard, LLC, c/o Preferred Property Development, 629 Camino de los Mares, Suite 201, San Clemente, CA 92673
Concord	2050 Monument Blvd.	Concord		CA		94520	Joan Bruzzone, 899 Hope Lane, Lafayette, CA 94549
Arden & Watt Sacramento	3350 Arden Way	Sacramento		CA		95825	Arden Way LLC and Arden Way No 2 LLC, 425 California Street, Suite 2300, San Francisco, CA 94104
Salinas	1067 North Davis Road	Salinas		CA		93906	John Cortese & Sarah Cortese, 4190 Cadwallader Ave., San Jose, CA 95121
Watsonville (RFO/RR)	1060 S. Green Valley Road	Watsonville		CA		95076	South County Professional Park, 9053 Soquel Drive, Suite B, Aptos, CA 95003
Prospect	5365 Prospect Road	San Jose		CA		95129	Cupertino Partners IV, 4675 Stevens Creek Blvd., Suite 230, Santa Clara, CA 95051
El Camino	3615 El Camino Real	Santa Clara		CA		95051	Anka & Pero Margaretic, 697 Calderon Avenue, San Jose, CA 95121
El Cerrito	1751 Eastshore Blvd.	El Cerrito		CA		94530	Bay Area Warehouse Stores, c/o Ralphs Grocery Co,, 1100 West Artesia Boulevard, Compton, CA 90220
San Leandro	300 Floresta Blvd.	San Leandro		CA		94578	Builders Associates #3, c/o Arnold Schlessinger, 9595 Wilshire Blvd., #710, Beverly Hills, CA 90212
Antioch (RFO, Limited RR)	2388 Buchanan Road	Antioch		CA		94509	S.M. Properties, P.O. Box 3596, Los Altos, CA 94040
Fresno	5445 N. Blackstone Ave.	Fresno		CA		93710	Dervisnian Properties, 333 W. Shaw #6, Fresno, CA 93704
Paso Robles	2005 Theatre Drive	Paso Robles		CA		93446	Paso Robles Ventures LLC, c/o Eilis Partners, Inc., 111 Sutter Street, Suite 600, San Francisco, CA 94104
Napa (RFO, Limited RR)	3980 Bel Aire Plaza	Napa		CA		94558	Monroe Forsyth, Inc c/o Randy Pennington, 2375 Hardies Lane, Santa Rosa, CA 95403

STORE	ADDRESS	CITY	STATE		ZIP		LANDLORD
Tracy	1975 W. 11th Street	Tracy		CA		95376	RRG-RMC/Tracy, LLC, 1850 Mt. Diablo Blvd., Suite 225, Walnut Creek, CA 94596
Turlock	3051 Greer Road	Turlock		CA		95380	John & Kathleen McCorduck, P.O. Box 183, Walnut Creek, CA 94596
San Ramon	1041 Market Place	San Ramon		CA		94583	MPK LLC, Paul Pries, 1845 Dry Creek Road, Campbell, CA 95008
Lone Tree (Antioch 2)	4873 Lone Tree Way	Antioch		CA		94531	Robert Dewey, 6602 N, Lost Dutchman Drive, Paradise Valley, AZ 85253
Vacaville	220 Peabody Road	Vacaville		CA		95687	PMB Development Company, 765 Baywood Drive, Suite 141, Petaluma, CA 94954
San Rafael (3)	1151 Andersen Drive	San Rafael		CA		94901	Harvey Capital Corp., 2333 Cotner Avenue, Los Angeles, CA 90064
Visalia	2230 W. Walnut Ave.	Visalia		CA		93277	Visalia Properties Partnership, P.O. Box 5005, Rancho Mirage, CA 92270
Moraga	1550 Canyon Road	Moraga		CA		94556	Russell J. Bruzzone, Inc., 899 Hope Lane, Lafayette, CA 94549
Foster City	1010 Metro Center Blvd.	Foster City		CA		94404	Metro TCE LLC, c/o Transpacific Development, Co., 2377 Crenshaw Blvd., Suite 300, Torrance, CA 90501
Sand City	800 Playa Ave.	Sand City		CA		93955	Fortuna Realty Company, c/o Central California Management Co., Inc., 419 Webster Street, Suite 202, Monterey, CA 93940
Fresno	1536 East Champlain Drive	Fresno		CA		93720	Mr. Dennis Vlessing, Townhouse Holdings Limited, 256-26th Street, Santa Monica, CA 90402
Santa Maria	1950 South Broadway	Santa Maria		CA		93454	Western Village Shopping Center, 1136 West McCoy Lane, Santa Maria, CA 93455
Citrus Heights	6124 San Juan Avenue	Citrus Heights		CA		95610	San Juan, LLC c/o Red Mountain Retail Group, Inc., 1234 E. 17th St., Santa Ana, CA 92701

STORE	ADDRESS	CITY	STATE		ZIP		LANDLORD
Kings Canyon	5653 East Kings Canyon	Fresno		CA		93727	Save Mart Grocery Stores c/o Manco Abbott, P.O. Box 9440, Fresno, CA 93792-9440
Berkeley	1025 Ashby Avenue	Berkeley		CA		94710	Rob Cassil, Sole Proprietorship, 1704 Union Street, San Francisco, CA 94123
Newark	5655 Jarvis Avenue	Newark		CA		94560	Newark Development, 11150 Santa Monica Blvd., Suite 760, Los Angeles, CA 90025
Lodi	360 S. Cherokee Lane	Lodi		CA		95240	O-S Lodi, Attn. Mr. Peter Paige, 3205 Underhill Place, Bend, OR 97701
Yuba City	1262 Stabler Lane	Yuba City		CA		95993	Butte House/Bel Air Investors, c/o Prentiss Properties Limited, Inc., 2240 Douglas Blvd., Suite 105, Roseville, CA 95661
Manteca	189 West Louise Avenue	Manteca		CA		95336	Ed & Dolores Cardoza, P.O. Box 1022, Manteca, CA 95336
S. San Francisco	2245 Gellert Blvd.	S. San Francisco		CA		94080	American United Life Insurance Company, One American Square, P.O. Box 368, Indianapolis, IN 46206-0368
Petaluma	1390 N. McDonald Blvd.	Petaluma		CA		94954	J&R Properties, c/o R.T. Bettencourt, 7226 Via Sendero, San Jose, CA 95135
Merced {4)	3155 R. Street	Merced		CA		95348	Isenberg Investments, Attn: Berent Isenberg, P.O. Box 2144, Merced, CA 95344
Sonora	750 E. Mono Way	Sonora		CA		95370	Sonora Plaza I, LLC, 770 Tamalpais Drive, Suite 401-B, Corte Madera, CA 94925
Hanford	700 11th Avenue	Hanford		CA		93230	Hanford Center LLC, P.O. Box 655, 1555 Indian Valley Road, Novato, CA 94949
Pasadena	3425 E. Colorado Blvd.	Pasadena		CA		91107	KCB RE, L.P. 20 North Raymond Avenue #250, Pasadena, CA 91103
So. Pasadena	452 S. Fair Oaks Ave.	So. Pasadena		CA		91030	Young Properties, 3407 Ocean View Blvd., Glendale, CA 91208

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Burbank	641 N. Victory Blvd.	Burbank	CA	91502	Airport Plaza, Inc., c/o Pacifica Holding Company, 6101 W. Centinela Avenue, #110, Culver City, CA 90230
West Los Angeles	2020 S. Bundy Drive and 2005 Armacost Avenue	West Los Angeles	CA	90025	Bundy Plaza W.L.A., Ltd. c/o Denholm, Harris & Co., 8105 Irvine Center Dr., Suite 675, Irvine, CA 92619
Goleta	125 N. Fairview	Goleta	CA	93017	Fairview Center, c/o H. B. Silverman, 2152 Century Hill, Los Angeles, CA 90067
Redding	2340 Athens Avenue	Redding	CA	96001	Athens Plaza, LLC, P.O. Box 15175, Seattle, WA 98115
Mountain View	2555 Charleston Road	Mountain View	CA	94043	Edward/Barbara Hinshaw, 12901 Saratoga Avenue, San Jose, CA 95070
La Crescenta	3100 Foothill Blvd.	La Crescenta	CA	91214	Young Properties, 3407 Ocean View Blvd., Glendale, CA 91208
Whittier Subleased to Michael’s and Anna’s linens	13400 Whittier Blvd	Whittier	CA	90605	GMS Realty, LLC, 5973 Avenida Encinas, Suite 300, Carlsbad, CA 92008
Canoga Park	22741 Victory Blvd.	Canoga Park	CA	91307	SWZ Partnership, LLC, Corrine Shukartsi, General Partner, 135 Ocean Way, Santa Monica, CA 90402
Canoga Park Pick-Up Station	22741 Victory Blvd.	Canoga Park	CA	91307	SWZ Partnership, LLC, Corrine Shukartsi, General Partner, 135 Ocean Way, Santa Monica, CA 90402
Torrance	4340 Pacific Coast Highway	Torrance	CA	90505	Don Baron, Steve Glusker, Edward Franklin, 12100 Wilshire Blvd., Suite #1025, Los Angeles, CA 90025
Woodland	1350 E. Main St.	Woodland	CA	95695	PM/OSH Associates, LLC, 11819 Wilshire Blvd., #204, Los Angeles, CA 90025
Thousand Oaks	1934 E. Avenida De Los Arboles	Thousand Oaks	CA	91312	Butler Champion, Ltd., 11845 West Olympic Boulevard, Suite 700, Los Angeles, CA 90064
Santa Clarita	26565 N. Bouquet Canyon Road	Santa Clarita	CA	91350	Bouquet Canyon II LLC c/o Dollinger - Devcon Associates, c/o Mr. Michael Dollinger, 555 Twin Dolphin Dr., #600, Redwood City, CA 94065

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Rancho Cucamonga	9080 Foothill Blvd.	Rancho Cucamonga	CA	91730	Orchard Capital, L.P., 1850 S. Sepulveda Blvd., #200, Los Angeles, CA 90025
Fountain Valley	17200 Brookhurst Avenue	Fountain Valley	CA	92708	Builders Associates #3, c/o Arnold Schlesinger, 9595 Wilshire Boulevard, Suite 710, Beverly Hills, CA 90212
Long Beach	4480 Atlantic Ave.	Long Beach	CA	91210	GGF, LLC, 100 W. Broadway Suite 950, Glendale, CA 91210
Laguna Niguel	27921 La Paz Road	Laguna Niguel	CA	92677	Nevada Investment Holdings, Inc., 8095 Othello Avenue, San Diego, CA 92111
Santa Ana	1975 E. 17th Street.	Santa Ana	CA	92701	HPSC 1, LLC, Red Mountain West Properties, Inc., 1234 E. 17th Street, Santa Ana, CA 92701
Granada Hills	18060 Chatsworth	Granada Hills	CA	91344	Trak Chicago & 75th Ave., c/o Combined Properties, Inc., 1255 22nd Street, N.W., 6th Floor, Washington, D.C. 20037
Bakersfield	6465 Ming Ave.	Bakersfieid	CA	93309	Sagepointe LLC, c/o M.D. Atkinson Co., Inc., 1401 19th Street, Suite 400, Bakersfield, CA 93301
Display Shop	2291 Junction Ave.	San Jose	CA	95131	Richard Ferrari, et al, 5466 Blossomwood Drive, San Jose, CA 95124
Corporate	6450 Via Del Oro	San Jose	CA	95119	Sobrato Development Co., 10600 N. De Anza Blvd., Suite 200, Cupertino, CA 95014

Schedule 2.06

Schedule 2.06 – Letters of Credit

Issued by	Bank Reference	Beneficiary Name	Amount of Outstanding Import LC
Bank of America		WELL TRAVELED IMPORTS INC.	$	24,530.00
Bank of America		SHINERICH INDUSTRIAL LTD.	$	30,208.00
Bank of America		IMPULSE ENTERPRISES	$	49,566.10
Bank of America		MCM GLOBAL, LTD.	$	87,722.80
Bank of America		WESTINGHOUSE LIGHTING CORPORATION	$	88,292.20
Bank of America		SINTAI CORP. PTE LTD.	$	110,147.00
Bank of America		ONE WORLD TECHNOLOGIES	$	62,717.72
Bank of America		CHERVON LIMITED	$	34,449.80
Bank of America		WORLD ZONE (MALAYSIA) SDN BHD	$	64,064.00
Bank of America		WORLD ZONE (MALAYSIA) SDN BHD	$	12,546.00
Bank of America		COURTYARD CREATIONS INC.	$	78,400.00
Bank of America		TEAM PRODUCTS INTERNATIONAL INC.	$	10,333.44
Bank of America		QUALITY CRAFT	$	30,466.80
Bank of America		ONE WORLD TECHNOLOGIES	$	30,854.60
Bank of America		MCM GLOBAL, LTD.	$	92,867.00
Bank of America		ONE WORLD TECHNOLOGIES	$	37,915.00
Bank of America		GARRITY INDUSTRIES INC.	$	50,623.20
Bank of America		ONE WORLD TECHNOLOGIES	$	2,678.40
Bank of America		COOPER LIGHTING CORP.	$	36,263.00
		TOTAL	$	934,645.06

Schedule 3.05

Schedule 3.05 – Properties

Owned Property

STORE	ADDRESS	CITY	STATE	ZIP
Alum Rock (Parking Lot)	2956 Alum Rock Avenue	San Jose	CA		95127
San Carlos (additional parcel)	655 Auzerais Avenue	San Jose	CA		95126

Leased Property

STORE	ADDRESS	CITY	STATE	ZIP		LANDLORD
Alum Rock	3000 Alum Rock Ave.	San Jose	CA		95127	OSH Properties LLC
Antelope	4249 Elverta Road	Sacramento	CA		95843	OSH Properties LLC
Branham (Pick-up Station)	1130 Branham Lane	San Jose	CA		95118	OSH Properties LLC
Chico	231 W. East Avenue	Chico	CA		95926	OSH Properties LLC
Clovis	147 W. Shaw Avenue	Clovis	CA		93612	OSH Properties LLC
Cottle	5651 Cottle Road	San Jose	CA		95123	OSH Properties LLC
Folsom	905 E. Bidwell Street	Folsom	CA		95630	OSH Properties LLC
Hollywood	5525 Sunset Boulevard	Hollywood	CA		90028	OSH Properties LLC

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP		LANDLORD
Modesto	2800 Sisk Road	Modesto	CA		95350	OSH Properties LLC
Pinole	1440 Fitzgerald Drive	Pinole	CA		94564	OSH Properties LLC
Pismo Beach	853 Oak Park Road	Pismo Beach	CA		93449	OSH Properties LLC
San Carlos	720 West San Carlos Street	San Jose	CA		95126	OSH Properties LLC
San Lorenzo	177 Lewelling Boulevard	San Lorenzo	CA		94580	OSH Properties LLC
Silver Creek	1751 East Capital Expressway	San Jose	CA		95121	OSH Properties LLC
Tracy Distribution Center	2650 MacArthur Drive	Tracy	CA		95376	OSH Properties LLC
Van Nuys	5960 Sepulveda Boulevard	Van Nuys	CA		91411	OSH Properties LLC
Branham	1130 Branham Lane	San Jose	CA		95118	Bank of the West Successor Trustee to the Edna M. Mullen Family Trust, c/o Biagini Properties, Inc. 333 W. El Camino Real, Suite 240, Sunnyvale, CA 94087
Sunnyvale (RR)	777 Sunnyvale-Saratoga Rd	Sunnyvale	CA		94087	Mardit Properties, P.O. Box 1309, Capitola, CA 95010
Huntington Beach	19930 Golden West St.	Huntington Beach	CA		92648	Seacliff Village LLC, c/o Cornerstone Real Estate Advisers, Inc., 10866 Wilshire Blvd., Suite 800, Los Angeles, CA 90024
Capitola	1601 41st Avenue (Office)	Capitola	CA		95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010
Capitola	Pick up station	Capitola	CA		95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP		LANDLORD
Capitola	1601 41st Avenue (Main Building)	Capitola	CA		95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010
Capitola	1601 41st Avenue (Main Building, Additional Space)	Capitola	CA		95010	Kings Plaza Shopping Center, 1601 41st Avenue, Suite 202, Capitola, CA 95010
Capitola	41st and Capitola Road (South and West perimeters of the Shell Station.)	Capitola	CA		95010	Raintree Enterprises Inc. (Plaza Shell) Licensor the Shell Station was demolished October 18, 1993
Livermore (RR)	1450 First Street	Livermore	CA		94550	Walter & Dorothy Anderson, 1091 Buckingham Drive, Los Altos, CA 94024
Midtown / Los Angeles	4801 Venice Blvd.	Los Angeles	CA		90019	Midtown Shopping Center, 4725 W. Venice Blvd., 2nd Floor, Los Angeles, CA 90019
Elk Grove / Sacramento	7431 Laguna Blvd.	Elk Grove	CA		95758	Donahue Schriber, 200 E. Baker Street, Suite 100, Costa Mesa, CA 95626
Fremont	5130 Mowry Avenue	Fremont	CA		94538	Mowry East Shopping Center, c/o Biagini Properties, Inc., 333 W. El Camino Real, Suite 240, Sunnyvale, CA 94087
Citrus Heights / Sacramento Closed 5/21/05 Turnover 5/31/05	5425 Sunrise Blvd.	Citrus Heights	CA		95610	Sunrise Village Retail Center L.P., 2264 Fair Oaks Blvd., #100, Sacramento, CA 95825
San Lorenzo	Parking Lot	San Lorenzo	CA		94580	County of Alameda, Public Works Agency, Real Estate Division, 399 Elmhurst Street, Hayward, CA 94544
Dublin	7884 Dublin Blvd.	Dublin	CA		94568	Pan Pacific Retail Properties, 1631-B S. Melrose Drive, Vista, CA 92083
Stockton	1015 West Hammer Lane	Stockton	CA		95209	Fedi, Fedi, Jaworski & Santini, c/o Frank Jaworski, 635 Atheron Drive, Lodi, CA 95242
Milpitas	125 N. Milpitas Blvd.	Milpitas	CA		95035	Shappell Industries, 100 No. Milpitas Blvd., P.O. Box 361169, Milpitas, CA 95035
Gilroy (RR)	303 East 10th	Gilroy	CA		95020	Conrotto Family 1990 Trust, 1320 Cedar Court, Gilroy, CA 95020

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Modesto, Eastgate	1800 Oakdale Rd	Modesto	CA	95355	Nora Naraghi, P.O. Box 602, Denair, CA 95316
Modesto, Eastgate - Appliances	1800 Oakdale Rd	Modesto	CA	95355	Nora Naraghi, P.O. Box 602, Denair, CA 95316
Millbrae	900 El Camino Real	Millbrae	CA	94030	San Francisco Public Utilities Commission, 1000 El Camino Real, P.O. Box 730, Millbrae, CA 94030
Milbrae - PGE	900 El Camino Real	Millbrae	CA	94030	PG & E, Non-Energy Collection Unit, P.O. Box 8329, Stockton, CA 95208-8329
Redwood City	2110 Middlefield Road	Redwood City	CA	94063	PL Redwood City LP, 3333 New Hyde Park Road, Suite 100, New Hyde Park NY 11042
La Verne	2244 Foothill Blvd	La Verne	CA	91750	La Verne Courtyard, LLC, c/o Preferred Property Development, 629 Camino de los Mares, Suite 201, San Clemente, CA 92673
Concord	2050 Monument Blvd.	Concord	CA	94520	Joan Bruzzone, 899 Hope Lane, Lafayette, CA 94549
Arden & Watt Sacramento	3350 Arden Way	Sacramento	CA	95825	Arden Way LLC and Arden Way No 2 LLC, 425 California Street, Suite 2300, San Francisco, CA 94104
Salinas	1067 North Davis Road	Salinas	CA	93906	John Cortese & Sarah Cortese, 4190 Cadwallader Ave., San Jose, CA 95121
Watsonville (RFO/RR)	1060 S. Green Valley Road	Watsonville	CA	95076	South County Professional Park, 9053 Soquel Drive, Suite B, Aptos, CA 95003
Prospect	5365 Prospect Road	San Jose	CA	95129	Cupertino Partners IV, 4675 Stevens Creek Blvd., Suite 230, Santa Clara, CA 95051
El Gamine	3615 El Camino Real	Santa Clara	CA	95051	Anka & Pero Margaretic, 697 Calderon Avenue, San Jose, CA 95121
El Cerrito	1751 Eastshore Blvd.	El Cerrito	CA	94530	Bay Area Warehouse Stores, c/o Ralphs Grocery Co., 1100 West Artesia Boulevard, Comptort, CA 90220

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
San Leandro	300 Floresta Blvd.	San Leandro	CA	94578	Builders Associates #3, c/o Arnold Schlessinger, 9595 Wilshire Blvd., #710, Beverly Hills, CA 90212
Antioch (RFO, Limited RR)	2388 Buchanan Road	Antioch	CA	94509	S.M. Properties, P.O. Box 3596, Los Altos, CA 94040
Fresno	5445 N. Blackstone Ave.	Fresno	CA	93710	Dervishian Properties, 333 W. Shaw #6, Fresno, CA 93704
Paso Robles	2005 Theatre Drive	Paso Robles	CA	93446	Paso Robles Ventures LLC, c/o Ellis Partners, Inc., 111 Sutter Street, Suite 600, San Francisco, CA 94104
Napa (RFO, Limited RR)	3980 Bel Aire Plaza	Napa	CA	94558	Monroe Forsyth, Inc c/o Randy Pennington, 2375 Hardies Lane, Santa Rosa, CA 95403
Tracy	1975 W. 11th Street	Tracy	CA	95376	RRG-RMC/Tracy, LLC, 1850 Mt. Diablo Blvd., Suite 225, Walnut Creek, CA 94596
Turlock	3051 Greer Road	Turlock	CA	95380	John & Kathleen McCorduck, P.O. Box 183, Walnut Creek, CA 94596
San Ramon	1041 Market Place	San Ramon	CA	94583	MPK LLC, Paul Pries, 1845 Dry Creek Road, Campbell, CA 95008
Lone Tree (Antioch 2)	4873 Lone Tree Way	Antioch	CA	94531	Robert Dewey, 6602 N. Lost Dutchman Drive, Paradise Valley, AZ 85253
Vacaville	220 Peabody Road	Vacaville	CA	95687	PMB Development Company, 765 Baywood Drive, Suite 141, Petaluma, CA 94954
San Rafael (3)	1151 Andersen Drive	San Rafael	CA	94901	Harvey Capital Corp., 2333 Cotner Avenue, Los Angeles, CA 90064
Visalia	2230 W. Walnut Ave.	Visalia	CA	93277	Visalia Properties Partnership, P.O. Box 5005, Rancho Mirage, CA 92270
Moraga	1550 Canyon Road	Moraga	CA	94556	Russell J. Bruzzone, Inc., 899 Hope Lane, Lafayette, CA 94549

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Foster City	1010 Metro Center Blvd.	Foster City	CA	94404	Metro TCE LLC, c/o Transpacific Development, Co., 2377 Crenshaw Blvd., Suite 300, Torrance, CA 90501
Sand City	800 Playa Ave.	Sand City	CA	93955	Fortuna Realty Company, c/o Central California Management Co., Inc., 419 Webster Street, Suite 202, Monterey, CA 93940
Fresno	1536 East Champlain Drive	Fresno	CA	93720	Mr. Dennis Vlessing, Townhouse Holdings Limited, 256-26th Street, Santa Monica, CA 90402
Santa Maria	1950 South Broadway	Santa Maria	CA	93454	Western Village Shopping Center, 1136 West McCoy Lane, Santa Maria, CA 93455
Citrus Heights	6124 San Juan Avenue	Citrus Heights	CA	95610	San Juan, LLC c/o Red Mountain Retail Group, Inc., 1234 E. 17th St., Santa Ana, CA 92701
Kings Canyon	5653 East Kings Canyon	Fresno	CA	93727	Save Mart Grocery Stores c/o Manco Abbott, P.O. Box 9440, Fresno, CA 93792-9440
Berkeley	1025 Ashby Avenue	Berkeley	CA	94710	Rob Cassil, Sole Proprietorship, 1704 Union Street, San Francisco, CA 94123
Newark	5655 Jarvis Avenue	Newark	CA	94560	Newark Development, 11150 Santa Monica Blvd., Suite 760, Los Angeles, CA 90025
Lodi	360 S. Cherokee Lane	Lodi	CA	95240	OS Lodi, Attn. Mr. Peter Paige, 3205 Underhill Place, Bend, OR 97701
Yuba City	1262 Stabler Lane	Yuba City	CA	95993	Butte House/Bel Air Investors, c/o Prentiss Properties Limited, Inc., 2240 Douglas Blvd., Suite 105, Roseville, CA 95661
Manteca	189 West Louise Avenue	Manteca	CA	95336	Ed & Dolores Cardoza, P.O. Box 1022, Manteca, CA 95336
S. San Francisco	2245 Gellert Blvd.	S. San Francisco	CA	94080	American United Life Insurance Company, One American Square, P.O. Box 368, Indianapolis, IN 46206-0368
Petaluma	1390 N. McDonald Blvd.	Petaluma	CA	94954	J&R Properties, c/o R.T. Bettencourt, 7226 Via Sendero, San Jose, CA 95135

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Merced (4)	3155 R. Street	Merced	CA	95348	Isenberg investments, Attn: Berent Isenberg, P.O. Box 2144, Merced, CA 95344
Sonora	750 E. Mono Way	Sonora	CA	95370	Sonora Plaza I, LLC, 770 Tamalpais Drive, Suite 401-B, Corte Madera, CA 94925
Hanford	700 11th Avenue	Hanford	CA	93230	Hanford Center LLC, P.O. Box 655,1555 Indian Valley Road, Novato, CA 94949
Pasadena	3425 E. Colorado Blvd.	Pasadena	CA	91107	KCB RE, L.P. 20 North Raymond Avenue #250, Pasadena, CA 91103
So. Pasadena	452 S. Fair Oaks Ave.	So. Pasadena	CA	91030	Young Properties, 3407 Ocean View Blvd., Glendale, CA 91208
Burbank	641 N. Victory Blvd.	Burbank	CA	91502	Airport Plaza, Inc., c/o Pacifica Holding Company, 6101 W. Centlnela Avenue, #110, Culver City, CA 90230
West Los Angeles	2020 S. Bundy Drive and 2005 Amnaeost Avenue	West Los Angeles	CA	90025	Bundy Plaza W.L.A., Ltd. c/o Denholm, Harris & Co., 8105 Irvine Center Dr., Suite 675, Irvine, CA 92619
Goleta	125 N. Fairview	Goleta	CA	93017	Fairview Center, c/o H. B. Silverrnan, 2152 Century Hill, Los Angeles, CA 90067
Redding	2340 Athens Avenue	Redding	CA	96001	Athens Plaza, LLC, P.O. Box 15175, Seattle, WA 98115
Mountain View	2555 Charleston Road	Mountain View	CA	94043	Edward/Barbara Hinshaw, 12901 Saratoga Avenue, San Jose, CA 95070
La Crescenta	3100 Foothill Blvd.	La Crescenta	CA	91214	Young Properties, 3407 Ocean View Blvd., Glendale, CA 91208
Whittier Subleased to Michael’s and Anna’s linens	13400 Whittier Blvd	Whittier	CA	90605	GMS Realty, LLC, 5973 Avenida Encinas, Suite 300, Carlsbad, CA 92008
Canoga Park	22741 Victory Blvd.	Canoga Park	CA	91307	SWZ Partnership, LLC, Corrine Shukartsi, General Partner, 135 Ocean Way, Santa Monica, CA 90402

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Canoga Park Pick-Up Station	22741 Victory Blvd.	Canoga Park	CA	91307	SWZ Partnership, LLC, Corrine Shukartsi, General Partner, 135 Ocean Way, Santa Monica, CA 90402
Torrance	4340 Pacific Coast Highway	Torrance	CA	90505	Don Baron, Steve Glusker, Edward Franklin, 12100 Wilshire Blvd., Suite #1025, Los Angeles, CA 90025
Woodland	1350 E. Main St.	Woodland	CA	95695	PM/OSH Associates, LLC, 11819 Wilshire Blvd., #204, Los Angeles, CA 90025
Thousand Oaks	1934 E. Avenida De Los Arboles	Thousand Oaks	CA	91312	Butler Champion, Ltd., 11845 West Olympic Boulevard, Suite 700, Los Angeles, CA 90064
Santa Clarita	26565 N. Bouquet Canyon Road	Santa Clarita	CA	91350	Bouquet Canyon II LLC c/o Dollinger - Devcon Associates, c/o Mr. Michael Dollinger, 555 Twin Dolphin Dr., #600, Redwood City, CA 94065
Rancho Cucamonga	9080 Foothill Blvd.	Rancho Cucamonga	CA	91730	Orchard Capital, L.P., 1850 S. Sepulveda Blvd., #200, Los Angeles, CA 90025
Fountain Valley	17200 Brookhurst Avenue	Fountain Valley	CA	92708	Builders Associates #3, c/o Arnold Schtesinger, 9595 Wilshire Boulevard, Suite 710, Beverly Hills, CA 90212
Long Beach	4480 Atlantic Ave.	Long Beach	CA	91210	GGF, LLC, 100 W. Broadway Suite 950, Glendale, CA 91210
Laguna Niguel	27921 La Paz Road	Laguna Niguel	CA	92677	Nevada Investment Holdings, Inc., 8095 Othello Avenue, San Diego, CA 92111
Santa Ana	1975 E. 17th Street.	Santa Ana	CA	92701	HPSC I, LLC, Red Mountain West Properties, Inc., 1234 E. 17th Street, Santa Ana, CA 92701
Granada Hills	18060 Chatsworth	Granada Hills	CA	91344	Trak Chicago & 75th Ave., c/o Combined Properties, Inc., 1255 22nd Street, N.W., 6th Floor, Washington, D.C. 20037
Bakersfleld	6465 Ming Ave.	Bakersfield	CA	93309	Sagepointe LLC, c/o M.D, Atkinson Co., Inc., 1401 19th Street, Suite 400, Bakersfield, CA 93301
Display Shop	2291 Junction Ave.	San Jose	CA	95131	Richard Ferrari, et al, 5466 Blossomwood Drive, San Jose, CA 95124

Schedule 3.05

STORE	ADDRESS	CITY	STATE	ZIP	LANDLORD
Corporate	6450 Via Dei Oro	San Jose	CA	95119	Sobrato Development Co., 10600 N. De Anza Blvd., Suite 200, Cupertino, CA 95014

Schedule 3.05

Schedule 3.05 – Intellectual Property

U.S. Copyright Registrations

Registration No.	Title	Claimant
VA-518-495	Handyman OSH	Orchard Supply Hardware LLC
VA-518-496	OSH the Gardener	Orchard Supply Hardware LLC
VA-518-730	OSH the Cupid	Orchard Supply Hardware LLC
VA-518-731	Columbus, OSH	Orchard Supply Hardware LLC

Trademark and Service Mark Applications and Registrations

Mark	Serial No.	Registration No.	Goods/Services	Owner
Bridgewater	78/153,859	2,776,948	Faucets	Orchard Supply Hardware LLC
Club OSH	75/186,992	2,324,733	Hardware and home improvement store credit card services	Orchard Supply Hardware LLC
Complete Hardware & Garden	75/203,175	2,200,708	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
Las Soluciones Existen. Nosotros Te Ayudamos A Encontrarlas	78/136,272	2,704,813	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
Lifetime Plant Guarantee & Design	78/427,038	2,967,061	Retail store services featuring live plants and flowers	Orchard Supply Hardware LLC
Orchard Supply Hardware	78/186,264	2,775,762	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
OSH	78/186,009	2,766,925	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
OSH & Design	76,282,065	2,612,393	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
OSH Orchard Super Hardware & Design	76,268,214	2,547,267	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
OSH Orchard Supply Hardware & Design	76/282,064	2,638,912	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
Pacific Bay	78/602,363	3,071,123	Ceiling Fans, indoor and outdoor lighting with expansion into patio sets, continued expansion into faucets, outdoor fountain / statuary	Orchard Supply Hardware LLC
Portfolio Collection	75/186,994	2,290,382	Interior and exterior paints, stains and varnishes	Orchard Supply Hardware LLC
The Answers Are Out There. We’ll Help You Find Them.	76/409,915	2,683,582	Retail store services in the field of hardware and home improvement	Orchard Supply Hardware LLC
Blue Ridge	78/693472	Pending	Electric holiday lights; artificial garlands, wreaths and flower arrangements; artificial Christmas trees	Orchard Supply Hardware LLC
Sweet San Carlos	78/755,991	Pending	Rose bush developed for OSH 75th Anniversary	Orchard Supply Hard ware LLC

Schedule 3.05

Orchard’s Pride	78/755,985	Pending	Rose bush developed for OSH 75th Anniversary	Orchard Supply Hardware LLC
Backyard Pro*	78/245,656	2,918,132	Backyard Pro used for multiple products in the gardening area; gloves, pruning irrigation, watering, fountain pumps, outdoor power	Sears Brands, LLC
Designer’s Edge*	78/966,375	Pending	Paint brushes, rollers, other paint tools as possible expansion	Sears Brands, LLC
Western Hawk*	78/954,897	Pending	Currently rulers, with possibility to expand into other tools	Sears Brands, LLC

* Loan Parties do not own but are licensed to use the trademark.

Domain Name Registrations

Domain Name	Owner	Registrar	Expiration Date
Orchardsupplyhardware.biz	Sears, Roebuck and Co.	Register.com	2/19/2006
Orchardsupplyhardware.com	Sears, Roebuck and Co.	Register.com	10/06/2007
Osh.biz	Sears, Roebuck and Co.	Register.com	11/18/2006
Osh.com	Scars, Roebuck and Co.	Register.com	9/19/2014
Osh.info	Sears, Roebuck and Co.	Register.com	9/20/2007
Osh.us	Sears, Roebuck and Co.	Register.com	5/15/2007

The Borrower does not believe that any of the intellectual property contained in this schedule, individually, is necessary in its business; the information on this schedule is provided for full disclosure purposes only.

Schedule 3.06

Schedule 3.06 – Disclosed Matters

Legal Matters

OSH is a defendant in Fordyce White v. Orchard Supply Hardware, a putative class action filed in Santa Clara County Superior Court in June 2003. That case has been consolidated with Emmett Randolph v. Orchard Supply Hardware, a similar putative class action filed in Sutter County Superior Court in December 2004. The individual plaintiffs are former employees who allege that OSH improperly classified them as exempt from the receipt of overtime wages under California law. Plaintiff White has sought class certification for part of his proposed class, which encompasses all individuals who held a salaried managerial position below that of Store Manager in OSH stores within the applicable statute of limitations. The court declined to rule on the certification motion while the consolidation with plaintiff Randolph’s case was pending. The plaintiffs are requesting damages, penalties, an injunction ordering restitution of any unpaid wages, interest, costs and attorneys’ fees. In October 2004, plaintiff White filed a second, separate putative class action. White alleged that the Company improperly deducted worker’s compensation premiums from unspecified bonuses paid to certain employees. The plaintiff is seeking damages, penalties, an injunction ordering restitution of any unpaid wages, interest, costs and attorneys’ fees on behalf of the putative class. Class certification was granted for all merchandise managers from 1999 to the present in February 2006.

OSH is a defendant in Ingraham v. OSH, a putative class action filed in San Mateo County Superior Court in August 2006. The individual plaintiff is a former OSH hourly associate who alleges claims for requiring hourly associates to maintain uniforms, failure to pay minimum and overtime wages, failure to provide meal and rest periods, failure to provide accurate wage statements and unlawful business practices under Section 17200 of the CA Business and Professions Code.

OSH is a defendant in Castaneda v. OSH, a claim filed in June 2006 in LA Superior Court alleging violations of public policy, the CA Labor Code and the Private Attorney General Act arising out of the plaintiffs treatment following the filing of workers compensation claim.

OSH is a defendant in Gilbert v. OSH, a claim filed in June 2006 in LA Superior Court alleging wrongful termination, disability discrimination, violations of the Fair Employment and Housing Code and age discrimination. The trial is set for November 19, 2007.

In addition, OSH is subject to various legal and governmental proceedings, many involving routine litigation incidental to the business.

The consequences of these matters are not presently determinable but, in the opinion of management after consulting with legal counsel, the ultimate liability in excess of reserves currently recorded is not expected to have a material effect on OSH’s financial position or results of operations.

Environmental Matters

None.

Schedule 3.13

Schedule 3.13 – Insurance

General Liability

• Insurer: Ace American Insurance Company

• Policy: HDOG21729383

• Effective – Expiration: 4/1/2006 – 4/1/2007

• Self-Insured Retention: $5,000,000

• Limits of Liability

• $5,000,000 Each Occurrence

• $5,000,000 Personal & Advertising Injury

• $5,000,000 General Aggregate

• $5,000,000 Products

Automobile Liability

• Insurer: Ace American Insurance Company

• Policy: ISAH08219953

• Effective – Expiration: 4/1/2006 – 4/1/2007

• Self-Insured Retention: n/a

• Limits of Liability

• $5,000,000 Combined Single Limit

• Deductible: $5,000,000

Excess Liability – Umbrella Form

• Insurer: Great American Insurance Company; Allied World Assurance Company, Ltd.

• Policy: EXC9251609 (Great American); C005782/001 (AWAC)

• Effective – Expiration: 4/1/2006 – 4/1/2007

• Self-Insured Retention: $5,000,000

• Limits of Liability

• $50,000,000 Each Occurrence

• $50,000,000 Aggregate

Workers’ Compensation and Employers’ Liability

• Insurer: Ace American Insurance Company; Indemnity Insurance Company of North America

• Policy: WLRC44340860 (Ace in CA); SCFC44340872 (Ace in WI); WLRC44340859 (Indemnity Insurance Co. in all but CA and WI)

• Effective – Expiration: 4/1/2006 – 4/1/2007

• Self-Insured Retention: n/a

• Limits of Liability

• $5,000,000 Each Accident

• $5,000,000 Each Employee by Disease

• $5,000,000 Policy Limit by Disease

Schedule 3.13

Sponsorship Liability

• Insurer: Philadelphia Insurance Companies

• Policy: PHPK164925

• Effective – Expiration; 4/1/2006 – 4/1/2007

• Self-Insured Retention: n/a

• Limits of Liability

• $2,000,000 General Aggregate

• $1,000,000 Products & Completed Operations Aggregate

Blanket Building and Personal Property

• Insurer: see table below

• Policy: see table below

• Effective – Expiration: 6/29/2006 – 6/29/2007

• Limits of Liability

• $400,000,000 Per Occurrence

• $400,000,000 Annual Aggregate

• Deductible

• $5,000,000 per Occurrence, subject to a standard $10 million aggregate retention and $500,000 “Maintenance” deductible thereafter. Only losses excess of $500,000 will contribute to exhaustion of the $10 million standard aggregate.

• Exceptions

• $150,000,000 per Occurrence for earth movement

• $150,000,000 per Occurrence for flood

• $5,000,000 per Occurrence for Fine Arts

• $15,000,000 per Occurrence for unscheduled locations

• $1,000,000 per Occurrence and Aggregate for Pollution Clean-up

• $1,000,000 per Occurrence for Professional Fees (claim preparation expense)

• $50,000,000 per Occurrence for Business Interruption (OSH only)

Layer	Policy Number	Issuing Company
Primary $25M	P003839-003	Allied World Assurance Company
Primary $25M	B0702JA004460V	Lloyds of London Syndicates
$25M x/s $25M	B0702JA004470V	Lloyds of London Syndicates
$25M x/s $25M	B0702JA004420V	Houston Casualty
Primary $50M	P003839-003	Allied World Assurance Company
Primary $50M	RMP2071012752	Continental Casualty Company
Primary $50M	LHD347679	Landmark American Insurance Company
Primary $50M	B0702JA002650V	Lexington London
Primary $50M	B0702JA002670V	Lloyds of London Syndicates

Schedule 3.13

$50M x/s $50M	LHD347680	Landmark American Insurance Company
$50M x/s $50M	B0702JA004470V	Lloyds of London
$50M x/s $50M	MAN2X6625-10	Montpelier Re
$50M x/s $50M	5732526	American International Surplus Lines Company
$50M x/s $ 50M	B0702JA002700V	Hannover Re
$50M x/s $50M	B0702JA004420V	Houston Casualty
$50M x/s $50M	B0702JA002700V	Lloyds of London Syndicates
$50M x/s $50M	MQ2-L9L-426774-016	LMG
$50M x/s $50M	78-UK-XP-0000048-00	Great Lakes Reinsurance (UK) PLC
$50M x/s $100M	PRP0016400-00	Arch Specialty Insurance Company
$50M x/s $100M	P003839-003	AWAC
$50M x/s $100M	RMP2071012783	Continental Casualty Company
$50M x/s $100M	US6365	Commonwealth Insurance Corogany
$50M x/s $100M	B0702JA002700V	Hannover Re
$50M x/s $100M	B0702JA002730V	Lexington London
$50M x/s $100M	B0702JA002730V	Lloyds of London Syndicates
$50M x/s $100M	12412-1346-PRMAN-2006	Max Re Ltd.
$50M x/s $100M	MH60216	SR International Business Insurance Company Ltd.
$50M x/s $100M	1-30005-00PR(06)	Sears Re
$100M x/s $50M	02F0648I5	Global P & C
$50M x/s $150M	PRP0016416-00	Arch Specialty Insurance Company
$50M x/s $150M	5732526	American International Surplus Lines Company
$200M x/s $200M	5732526	American International Surplus Lines Company
$200M x/s $200M	B0702JA004480V	Lloyds of London Syndicates
$250M x/s $150M	B0702JA002690V	Lancashire Insurance Company Limited
$250M x/s $150M	B0702JA002690V	Lloyds of London Syndicates
$250M x/s $150M	MQ2-L9L-426774-016	LMG

Schedule 3.13

Ocean Marine

• Insurer: Fireman’s Fund Insurance Company

• Policy #: OC-96180800

• Effective – Expiration: 8/1/2006 – 8/1/2007

• Self-Insured Retention: n/a

• Limits of Liability

•    $20,000,000	Any one vessel or connecting conveyance
•    $20,000,000	Any one aircraft or connecting conveyance
•    $20,000,000	Any one truck or rail car
•    $3,500,000	Any one metal barge or tow
•    $250,000	Any one package, mail or parcel post
•    $500,000	Any one exhibition

Commercial Crime Coverage

• Insurer: Zurich Insurance (Primary) and Federal (Chubb)

• Policy #: 588907901 (Zurich); 6802 – 4767 (Federal)

• Effective – Expiration: 3/31/2006 – 3/31/2007

• Self-Insured Retention: $2,500,000

• Limits of Liability

•    $20,000,000 Annual Aggregate

Business Travel Accident

• Insurer: Mutual of Omaha

• Policy #: T5MP 19204

• Effective – Expiration: 8/1/2004 – 1/31/2007

• Self-Insured Retention: n/a

• Limits of Liability

•    $10,000,000	Annual Aggregate
•    $300,000	Common Carrier Transport Accident
•    $100,000	Comprehensive Accident

Corporate Liability Insurance Program

• Insurer: Lead insurance carrier is XL USA, which provides the primary $25,000,000; a number of insurers (CNA, Zurich, Hartford, ACE USA, Arch USA, ACE Bermuda, Arch Bermuda, Chubb, ACE Bermuda), provide the remainder.

• Policy #: ELU091881-06 (XL USA)

• Effective – Expiration: 3/24/2006 – 3/24/2007

• Self-Insured Retention: D&O Side – A Coverage

• Limits of Liability

Schedule 3.13

• $150,000,000            Annual Aggregate

Corporate Liability Insurance Program (D &O)

• Insurer: Greenwich Insurance Company (XL) / Arch Insurance

• Policy: ELU091489-06 / PCD0013145-00

• Effective – Expiration: 2/16/2006 2/16/2007

• Self-Insured Retention:

• Side A no deductible

• Side B $100,000 Self-Insured Retention

• Side C $100,000 Self-Insured Retention

• Limits of Liability:

•    15,000,000 Annual Aggregate

Employment Practices Liability Insurance

• Insurer: Greenwich Insurance Company (XL) / Arch Insurance

• Policy: ELU091490-06 / PCD0013144-00

• Effective – Expiration: 2/16/2006 2/16/2007

• Self-Insured Retention: $250,000

• Limits of Liability:

• 15,000,000            Annual Aggregate

Terrorism Insurance

• Insurer: Lloyds of London

• Policy: BO702JA003630V

• Effective – Expiration: 8/1/2006 – 6/29/2007

• Deductible:

• $250,000 each and every loss in respect of Property Damage and

• 30 day waiting period each and every loss in respect of Time Element

• Limits of Liability:

• 15,000,000            Annual Aggregate

Schedule 3.14

Schedule 3.14 – Capitalization and Subsidiaries

Name of Entity	Relationship to Borrower	Type of Entity	Class of Authorized Equity Interests	Owner of Equity Interests	% of Equity Interests  Owned
Orchard Supply Hardware LLC	—	Limited Liability Company	100% of limited liability company interests	Orchard Supply Hardware Stores Corporation	100
OSH Finance Corporation	wholly owned subsidiary	Corporation	100 shares of common stock, par value $0.01 per share	Orchard Supply Hardware LLC	100
OSH Properties LLC	wholly owned subsidiary	Limited Liability Company	100% of limited liability company interests	Orchard Supply Hardware LLC	100

Schedule 3.15

Schedule 3.15 – Security Interest in Collateral

Debtor	Actions to Perfect Security Interests	Office of Filing
Orchard Supply Hardware Stores Corporation	UCC-1	Delaware Secretary of State
Orchard Supply Hardware LLC	UCC-1	Delaware Secretary of State
OSH Finance Corporation	UCC-l	Delaware Secretary of State

Schedule 3.20

Schedule 3.20 – Corporate Names

Orchard Supply Hardware LLC changed its name from Orchard Supply Hardware Corporation on October 3, 2005.

Schedule 3.21

Schedule 3.21 – Credit Card Agreements

Agreement	Percentage of Sale Payable to Issuer	Transaction Fees	Expiration
Visa (Chase Merchant Services)	varies	$0.0175 per transaction processing fee to Chase Merchant Services	Through 12/07, currently being re-negotiated
MasterCard (Chase Merchant Services)	varies	$0.0175 per transaction processing fee to Chase Merchant Services	Through 12/07, currently being re-negotiated
American Express	2.00%	$0.0230 per transaction authorization fee to Chase Merchant Services	Currently being re-negotiated
Discover	1.37%	$0.0230 per transaction authorization fee to Chase Merchant Services	Ongoing unless terminated or changed by either party

Schedule 6.01

Schedule 6.01 – Existing Indebtedness

Capital Leases

Orchard Unit	Principal Balance
	$	5,679,427.35
		4,130,678.63
		6,288,055.34
		5,309,697.55
		5,661,808.80
		7,303,903.94
		1,606,132.66
		3,794,108.17
		4,586,799.58
		3,490,029.53
		4,896,401.23
		7,214,984.48
		4,532,919.00
		4,594,477.00
Total Principal Balance	$	69,089,423.27

Schedule 6.02

Schedule 6.02 – Existing Liens

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware LLC	DE	SOS	In Lieu UCC File No.: 11517833 File Date: 10/26/21	AT&T Commercial Finance Corporation	In Lieu of Continuation One (1) American Lincoln Sweeper/Scrubber, Model 6700G
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21024839 File Date: 4/2/02	Toyota Motor Credit Corporation	“Secured Party is owner of one (1) new Toyota forklift model: 7FGU25 serial: 66257...”
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21316185 File Date: 5/6/02	Toyota Motor Credit Corporation	“Secured Party is owner of two (2) new Toyota forklifts model: 7FGU25 serial: 66294, 66283...”
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21370620 File Date: 5/10/02	Toyota Motor Credit Corporation	“Secured Party is owner of five (5) new Toyota forklifts model: 7FGU25 serial: 66298,66276, 66303,66272,66286...”
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21681950 File Date: 6/10/02	Toyota Motor Credit Corporation	“Secured Party is owner of two (2) new Toyota forklifts model: 7FGU25 serial: 66629, 66620...”
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21684442 File Date: 6/10/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck, Mod. B60Z S/N A230N02174Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711509 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21684442 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21684624 File Date: 6/10/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck Mod. C60XT2 S/N A499N01673Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711483 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21684624 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21684632 File Date: 6/10/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck Mod B60Z S/N A230N02161Z

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711491 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21684632 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21684657 File Date: 06/10/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck Mod. B60Z S/N A230N02173Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711475 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21684657 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21697659 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (I) New Hyster Motorized Hand Lift Truck Mod. C60XT2 S/N A499N01672Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711467 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21697659 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21697915 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck Mod. C60XT2 S/N A499N01667Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711426 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21697915 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21698087 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck Mod. C60XT2 S/N A499N01668Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711434 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21698087 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21701899 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Lift Truck Mod. H35XM, S/N E001HO1939Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711418 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21701899 Changed Debtor to Orchard Supply Hardware Corporation

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21702178 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck Mod. C60XT2 S/N A499N01671Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711459 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21712178 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21702202 File Date: 06/11/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Motorized Hand Lift Truck Mod. C60XT2 S/N A499N01669Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711442 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21702202 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21707961 File Date: 06/12/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Lift Truck Mod. H35XM S/N E001HO1962Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711400 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21707961 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21707979 File Date: 06/12/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Lift Truck Mod. H35XM S/N E001HO1965Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711376 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21707979 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21707995 File Date: 06/12/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Lift Truck Mod. H35XM S/N E001HO1963Z
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711392 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21707995 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21708001 File Date: 06/12/02	Banc of America Vendor Finance, Inc.	One (1) New Hyster Lift Truck Mod. H35XM S/N E001HO1964Z

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware LLC	DE	SOS	UCC-3 Amendment File No.: 22711384 File Date: 10/28/02	Banc of America Vendor Finance, Inc.	Amendment of #21708001 Changed Debtor to Orchard Supply Hardware Corporation
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 21802424 File Date: 06/25/02	Toyota Motor Credit Corporation	“Secured Party is owner of one (1) new Toyota forklift model: 7FGU25 serial: 66638...”
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 22331829 File Date: 09/11/02	The CIT Group/Equipment Financing, Inc.	“All construction equipment, loaders and material handling equipment,...”
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 22574865 File Date: 10/07/02	Toyota Motor Credit Corporation	“Secured Party is owner of three (3) new Toyota forklifts model: 7FGU25 serial: 66996, 66974, 66986...”
Orchard Supply Hardware LLC	DE	SOS	UCC-1 File No.: 60018564 File Date: 1/04/06	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25 S/N 79680 Cascade Side Shifter. 36-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 32157942 File Date: 08/19/03	De Lage Landen Financial Services, Inc.	“All equipment of any make or manufacture, together with, all accessories and attachments thereto, financed for or leased to Lessee by Lessor under Master Lease Agreement number 335.TB.”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 61589910 File Date: 05/10/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81073...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 61590199 File Date: 05/10/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81114...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 61590207 File Date: 05/10/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81101...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 61590405 File Date: 05/10/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 78595...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 61818988 File Date: 05/30/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81579...”

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62026961 File Date: 06/14/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81775...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62026979 File Date: 06/14/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81669...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62026987 File Date: 06/14/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81706...”
Orchard Supply Hardware Stores Corporation	DB	SOS	UCC-1 File No.: 62027365 File Date: 06/14/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81699...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62027373 File Date: 06/14/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81560...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62027720 File Date: 06/14/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81540...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62029320 File Date: 06/14/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81511...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62030252 File Date: 06/14/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81513...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62316016 File Date: 07/06/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81363...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 62615946 File Date: 07/28/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 81665...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63502457 File Date: 10/10/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 83222...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63503018 File Date: 10/10/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 83381...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63503281 File Date: 10/10/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 82518...”

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63503307 File Date: 10/10/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 83395...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63503331 File Date: 10/10/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 82376...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 63503729 File Date: 10/10/06	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota model 7FGU25 serial number 82338...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22679342 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement covers all of the following property... One New Big Joe Walkie Tacker Model No. 2024 S/N 371223... all attachments, accessories to, substitutions, replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22679557 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766... This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster Narrow-Aisle Lift Truck, Model No. R30XM2, S/N G118N01771Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22679656 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766... This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
					future acquires any rights, and wherever located: One New Hyster Narrow-Aisle Lift Truck, Model No. R30XM2, S/N G118N01776Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22679755 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766- 018...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster Narrow-Aisle Lift Truck, Model No. R30XM2, S/N G118N01770Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22679896 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster Narrow-Aisle Lift Truck, Model No. R30XM2, S/N G118N01769Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22680100 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766-020.. .This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster Lift Truck, Model No. H35XM, S/N E001H02057Z.. .all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	BE	SOS	UCC-1 File No.: 22680142 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766.. .This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster Lift Truck, Model No. H35XM, S/N E001H02058Z.. .all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22680274 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766.. .This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
					located: One New Hyster Forklift, Model No. B60Z, S/N A23ON02265Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22680415 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster Forklift, Model No. B60Z, S/N A230N02262Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22680639 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster Lift Truck, Model No. H35XM, S/N E001H01937Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22814568 File Date: 10/24/02	Banc of America Vendor Finance, Inc.	This financing statement is filed, with reference to Lease No. 154-0043766...This financing statement covers all of the

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
					following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster Forklift, Model No. B60Z, S/N A230N02505Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22820318 File Date: 10/28/02	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota Forklift model 7FGU25 serial number 66952...”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 22814626 File Date: 11/07/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in tie future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster, Model No. B60Z forklift, S/N A230N02506Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-I File No.: 23113978 File Date: 12/12/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766-030...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
					N45XMR3 Narrow Aisle Lift Truck, S/N G138N01700Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 23114240 File Date: 12/12/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766-01...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One Hyster R30XM, Serial # G118N00Z...all attachments, accessories to, substitutions and replacement for, and products of the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 23114448 File Date: 12/12/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766-032...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which, the Debtor now has or in the future acquires any rights, and wherever located: One Hyster R30XM2, Serial #G118N01798Z... all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-I File No.: 23114513 File Date: 12/12/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766-033...This financing statement covers all of the following property and interest in

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
					property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One Hyster R30XM2, Serial #G118N01796Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 23114562 File Date: 12/12/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No.             ...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One Hyster R30XM2, Serial #            ...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 23115023 File Date: 12/12/02	Banc of America Vendor Finance, Inc.	This financing statement is filed with reference to Lease No. 154-0043766-027...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster B60Z, S/N# A230N02553Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 23115072 File Date: 12/12/02	Banc of America Finance Vendor, Inc.	This financing statement is filed with reference to Lease No. 154-0043766-029...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster, S/N# A230N02525Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 23115080 File Date: 12/12/02	Banc of America Finance Vendor, Inc.	This financing statement is filed with reference to Lease No. 154-0043766-028...This financing statement covers all of the following property and interest in property of the Debtor, whether now owned or existing or acquired or arising in the future, or in which the Debtor now has or in the future acquires any rights, and wherever located: One New Hyster B60Z, S/N# A230N02526Z...all attachments, accessories to, substitutions and replacement for, and products of, the Units...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 30126014 File Date: 12/27/02	The CIT Group/Equipment Financing, Inc.	One Hyster Lift Truck B60XT S/N:B199H04703U...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 30126022 File Date: 12/27/02	The CIT Group/Equipment Financing, Inc.	Hyster Lift Truck(s) Model B60XT S/N:B199H4704U
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 30126030 File Date: 12/27/02	The CIT Group/Equipment Financing, Inc.	One Hyster Lift Truck N45XMR S/N:E138H02290U

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 30204282 File Date: 01/06/03	The CIT Group/Equipment Financing, Inc.	Three Hyster Lift Truck(s) Model B60XT S/N(S): B199H04976V, B199H04977, B199H04978
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 30750755 File Date: 03/17/06	Toyota Motor Credit Corporation	“Secured Party is owner of three new Toyota Forklifts model 7FGU25 Serial: 66963, 66940, 68546 189 FSV Mast, Side-shifter, LP Tank, Side Pneumatic Tires, G-Force Monitor, 42” Forks.”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 30992613 File Date: 04/07/03	Toyota Motor Credit Corporation	“Secured Party is owner of two new Toyota Forklift model 7FGU25 Serial: 68715, 68704, 189 FSV Mast, Side-shifter, LP Tank, G-Force, Solid Pneumatic Tires, 42” Forks.”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 31102006 File Date: 04/15/03	Hyster Credit Company	The Financing Statement is an “in lieu of continuation” for the following statements, each of which shall remain effective: File date: 7/23/93, File # 93149551, CA SOS; File date 5/29/98, File # 98152, CA SOS Addendum: All construction equipment, loaders and material handling equipment....together with all additions, accessions, attachments, or accessories...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 31927246 File Date: 07/02/03	Toyota Motor Credit Corporation	“Secured Party is owner of one new-Toyota Forklifts model 7FGU25 Serial: 69575, 189 FSV Mast, Side-shifter, LP Tank, Solid Pneumatic Tires, 42” Forks.”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 32375858 File Date: 08/26/03	Toyota Motor Credit Corporation	“Secured Party is owner of four new Toyota model 7FGU25 Serial: 69583, 69602, 69591, 69305 189 FSV, Mast, Side-shifter, LP Tank, G-Force, 42” Forks.”

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 33393520 File Date: 12/16/03	Toyota Motor Credit Corporation	“Secured Party is owner of one new Toyota Forklift model 7FGU25 Serial: 69793, 189 FSV, Side-shifter, LP, Solid Pneumatic Tires, G-Force Monitor 42” Forks.”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 41536970 File Date: 05/14/04	IOS Capital	“Debtor” and “Secured Party” shall mean “Lessor” and “Lessee” respectively. This financing statement covers the following types (or items) of all property: All equipment now or hereafter leased in an equipment leasing transaction in connection with that certain Master Agreement No., Product Schedule No./Agreement No... Product Schedule No./Agreement 725221G Master Agreement. Lease No: 5000417...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 41562463 File Date: 05/18/04	Toyota Motor Credit Corporation	“Secured Party is owner of sixteen new Toyota Forklift model 7FGU25 Serial: 71492, 69929, 71894, 71895, 71897, 71865, 71711, 71654, 71629, 71690, 71606, 71877, 71631, 71686, 189 FSV, Side-shifter, LP Tank, Solid Pneumatic Tires, 42” Forte.”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 41996224 File Date: 7/14/04	IOS Capital	“Debtor” and “Secured Party” shall mean “Lessor” and “Lessee” respectively. This financing statement covers the following types (or items) of all property: All equipment now or hereafter leased in an equipment leasing transaction in connection with that certain Master Agreement No., Product Schedule No./Agreement No... Product Schedule No./Agreement 725221H Master Agrcement. Lease No: ....CUSTOMER: 398051 CAEFI

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
					EDOX USV3400GKD CAPAPERDECKB1 ZSL09214 CAPDLD1 PDLD1
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 50758384 File Date: 3/01/2005	Toyota Motor Credit Corporation	“Secured Party is owner of one new 2004 Toyota Forklift model 7FGU25 Serial: 74435 SPECS: Side-shifter, 42” Forks, 189” FSV Mast, Solid Pnuematic tires, G-Force”
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 52038280 File Date: 7/01/05	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25, Cascade-Sideshifter, 36 inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 52041771 File Date: 7/01/05	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25, S/N 76598, Cascade-Sideshitter, 36 inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 52041813 File Date: 7/01/05	Toyota Motor Credit Corporation	One New Toyota 7FGU25, S/N 76670, Cascade-Sideshifter, 36 inch Forks, Backup Alarm, 189-FSV-Mast,
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 52042688 File Date: 7/01/05	Toyota Motor Credit Corporation	One New Toyota 7FPGU25, S/N 76504, Cascade-Sideshifter, 36 inch Forks, Backup Alarm, 189-FSV-Mast Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 52043751 File Date: 7/01/05	Toyota Motor Credit Corporation	One New Toyota FGU25, S/N 76504, Cascade-Sideshifter, 36 inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank.

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-3 Amendment File No.: 52222462 File Date: 7/19/05	Toyota Motor Credit Corporation	Amendment, Initial Filing #5204375 1: Restated Collateral description: One new Toyota Model 7FGU25 S/N 76628 Cascade Side Shifter, 36-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 52742170 File Date: 9/02/05	Toyota Motor Credit Corporation	One new Toyota Model 7FGU25 S/N 76696 Cascade Side Shifter, 42-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System, LP System Less Tank, Fire Extinguisher.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 53075406 File Date: 10/04/05	Toyota Motor Credit Corporation	One new Toyota Model 7FGU25 S/N 76670 Cascade Side Shifter, 36-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System, LP System Less Tank.
Orchard Supply Hardware Stares Corporation	DE	SOS	UCC-1 File No.: 53075414 File Date: 10/04/05	Toyota Motor Credit Corporation	One new Toyota Model 7FGU25 S/N 76643 Cascade Slide Shifter, 42-inch Forks, Backup Alarm,. 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank, Fire Extinguisher.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 53075422 File Date: 10/04/05	Toyota Motor Credit Corporation	One new Toyota Model 7FGU25 S/N 76722 Cascade Slide Shifter, 42-inch Forks, Backup Alarm. 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank, Fire Extinguisher.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 53796928 File Date: 12/08/05	NMHG Financial Services	This financing statement is an “in lieu of continuation” for the following statements:

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
					UCC# 0107460566 Filed 03/14/01 SOS CA
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 53802007 File Date: 12/08/05	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25 S/N 78765 Cascade Side Shifter. 36-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 53803534 File Date: 12/08/05	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25 S/N 78579 Cascade Side Shifter. 36-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 53803633 File Date: 12/08/05	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25 S/N 76744 Cascade Side Shifter. 42-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank, Fire Extinguisher.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 53927366 File Date: 12/19/05	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25 S/N 78753 Cascade Side Shifter. 36-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 53927762 File Date: 12/19/05	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25 S/N 78640 Cascade Side Shifter. 3 6-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 53928109 File Date: 12/19/05	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25 S/N 78614 Cascade Side Shifter. 36-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Pneumatic Tires,

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
					LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-I File No.: 53928117 File Date: 12/19/05	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25 S/N 78796 Cascade Side Shifter. 36-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, IP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 60223248 File Date: 1/19/06	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25 S/N 79672 Cascade Side Shifter. 36-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 60313437 File Date: 1/26/06	Toyota Motor Credit Corporation	One New Toyota Model 7FGU25 S/N 78779 Cascade Side Shifter. 36-inch Forks, Backup Alarm, 189-FSV-Mast, Strobe/Flashing Lights, Solid Pneumatic Tires, LP System Less Tank.
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 60828517 File Date: 3/10/06	IOS Capital	“Debtor” and “Secured Party” shall mean “Lessor” and “Lessee” respectively. This financing statement covers the following types (or items) of all property: All equipment now or hereafter leased in an equipment leasing transaction in connection with that certain Master Agreement No., Product Schedule No./Agreement No... Product Schedule No./Agreement 1820578 Master Agreement Lease No:          ...CUSTOMER: 398051 CAIR3570 SKV11103 CAIR3570...
Orchard Supply Hardware Stores Corporation	DE	SOS	UCC-1 File No.: 64195368 File Date: 12/02/06	IOS Capital	Debtor “ and “Secured Party” shall mean “Lessor” and “Lessee” respectively. This financing statement covers the following

Schedule 6.02

Debtor	State	Jurisdiction	UCC#	Secured Party	Collateral Description
					types (or items) of all property: All equipment now or hereafter leased in an equipment leasing transaction in connection with that certain Master Agreement No., Product Schedule No./Agreement No... Product Schedule No./Agreement 1986149 Master Agreement Lease No:          ...CUSTOMER: 398051 CAIR5180 TND00940

Schedule 6.04

Schedule 6.04 – Existing Investments

None.

Schedule 6.10

Schedule 6.10 – Existing Restrictions

None.

EXHIBIT A

ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Term Loan Agreement identified below (as amended, the “Term Loan Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Term Loan Agreement, as of the Effective Date inserted by the Term Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Term Lender under the Term Loan Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any guarantees included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Term Lender) against any Person, whether known or unknown, arising under or in connection with the Term Loan Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

1.      Assignor:	___________________________________
2.      Assignee:	___________________________________ [and is an Affiliate/Approved Fund of [identify Term Lender]1]
3.      Borrower(s):	Orchard Supply Hardware LLC
4.      Term Administrative Agent:	JPMorgan Chase Bank, N.A., as the administrative agent under the Term Loan Agreement
5.      Term Loan Agreement:	The Senior Secured Term Loan Agreement dated as of December __, 2006 among Orchard Supply Hardware LLC as

¹  Select as applicable.

Exhibit A-1

Borrower, Orchard Supply Hardware Stores Corporation as Holdings, those certain Subsidiaries of Holdings party thereto, the Term Lenders party thereto and the Term Administrative Agent, and the other agents party thereto.

6. Assigned Interest:

Facility Assigned	Aggregate Amount  of Commitment/Loans for all Term Lenders	Amount of Commitment/Loans Assigned	Percentage Assigned of Commitment/Loans2
Term Commitment	$	$		%
	$	$		%
	$	$		%

Effective Date: ___________ __, 20__ [TO BE INSERTED BY TERM ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR [NAME OF ASSIGNOR]
By:
	Title:

ASSIGNEE [NAME OF ASSIGNEE]
By:
	Title:

²  Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Term Lenders thereunder.

Exhibit A-2

[Consented to and]3 Accepted: JPMorgan Chase Bank, N.A., as Term Administrative Agent
By
	Title:

[Consented to:]4 Orchard Supply Hardware LLC
By
	Title:

³  Delete bracketed language if Assignee is a Term Lender, an Affiliate of a Term Lender or an Approved Fund.

⁴  Delete Borrower Consent Signature block if Assignee is a Term Lender, an Affiliate of a Term Lender or an Approved Fund or if a payment or bankruptcy Event of Default has occurred and is continuing.

Exhibit A-3

ANNEX 1

To Assignment and Assumption

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Term Loan Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Term Lender under the Term Loan Agreement, (ii) it satisfies the requirements, if any, specified in the Term Loan Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Term Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Term Loan Agreement as a Term Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Term Lender thereunder, (iv) it has received a copy of the Term Loan Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.01 (a) and (b) thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Term Administrative Agent or any other Term Lender, and (v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Term Loan Agreement duly completed and executed by the Assignee (including, if such Foreign Lender is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under the Term Loan Agreement, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate); and (b) agrees that (i) it will, independently and without reliance on the Term Administrative Agent, the Assignor or any other Term Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Term Lender.

2. Payments. From and after the Effective Date, the Term Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

Exhibit A-4

3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by facsimile shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

Exhibit A-5

EXHIBIT B

OPINION OF COUNSEL FOR THE BORROWER

See Tab# 14

Exhibit B-l

EXHIBIT C

COMPLIANCE CERTIFICATE

To: The Term Lenders parties to the Term Loan Agreement Described Below

This Compliance Certificate is furnished pursuant to that certain Senior Secured Term Loan Agreement dated as of December     , 2006 (as amended, modified, renewed or extended from time to time, the “Term Loan Agreement”) among Orchard Supply Hardware LLC (the “Borrower”), the other Loan Parties, the Term Lenders party thereto and JPMorgan Chase Bank, N.A., as Term Administrative Agent and Collateral Agent for the Term Lenders. Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Term Loan Agreement.

THE UNDERSIGNED HEREBY CERTIFIES THAT:

1. I am the duly elected                  of the Borrower;

2. I have reviewed the terms of the Term Loan Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements [for quarterly or monthly financial statements add: and such financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes];

3. The examinations described in paragraph 2 did not disclose, except as set forth below, and I have no knowledge of (i) the existence of any condition or event which constitutes a Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate or (ii) any change in GAAP or in the application thereof that has occurred since the date of the audited financial statements referred to in Section 3.04 of the Term Loan Agreement;

4. I hereby certify that no Loan Party has changed (i) its name, (ii) its chief executive office, (iii) principal place of business, (iv) the type of entity it is or (v) its state of incorporation or organization without having given the Term Administrative Agent the notice required by Section 4.16 of the Term Loan Security Agreement; and

5. Schedule I attached hereto sets forth financial data and computations evidencing the Borrower’s compliance with the Adjusted Leverage Ratio set out in Section 5.10, all of which data and computations are true, complete and correct.

Described below are the exceptions, if any, to paragraph 3 by listing, in detail, (i) the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event or (ii) the change in GAAP or the application thereof and the effect of such change on the attached financial statements:

Exhibit C-l

The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this      day of             ,     .

ORCHARD SUPPLY HARDWARE LLC

By:

        Name:

        Title:

Exhibit C-2

SCHEDULE I

Compliance as of             ,      with

Section 5.10 of the Term Loan Agreement

Exhibit C-3

EXHIBIT D

JOINDER AGREEMENT

THIS JOINDER AGREEMENT (this “Agreement”), dated as of             ,     , 200    , is entered into between                                              , a                          (the “New Subsidiary”) and JPMORGAN CHASE BANK, N.A., in its capacity as administrative agent (the “Term Administrative Agent”) under that certain Senior Secured Term Loan Agreement, dated as of December     , 2006 (the “Term Loan Agreement”) among the Borrower, Orchard Supply Hardware Stores Corporation as Holdings, those certain Subsidiaries of Holdings party thereto, the Term Lenders party thereto, the Term Administrative Agent and JPMorgan Chase Bank, N.A., as Collateral Agent. All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Term Loan Agreement.

The New Subsidiary and the Term Administrative Agent, for the benefit of the Term Lenders, hereby agree as follows:

1. The New Subsidiary hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the New Subsidiary will be deemed to be a Loan Party under the Term Loan Agreement and a “Loan Guarantor” for all purposes of the Term Loan Agreement and shall have all of the obligations of a Loan Party and a Loan Guarantor thereunder as if it had executed the Term Loan Agreement. The New Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Term Loan Agreement, including without limitation (a) all of the representations and warranties of the Loan Parties set forth in Article III of the Term Loan Agreement, (b) all of the covenants set forth in Articles V and VI of the Term Loan Agreement and (c) all of the guaranty obligations set forth in Article X of the Term Loan Agreement. Without limiting the generality of the foregoing terms of this paragraph I, the New Subsidiary, subject to the limitations set forth in Section 10.10 of the Term Loan Agreement, hereby guarantees, jointly and severally with the other Loan Guarantors, to the Term Administrative Agent and the Term Lenders, as provided in Article X of the Term Loan Agreement, the prompt payment and performance of the Guaranteed Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in accordance with the terms thereof and agrees that if any of the Guaranteed Obligations are not paid or performed in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise), the New Subsidiary will, jointly and severally together with the other Loan Guarantors, promptly pay and perform the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration or otherwise) in accordance with the terms of such extension or renewal.

2. If required, the New Subsidiary is, simultaneously with the execution of this Agreement, executing and delivering such Collateral Documents (and such other documents and instruments) as requested by the Term Administrative Agent in accordance with the Term Loan Agreement.

3. The address of the New Subsidiary for purposes of Section 9.01 of the Term Loan Agreement is as follows:

4. The New Subsidiary hereby waives acceptance by the Term Administrative Agent and the Term Lenders of the guaranty by the New Subsidiary upon the execution of this Agreement by the New Subsidiary.

5. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument.

6. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the New Subsidiary has caused this Agreement to be duly executed by its authorized officer, and the Term Administrative Agent, for the benefit of the Term Lenders, has caused the same to be accepted by its authorized officer, as of the day and year first above written.

[NEW SUBSIDIARY]

By:

Name:

Title:

Acknowledged and accepted:

JPMORGAN CHASE BANK, N.A., as Term Administrative Agent

By:

Name:

Title:

5

EXHIBIT E

INTERCREDITOR AGREEMENT

See Tab# 15

EX-10.14

Exhibit 10.14

September 9, 2011

To: Michael Fox

Dear Michael,

Congratulations! I am pleased to extend to you our offer to join Orchard Supply Hardware (“Orchard” or “Company”) as Senior Vice President - General Counsel. This letter serves as confirmation of our offer. Some key elements of the offer are as follows:

• Your start date will be October 3, 2011.

• Base salary at an annual rate of $280,000, paid bi-weekly and in arrears, with periodic increases based on your performance.

• In addition to your base salary, you will receive a sign-on bonus of $50,000 (net of applicable taxes). This will be payable within thirty (30) days following your start date. In the event you voluntarily terminate your employment with the Company or are terminated by the Company for misconduct or integrity issues within twenty four (24) months of your start date, you will be required to repay this amount to the Company according to the following (a) if such termination occurs within the first twelve (12) months of your employment, you will be required to repay 100% of the money and (b) if such termination occurs after the twelfth (12th) month and before the twenty-fifth (25th) month of employment, you will be required to repay 50% of the total to the Company. Repayment is due within thirty (30) days of your last day worked.

• One way we reward great company and individual performance is through our annual incentive plan. You will be eligible for an annual target incentive opportunity of 50% of your base salary. Your award for fiscal year 2011 will be prorated based on your start date. Any incentive payable with respect to a fiscal year will be paid by April 15 of the following fiscal year, provided that you are actively employed on the payment date.

• The Company shall recommend to the committee that administers the Company’s stock incentive plan that you be granted, as soon as approved by the committee after your start date, three (3) separate grants of options to purchase a total of 8017 shares of the Company’s Class B common stock, subject to the terms of a Stock Option Agreement to be entered into between you and the Company.

• We also understand how important it is to get away from work from time to time, so you are eligible to receive twenty-four (24) days of paid vacation, which will be prorated this year based on your actual start date.

• During the course of your employment, you will be entitled to participate in a variety of benefits available to salaried associates, including medical, dental and long-term disability. Your benefits coverage will begin on your first day of employment provided you enroll within your eligibility period. You will also be eligible to begin participation in the 401(k) savings plan on the first day of the third month following your date of hire. The Company expects to continue its benefit programs, but reserves the right to modify, amend or terminate any or all of the benefit programs at any time.

• You will be required to sign an Executive Severance Agreement. If your employment with Orchard is terminated by Orchard (other than for cause, death or total and permanent disability) or by you for Good Reason (as such capitalized terms are defined in the Executive Service Agreement), you will receive six (6) months of pay continuation equal to your base salary at time of termination, subject to mitigation. Under the Executive Severance Agreement, you agree, among other things, not to solicit employees for a period of six (6) months of your termination and not to disclose confidential information. The non-solicitation and non-disclosure provisions apply regardless of whether you are eligible for severance benefits under this agreement, and the terms of this offer letter are conditioned upon your signing this agreement.

This offer is made to you based on your representation to the Company that your acceptance of employment with the Company and your performing the contemplated services does not and will not conflict with or result in any breach of default under any agreement, contract or arrangement which you are a party to or violate any other legal restriction.

This offer is also contingent upon satisfactory completion of a background check, a drug test (to be taken within 48 hours from the time the drug test is scheduled) and employment verification. On your first day of work, you must present documentation to establish your identity and employment eligibility to work in the United States. This documentation will be used to complete the legally required I-9 for the United States Citizenship and Immigration Services.

Michael, we are looking forward to you joining our team. I am confident that you will make an important contribution to the success of Orchard Supply Hardware. Please confirm your acceptance of this offer by signing and returning this offer letter no later than September 16, 2011 to Dave Bogage in PDF format via email at dave.bogage@osh.com or via confidential fax at (408) 361-3007. If you need additional information or clarification, please call.

Sincerely,

Dave Bogage

SVP, Human Resources

Orchard Supply Hardware

Accepted	/s/ Michael Fox	Date 9/10/11
	Michael Fox

EX-10.15

Exhibit 10.15

November 7, 2011

Mr. Chris Newman

c/o Orchard Supply Hardware Stores

Corporation 6450 Via Del Oro

San Jose, CA 95119

Dear Chris:

Thank you for agreeing to serve as an at-will “seasonal” employee of Orchard Supply Hardware LLC (the “Company”) and as the Interim Chief Financial Officer (“CFO”) and principal accounting officer for the Company’s parent entity Orchard Supply Hardware Stores Corporation (“Parent”) and its subsidiaries for the period starting November 7, 2011 and ending on your scheduled last day of employment with the Company which will be January 31, 2012. As an at-will employee, either you or the Company may terminate the employment relationship at any time prior to January 31, 2012 upon written notice to the other party.

During your employment, your salary will be based on a $585,000.00 annual rate. Provided you do not voluntarily resign your employment before January 31, 2012, and are not terminated for “Cause,” the Company will also pay you a one-time bonus (“Retention Bonus”) of $63,300.00 on February 1, 2012. If your employment terminates before January 31, 2012 for any reason other than your voluntary resignation or your termination for “Cause”, then you will still be paid the full Retention Bonus on February 1, 2012. For purposes of the agreement, “Cause” means (i) a material breach by you of your duties and responsibilities which breach is demonstrably willful and deliberate on your part, is committed in bad faith or without reasonable belief that such breach is in the best interests of the Parent and its subsidiaries and is not remedied in a reasonable period of time after receipt of notice from the Company specifying such breach, (ii) the commission by you of a felony involving moral turpitude, or (iii) dishonesty or willful misconduct in connection with your employment.

The Parent is providing you with an Indemnification Agreement, in the form of agreement previously provided to you and currently in place with its directors. The Indemnification Agreement is being provided to you for execution concurrently with this letter agreement.

In addition to the salary referenced above, the Company will promptly reimburse you, subject to the Company’s travel and entertainment policy, for your expenses related to your temporary living and related expenses while you are working at the Company. The Company will also reimburse or advance you for any other business related expenses.

Mr. Chris Newman

November 7, 2011

Page 2

While you will be a Company employee, as a “seasonal” employee you are not (and will not be) eligible for participation in the Company’s (or Parent’s) group medical benefits plan. However, this letter agreement does not otherwise preclude, limit or supersede any of the benefits you will be entitled to as a “seasonal” employee of the Company.

This letter agreement hereby terminates and entirely supersedes and replaces the Consulting Agreement dated October 19, 2011 between the Company and you although you will still be entitled to full and timely payment for your services provided (and expenses incurred) through November 6, 2011 under such Consulting Agreement. If the above is satisfactory to you, please sign below and return both executed agreements to me. Copies have been included for your records.

Sincerely,

/s/ Dave Bogage

Dave Bogage

Senior Vice President, Human Resources

AGREED TO AND ACCEPTED:
/s/ Chris Newman
CHRIS NEWMAN	November 7, 2011

EX-10.18

Exhibit 10.18

EXECUTIVE SEVERANCE AGREEMENT

By this Executive Severance Agreement dated and effective as of 11-3, 2011 (“Agreement”), Orchard Supply Hardware Stores Corporation and its parents, affiliates and subsidiaries (“OSH” or the “Company”) and Steven Mahurin (“Executive”), intending to be legally bound, and for good and valuable consideration, agree as follows:

1. Effect of Severance.

(a) Severance Benefits. If Executive is involuntarily terminated without “Cause” or Executive voluntarily terminates Executive’s employment for “Good Reason” (as such terms are defined in Section 2 below), Executive shall be entitled to the benefits described in subsection (i), (ii) and (iii) below (collectively referred to herein as “Severance Benefits”). Executive shall not be entitled to the Severance Benefits if Executive’s employment terminates for any other reason, including due to death or “Disability” (as defined in Section 2 below). Executive shall also not be entitled to Severance Benefits if Executive does not meet all of the other requirements under this Agreement, including under subsection 4(e).

i. Continuation of Salary.

1. OSH or the appropriate “OSH Affiliate” (as defined in Section 2 below) shall pay Executive cash severance equal to Executive’s annual base salary rate as of the date Executive’s employment terminates (“Date of Termination”). Subject to subsection (a)(i)(2) below, payment of such amount (“Salary Continuation”) shall commence on Executive’s “Separation from Service” (as defined in Section 2 below) and shall be paid in substantially equal installments on each regular salary payroll date for a period of six (6) months following Date of Termination (“Salary Continuation Period”), except as otherwise provided in this Agreement.

Notwithstanding the foregoing, the OSH or OSH Affiliate obligations under this subsection (a)(i)(l) shall be reduced on a dollar-for-dollar basis (but not below zero), by the amount, if any, of fees, salary or wages that Executive earns from a subsequent employer (including those arising from self-employment) during the Salary Continuation Period. For avoidance of doubt, Executive shall not be obligated to seek affirmatively or accept an employment, contractor, consulting or other arrangement in order to mitigate Salary Continuation. Further, to the extent Executive does not execute and timely submit the General Release and Waiver (in accordance with subsection 4(e) below) by the deadline specified therein, Salary Continuation payments shall terminate and forever lapse, and Executive shall be required to reimburse OSH for any portion of the Salary Continuation paid during the Salary Continuation Period.

2. Notwithstanding anything in this subsection (a)(i) to the contrary, if the Salary Continuation payable to Executive in accordance with subsection (a)(i)(l) above during the six (6) months after Executive’s Separation from Service would exceed the “Section 409A

Threshold” and if as of the date of the Separation from Service Executive is a “Specified Employee” (as such terms are defined in Section 2 below), then, payment shall be made to Executive on each regular salary payroll date during the six (6) months of the Salary Continuation Period until the aggregate amount received equals the Section 409A Threshold. Any portion of the Salary Continuation in excess of the Section 409A Threshold that would otherwise be paid during such [first] six (6) months or any portion of the Salary Continuation that is otherwise subject to Section 409A, shall instead be paid to Executive in a lump sum payment on the date that is six (6) months and one (1) day after the date of Executive’s Separation from Service.

3. All Salary Continuation payments (described under this subsection (a)(i)) will terminate and forever lapse in the event of Executive’s breach (in accordance with Section 10 below), and Executive shall be required to reimburse OSH for any portion of the Salary Continuation paid during the Salary Continuation Period.

ii. Continuation of Benefits.

1. During the Salary Continuation Period, Executive will be entitled to participate in all benefit plans and programs (except as specified in this subsection (a)(ii)), as an active associate, in which Executive was eligible to participate on the Date of Termination (subject to the terms and conditions and continued availability of such plans and programs); provided, however, that Executive will not be eligible to participate in the long-term disability plan (as of the 15 ^th day following the Date of Termination), health care flexible spending account (except on an after-tax basis and only through the earlier of the end of Salary Continuation Period or the calendar year in which the Separation from Service occurs), company paid life insurance and the Orchard Supply Hardware Retirement Savings Plan during the Salary Continuation Period. Executive and Executive’s eligible dependents shall be entitled to continue to participate, as active participants, in company medical and dental plans (subject to the terms and conditions and continued availability of such plans) during the Salary Continuation Period.

2. If Executive does not timely execute and submit the General Release and Waiver (in accordance with subsection 4(e) herein) by the deadline specified therein, Executive shall be required to reimburse OSH for the portion of the cost for the benefits referred to under subsection (a)(ii)(l) immediately above paid by OSH during the Salary Continuation Period, and Executive shall instead be eligible for COBRA continuation coverage under the company medical and dental plans as of Executive’s Date of Termination.

3. Subject to subsection (a)(ii)(4) immediately below, in the event Executive provides services to another employer and is covered by such employer’s health benefits plan or program, the medical and dental

2
	/    /20

benefits provided by OSH hereunder shall be secondary to such employer’s health benefits plan or program in accordance with the terms of the company health benefit plans.

4. All of the benefits described in this subsection (a)(ii) will terminate and forever lapse in the event of Executive’s breach (in accordance with Section 10 below), and Executive shall be required to reimburse OSH for any portion of the cost for the benefits referred to under subsection (a)(ii)(l) immediately above paid by OSH during the Salary Continuation Period, and Executive shall instead be eligible for COBRA continuation coverage under the company medical and dental plans as of Executive’s Severance from Service date.

iii. Outplacement. As of Executive’s Separation from Service, Executive will be immediately eligible for reasonable outplacement services at the expense of OSH or the appropriate OSH Affiliate. OSH and Executive will mutually agree on which outplacement firm, among current vendors used by OSH, will provide these services. Such services will be provided for up to six (6) months from the Separation from Service or until employment is obtained, whichever occurs first. Outplacement benefits described in this subsection (a) (iii) will terminate and forever lapse in the event of Executive’s breach (in accordance with Section 10 below).

iv. Other.

1 In addition to the foregoing Severance Benefits, a lump sum payment will be made to Executive within ten (10) business days following the Date of Termination in an amount equal to the sum of any base salary and any vacation benefits that have accrued through the Date of Termination to the extent not already paid. No vacation will accrue during the Salary Continuation Period.

2. Notwithstanding the foregoing and anything herein to the contrary, in the event of Executive’s death during the Salary Continuation Period, any unpaid portion of the Salary Continuation payable in accordance with subsection (a)(i) above shall be paid in a lump sum, within sixty (60) days of death (and no later than amounts would have been paid absent death), to Executive’s estate, and any eligible dependents who are covered dependents as of the date of death shall incur a qualifying event under COBRA as a result of such death.

(b) Impact of Termination on Certain Other Plans/Programs.

i. Annual Incentive Plan. Upon Executive’s Date of Termination, Executive’s entitlement to any award under the applicable annual incentive plan (“AIP”) sponsored by OSH or an OSH Affiliate, shall be determined in accordance with the terms and conditions of the AIP document regarding termination of employment.

3
	/    /20

ii. Stock Plan. Upon Executive’s Date of Termination, Executive’s entitlement to any unvested options, restricted stock or other equity award granted to Executive under the Orchard Supply Hardware Stores Corporation Stock Incentive Plan (“Stock Incentive Plan”) or any other stock plan sponsored by OSH or an OSH Affiliate shall be determined in accordance with the terms and conditions of the applicable award agreement and stock plan document regarding termination of employment.

(c) Post-Termination Forfeiture of Severance Benefits. If OSH or an OSH Affiliate determines after Executive’s Date of Termination that Executive engaged in activity during employment with OSH that OSH or an OSH Affiliate determines constituted Cause, Executive shall immediately cease to be eligible for Severance Benefits and shall be required to reimburse OSH for any portion of the Salary Continuation paid to Executive and for the cost of other Severance Benefits received by Executive during the Salary Continuation Period.

2. Definitions. For purposes of this Agreement, each capitalized term in this Agreement is either defined in the section, exhibit or appendix in which it first appears or in this Section 2. The following capitalized terms shall have the definitions as set forth below:

(a) “Cause” shall mean (i) a material breach by Executive (other than a breach resulting from Executive’s incapacity due to a Disability) of Executive’s duties and responsibilities which breach is demonstrably willful and deliberate on Executive’s part, is committed in bad faith or without reasonable belief that such breach is in the best interests of OSH or the OSH Affiliates and is not remedied in a reasonable period of time after receipt of written notice from OSH specifying such breach; (ii) the commission by Executive of a felony; or (iii) dishonesty or willful misconduct in connection with Executive’s employment.

(b) “Disability” shall mean disability as defined under the company long-term disability plan (regardless of whether the Executive is a participant under such plan).

(c) “Good Reason” shall mean, without Executive’s written consent, (i) a reduction of more than ten percent (10%) in the sum of Executive’s annual base salary and target AIP bonus from those in effect as of the date of this Agreement; (ii) Executive’s mandatory relocation to an office more than fifty (50) miles from the primary location at which Executive is required to perform Executive’s duties immediately prior to the date of this Agreement; or (iii) any other action or inaction that constitutes a material breach of the terms of this Agreement, including failure of a successor company to assume or fulfill the obligations under this Agreement. In each case, Executive must provide OSH with written notice of the facts giving rise to a claim that “Good Reason” exists for purposes of this Agreement, within thirty (30) days of the initial existence of such Good Reason event, and OSH shall have a right to remedy such event within sixty (60) days after receipt of Executive’s written notice (“the sixty (60) day period”). If OSH remedies the Good Reason event within the sixty (60) day period, the Good Reason event (and Executive’s right to receive any benefit under this Agreement on account of termination of employment for Good Reason) shall cease to exist. If OSH does not remedy the Good Reason event within the sixty (60) day period, and Executive does not incur a termination of employment within thirty (30)

4
	/    /20

days following the earlier of: (y) the date OSH notifies Executive that it does not intend to remedy the Good Reason or does not agree that there has been a Good Reason event, or (z) the expiration of the sixty (60) day period, the Good Reason event (or any claim of Good Reason) shall cease to exist. Notwithstanding the foregoing, if Executive fails to provide written notice to OSH of the facts giving rise to a claim of Good Reason within thirty (30) days of the initial existence of such Good Reason event, the Good Reason event (and Executive’s right to receive any benefit under this Agreement on account of termination of employment for Good Reason) shall cease to exist as of the thirty-first (31^st) day following the later of its occurrence or Executive’s knowledge thereof.

(d) “OSH Affiliate” shall mean any person with whom OSH is considered to be a single employer under Code Section 414 (b) and all persons with whom OSH would be considered a single employer under Code Section 414 (c), substituting “50%” for the “80%” standard that would otherwise apply.

(e) “Section 409A Threshold” shall mean an amount equal to two times the lesser of (i) Executive’s base salary for services provided to OSH and any OSH Affiliate as an employee for the calendar year preceding the calendar year in which Executive has a Separation from Service; or (ii) the maximum amount that may be taken into account under a qualified plan in accordance with Code Section 401(a)(17) for the calendar year in which the Executive has a Separation from Service. In all events, this amount shall be limited to the amount specified under Treasury Regulation Section 1.409A-l(b)(9)(iii)(A) or any successor thereto.

(f) “Separation from Service” shall mean a “separation from service” with OSH (including any OSH Affiliate) within the meaning of Code Section 409A (and regulations issued thereunder). Notwithstanding anything herein to the contrary, the fact that Executive is treated as having incurred a Separation from Service under Code Section 409A and the terms of this Agreement shall not be determinative, or in any way affect the analysis, of whether Executive has retired, terminated employment, separated from service, incurred a severance from employment or become entitled to a distribution, under the terms of any retirement plan (including pension plans and 401(k) savings plans) maintained by OSH (including by an OSH Affiliate).

(g) “Specified Employee” shall mean a “specified employee” under Code Section 409A (and regulations issued thereunder), which shall be determined in accordance with the provisions of Supplement A to the Supplemental Retirement Income Plan (as amended and restated effective January 1, 2008).

3. Intellectual Property Rights. Executive acknowledges that Executive’s development, work or research on any and all inventions or expressions of ideas, that may or may not be eligible for patent, copyright, trademark or trade secret protection, hereafter made or conceived solely or jointly within the scope of employment at OSH or any OSH Affiliate, provided such invention or expression of an idea relates to the business of OSH or any OSH Affiliate, or relates to actual or demonstrably anticipated research or development of OSH or any OSH Affiliate, or results from any work performed by Executive for or on behalf of OSH or any OSH Affiliate, are hereby assigned to OSH, including Executive’s entire rights, title and interest. Executive will promptly disclose such invention or expression of an idea to Executive’s

5
	/    /20

management and will, upon request, promptly execute a specific written assignment of title to OSH. If Executive currently holds any inventions or expressions of an idea, regardless of whether they were published or filed with the U.S. Patent and Trademark Office or the U.S. Copyright Office, or is under contract to not so assign, Executive will list them on the last page of this Agreement.

4. Protective Covenants. Executive acknowledges that this Agreement provides for additional consideration beyond what OSH or any OSH Affiliate is otherwise obligated to pay. In consideration of the opportunity for the Severance Benefits, and other good and valuable consideration, Executive agrees to the following:

(a) Non-Disclosure of OSH Confidential Information. Executive acknowledges and agrees to be bound by the following, whether or not Executive receives any Severance Benefits under this Agreement:

i. Non-Disclosure.

1. Executive will not, during the term of Executive’s employment with OSH or any OSH Affiliate or thereafter, and other than in the performance of his duties and obligations during his employment with OSH or as required by law or legal process, and except as OSH may otherwise consent or direct in writing, reveal or disclose, sell, use, lecture upon or publish any “OSH Confidential Information” (as defined in subsection 4(a)(ii) below) until such time as the information becomes publicly known other than as a result of its disclosure, directly or indirectly, by Executive; and

2. Executive understands that if Executive possesses any proprietary information of another person or company as a result of prior employment or otherwise, OSH expects and requires that Executive will honor any and all legal obligations that Executive has to that person or company with respect to proprietary information, and Executive will refrain from any unauthorized use or disclosure of such information.

ii. OSH Confidential Information. For purposes of this Agreement, “OSH Confidential Information” means trade secrets and non-public information which OSH or any OSH Affiliate designates as being confidential or which, under the circumstances, should be treated as confidential, including, without limitation, any information received in confidence or developed by OSH or any OSH Affiliate, its long and short term goals, vendor and supply agreements, databases, methods, programs, techniques, business information, financial information, marketing and business plans, proprietary software, personnel information and files, client information, pricing, and other information relating to the business of OSH or any OSH Affiliate that is not known generally to the public or in the industry.

iii. Return of OSH Property. All documents and other property that relate to the business of OSH or any OSH Affiliate are the exclusive property of OSH, even if Executive authored or created them. Executive agrees to return all

6
	/    /20

such documents and tangible property to OSH upon termination of employment or at such earlier time as OSH may request Executive to do so.

iv. Conflict of Interest. During Executive’s employment with OSH or any OSH Affiliate and during any Salary Continuation Period, except as may be approved in writing by OSH, neither Executive nor members of Executive’s immediate family (which shall refer to Executive, any spouse or any child) will have financial investments or other interests or relationships with OSH’s or any OSH Affiliate’s customers or suppliers which might impair Executive’s independence of judgment on behalf of the Company. Also during Executive’s employment with OSH or any OSH Affiliate, Executive agrees further not to engage in any activity in competition with OSH or any OSH Affiliate and will avoid any outside activity that could adversely affect the independence and objectivity of Executive’s judgment, interfere with the timely and effective performance of Executive’s duties and responsibilities to OSH or any OSH Affiliate, discredit OSH or any OSH Affiliate or otherwise conflict with the best interests of OSH or any OSH Affiliate.

(b) Non-Solicitation of Employees. During Executive’s employment with OSH or any OSH Affiliate and for twelve (12) months following Executive’s Date of Termination, whether or not Executive receives any Severance Benefits under this Agreement, Executive will not, directly or indirectly, solicit or encourage any person to leave her/his employment with OSH or any OSH Affiliate or assist in any way with the hiring of any OSH or any OSH Affiliate employee by any future employer or other entity.

(c) Compliance with Protective Covenants. Executive will provide OSH with such information as OSH may from time to time reasonably request to determine Executive’s compliance with this Section 4. Executive authorizes OSH to contact Executive’s future employers and other entities with which Executive has any business relationship to determine Executive’s compliance with this Agreement or to communicate the contents of this Agreement to such employers and entities. Executive releases OSH, OSH Affiliates, their agents and employees, from all liability for any damage arising from any such contacts or communications.

(d) Necessity and Reasonableness. Executive agrees that the restrictions set forth herein are necessary to prevent the use and disclosure of OSH Confidential Information and to otherwise protect the legitimate business interests of OSH and OSH Affiliates. Executive further agrees and acknowledges that the provisions of this Agreement are reasonable.

(e) General Release and Waiver. Upon Executive’s Date of Termination (whether initiated by OSH or Executive in accordance with subsection 1(a) above) potentially entitling Executive to Severance Benefits, Executive will execute a binding general release and waiver of claims in a form to be provided by OSH (“General Release and Waiver”), which is incorporated by reference under this Agreement. This General Release and Waiver will be in a form substantially similar to the attached sample. If the General Release and Waiver is not signed within the time required by the waiver or is signed but subsequently revoked, Executive will not continue to receive any Severance

7
	/    /20

Benefits otherwise payable under subsection 1(a) above. Further, Executive shall be obligated to reimburse OSH for any portion of (i) the Salary Continuation paid during the Salary Continuation Period under subsection (l)(a)(i) herein, and (ii) the cost for the benefits provided during the Salary Continuation Period under subsection (l)(a)(ii) herein. A sample of this General Release and Waiver is provided as Exhibit A to this Agreement.

5. Irreparable Harm. Executive acknowledges that irreparable harm would result from any breach by Executive of the provisions of this Agreement, including without limitation subsections 4(a) and 4(b), and that monetary damages alone would not provide adequate relief for any such breach. Accordingly, if Executive breaches or threatens to breach this Agreement, Executive consents to injunctive relief in favor of OSH without the necessity of OSH posting a bond. Moreover, any award of injunctive relief shall not preclude OSH from seeking or recovering any lawful compensatory damages which may have resulted from a breach of this Agreement, including a forfeiture of any future payments and a return of any payments and benefits already received by Executive.

6. Non-Disparagement. Executive will not take any actions that would reasonably be expected to be detrimental to the interests of OSH or any OSH Affiliate, nor make derogatory statements, either written or oral to any third party, or otherwise publicly disparage OSH or any OSH Affiliate, its products, services, or present or former employees, officers or directors, and will not authorize others to make derogatory or disparaging statements on Executive’s behalf. This provision does not and is not intended to preclude Executive from providing truthful testimony in response to legal process or governmental inquiry.

7. Cooperation. Executive agrees, without receiving additional compensation, to fully and completely cooperate with OSH, both during and after the period of employment with OSH or any OSH Affiliate (including any Salary Continuation Period), with respect to matters that relate to Executive’s period of employment, in all investigations, potential litigation or litigation in which OSH or any OSH Affiliate is involved or may become involved other than any such investigations, potential litigation or litigation between OSH and Executive. OSH will reimburse Executive for reasonable travel and out-of-pocket expenses incurred in connection with any such investigations, potential litigation or litigation.

8. Future Enforcement or Remedy. Any waiver, or failure to seek enforcement or remedy for any breach or suspected breach, of any provision of this Agreement by OSH or Executive in any instance shall not be deemed a waiver of such provision in the future.

9. Acting as Witness. Executive agrees that both during and after the period of employment with OSH or any OSH Affiliate (including any Salary Continuation Period), Executive will not voluntarily act as a witness, consultant or expert for any person or party in any action against or involving OSH or any OSH Affiliate or corporate relative of OSH, unless subject to judicial enforcement to appear as a fact witness only.

10. Breach by Executive. In the event of a breach by Executive of any of the provisions of this Agreement, including without limitation the non-disparagement provision (Section 6) of this Agreement, the obligation of OSH or any OSH Affiliate to pay Salary Continuation or to provide other Severance Benefits under this Agreement will immediately cease and any Salary Continuation payments already received and the value of any other

8
	/    /20

Severance Benefits already received will be returned by Executive to OSH. Further, Executive agrees that OSH shall be entitled to recovery of its attorneys’ fees and other associated costs incurred as a result of any attempt to redress a breach by Executive or to enforce its rights and protect its interests under the Agreement.

11. Severability. If any provision(s) of this Agreement shall be found invalid, illegal, or unenforceable, in whole or in part, then such provision(s) shall be modified or restricted so as to effectuate as nearly as possible in a valid and enforceable way the provisions hereof, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision(s) had been originally incorporated herein as so modified or restricted or as if such provision(s) had not been originally incorporated herein, as the case may be.

12. Governing Law. This Agreement will be governed under the internal laws of the state of California without regard to principles of conflicts of laws. Executive agrees that the state and federal courts located in the state of California shall have exclusive jurisdiction in any action, lawsuit or proceeding based on or arising out of this Agreement, and Executive hereby: (a) submits to the personal jurisdiction of such courts; (b) consents to the service of process in connection with any action, suit, or proceeding against Executive; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, venue or service of process.

13. Right to Jury. Executive agrees to waive any right to a jury trial on any claim contending that this Agreement or the General Release and Waiver is illegal or unenforceable in whole or in part, and Executive agrees to try any claims brought in a court or tribunal without use of a jury or advisory jury. Further, should any claim arising out of Executive’s employment, termination of employment or Salary Continuation Period (if any) be found by a court or tribunal of competent jurisdiction to not be released by the General Release and Waiver, Executive agrees to try such claim to the court or tribunal without use of a jury or advisory jury.

14. Employment-at-Will. This Agreement does not constitute a contract of employment, and Executive acknowledges that Executive’s employment with OSH or any OSH Affiliate is terminable “at-will” by either party with or without cause and with or without notice.

15. Other Plans, Programs, Policies and Practices. If any provision of this Agreement conflicts with any other plan, programs, policy, practice or other OSH or OSH Affiliate document, then the provisions of this Agreement will control, except as otherwise precluded by law. Executive shall not be eligible for any benefits under any broad-based company sponsored severance pay program.

16. Entire Agreement. This Agreement, including any exhibits or appendices hereto, contains and comprises the entire understanding and agreement between Executive and OSH (including any OSH Affiliate) and fully supersedes any and all prior agreements or understandings between Executive and OSH with respect to the subject matter contained herein, and may be amended only by the Chief Executive Officer of OSH.

17. Confidentiality. Executive agrees that the existence and terms of the Agreement, including any compensation paid to Executive, and discussions with OSH (including any OSH Affiliate) regarding this Agreement, shall be considered confidential and shall not be disclosed or communicated in any manner except: (a) as required by law or legal process; (b) to Executive’s

9
	/    /20

spouse or domestic partner, or (c) to Executive’s financial/legal advisors, all of whom shall agree to keep such information confidential.

18. Tax Withholding. Any compensation paid or provided to Executive under this Agreement shall be subject to any applicable federal, state or local income and employment tax withholding requirements.

19. Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:	At the most recent address on file at OSH.
If to OSH:	Orchard Supply Hardware Stores Corporation 6450 Via Del Oro San Jose, California, 95119

Attention to both: Senior Vice President, Human Resources Chief Executive Officer

20. Assignment. OSH may assign its rights under this Agreement to any successor in interest, whether by merger, consolidation, sale of assets, or otherwise. This Agreement shall be binding whether it is between OSH and Executive or between any successor or assignee of OSH or affiliate thereof and Executive.

21. Section 409A Compliance. To the extent that a payment or benefit under this Agreement is subject to Code Section 409A, it is intended that this Agreement as applied to that payment or benefit comply with the requirements of Code Section 409A, and the Agreement shall be administered and interpreted consistent with this intent.

22. Counterparts. This Agreement may be executed in one or more counterparts, which together shall constitute a valid and binding agreement.

[Remainder of page intentionally left blank.]

10
	/    /20

IN WITNESS WHEREOF, Executive and OSH, by its duly authorized representative, have executed this Agreement on the dates stated below, effective as of the date first set forth above.

EXECUTIVE	ORCHARD SUPPLY HARDWARE STORES CORPORATION
[ILLEGIBLE]	BY:	[ILLEGIBLE]
Steven Mahurin
11-3-11	11-3-11
Date	Date

11
	/    /20

EXHIBIT A

NOTICE: YOU MAY CONSIDER THIS GENERAL RELEASE AND WAIVER FOR UP TO TWENTY-ONE (21) DAYS. YOU MAY NOT SIGN IT UNTIL ON OR AFTER YOUR LAST DAY OF WORK. IF YOU DECIDE TO SIGN IT, YOU MAY REVOKE THE GENERAL RELEASE AND WAIVER WITHIN SEVEN (7) DAYS AFTER SIGNING. ANY REVOCATION WITHIN THIS PERIOD MUST BE IMMEDIATELY SUBMITTED IN WRITING TO [DIRECTOR, HUMAN RESOURCES], ORCHARD SUPPLY HARDWARE STORES CORPORATION, 6450 VIA DEL ORO, SAN JOSE, CALIFORNIA, 95119. YOU MAY WISH TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS DOCUMENT.

GENERAL RELEASE AND WAIVER

In consideration for the benefits that I will receive under the attached Executive Severance Agreement, I, and any person acting by, through, or under me hereby release Orchard Supply Hardware Stores Corporation, its current and former agents, parents, subsidiaries, affiliates, employees, officers, stockholders, successors, and assigns (“OSH”) from any and all claims arising out of my employment or the termination thereof. This General Release and Waiver is to be broadly construed to encompass all claims of any kind or character whatsoever, whether known or unknown, based upon any matter occurring prior to my execution of this General Release and Waiver and including, but without limiting the generality of the foregoing, any and all claims under the Age Discrimination in Employment Act (“ADEA”), Title VII of the Civil Rights Act of 1964, Section 1981 of the Civil Rights Act of 1866, the Americans with Disabilities Act (“ADA”), the Employee Retirement Income Security Act (“ERISA”), the Worker Adjustment and Retraining Notification Act (“WARN”), the Family and Medical Leave Act (“FMLA”) and any other federal, state or local constitution, statute, regulation, or ordinance, and any and all common law claims including, but not limited to, claims for wrongful or retaliatory discharge, intentional infliction of emotional distress, negligence, defamation, invasion of privacy, and breach of contract. This General Release and Waiver does not apply to any claims or rights that may arise after the date that I signed this General Release and Waiver. I understand that OSH is not admitting to any violation of my rights or any duty or obligation owed to me.

Excluded from this General Release and Waiver are any claims which cannot be waived by law, including but not limited to (1) the right to file a charge with or participate in an investigation conducted by certain government agencies, and (2) any rights or claims to benefits accrued under benefit plans maintained by OSH pursuant to ERISA. I do, however, waive my right to any monetary recovery should any agency or other third party pursue any claims on my behalf. I represent and warrant that I have not filed any complaint, charge, or lawsuit against OSH with any governmental agency and/or any court.

I hereby expressly waive all rights and benefits under section 1542 of the California Civil Code. Section 1542 provides as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

	Page 1 of 2
Return both pages of the signed General Release and Waiver

GENERAL RELEASE AND WAIVER (continued)

I hereby acknowledge that the foregoing waiver of the provisions of Section 1542 of the California Civil Code was separately bargained for. Notwithstanding the provisions of Section 1542, it is my intention to hereby irrevocably and unconditionally release and forever discharge Holdings and all persons acting by, through, under, or in concert with Holdings from any and all charges, complaints, claims, and liabilities of any kind or nature whatsoever, known or unknown, suspected or unsuspected, which I may have or claim to have regarding events that have occurred as of or before the effective date of this Agreement, including, without limitation, any and all claims related or in any manner or incidental to my hiring, employment with, and the termination of employment. I expressly consent that this General Release and Waiver shall be given full force and effect in accordance with each and all of its terms and provisions relating to unknown and unsuspected claims, demands, causes of action, if any, to the same effect as those terms and provisions relating to any other claims, demands, and causes of action.

I have read this General Release and Waiver and I understand its legal and binding effect. I am acting voluntarily and of my own free will in executing this General Release and Waiver.

I have had the opportunity to seek, and I was advised in writing to seek, legal counsel prior to signing this General Release and Waiver.

I was given at least twenty-one (21) days to consider signing this General Release and Waiver. Any immaterial modification of this General Release and Waiver does not restart the twenty-one (21) day consideration period.

I understand that, if I sign the General Release and Waiver, I can change my mind and revoke it within seven (7) days after signing it by notifying the Vice President, Human Resources at OSH in writing at Orchard Supply Hardware Stores Corporation, 6450 Via Del Oro, San Jose, California 95119. I understand that this General Release and Waiver will not be effective until after this seven (7) day revocation period has expired.

Date:	SAMPLE ONLY - DO NOT DATE	Signed by:	SAMPLE ONLY - DO NOT SIGN
		Witness by:	SAMPLE ONLY - DO NOT SIGN

	Page 2 of 2
Return both pages of the signed General Release and Waiver

EX-10.22

Exhibit 10.22

EXECUTIVE SEVERANCE AGREEMENT

By this Executive Severance Agreement dated and effective as of June 13^th, 2011 (“Agreement”), Orchard Supply Hardware Stores Corporation and its parents, affiliates and subsidiaries (“OSH” or the “Company”) and Mark Bussard (“Executive”), intending to be legally bound, and for good and valuable consideration, agree as follows:

1. Effect of Severance.

(a) Severance Benefits. If Executive is involuntarily terminated without “Cause” or Executive voluntarily terminates Executive’s employment for “Good Reason” (as such terms are defined in Section 2 below), Executive shall be entitled to the benefits described in subsection (i), (ii) and (iii) below (collectively referred to herein as “Severance Benefits”). Executive shall not be entitled to the Severance Benefits if Executive’s employment terminates for any other reason, including due to death or “Disability” (as defined in Section 2 below). Executive shall also not be entitled to Severance Benefits if Executive does not meet all of the other requirements under this Agreement, including under subsection 4(e).

i. Continuation of Salary.

1. OSH or the appropriate “OSH Affiliate” (as defined in Section 2 below) shall pay Executive cash severance equal to Executive’s annual base salary rate as of the date Executive’s employment terminates (“Date of Termination”). Subject to subsection (a)(i)(2) below, payment of such amount (“Salary Continuation”) shall commence on Executive’s “Separation from Service” (as defined in Section 2 below) and shall be paid in substantially equal installments on each regular salary payroll date for a period of six (6) months following Date of Termination (“Salary Continuation Period”), except as otherwise provided in this Agreement.

Notwithstanding the foregoing, the OSH or OSH Affiliate obligations under this subsection (a)(i)(1) shall be reduced on a dollar-for-dollar basis (but not below zero), by the amount, if any, of fees, salary or wages that Executive earns from a subsequent employer (including those arising from self-employment) during the Salary Continuation Period. For avoidance of doubt, Executive shall not be obligated to seek affirmatively or accept an employment, contractor, consulting or other arrangement in order to mitigate Salary Continuation. Further, to the extent Executive does not execute and timely submit the General Release and Waiver (in accordance with subsection 4(e) below) by the deadline specified therein, Salary Continuation payments shall terminate and forever lapse, and Executive shall be required to reimburse OSH for any portion of the Salary Continuation paid during the Salary Continuation Period.

2. Notwithstanding anything in this subsection (a)(i) to the contrary, if the Salary Continuation payable to Executive in accordance with subsection (a)(i)(1) above during the six (6) months after Executive’s Separation from Service would exceed the “Section 409A

Threshold” and if as of the date of the Separation from Service Executive is a “Specified Employee” (as such terms are defined in Section 2 below), then, payment shall be made to Executive on each regular salary payroll date during the six (6) months of the Salary Continuation Period until the aggregate amount received equals the Section 409A Threshold. Any portion of the Salary Continuation in excess of the Section 409A Threshold that would otherwise be paid during such [first] six (6) months or any portion of the Salary Continuation that is otherwise subject to Section 409A, shall instead be paid to Executive in a lump sum payment on the date that is six (6) months and one (1) day after the date of Executive’s Separation from Service.

3. All Salary Continuation payments (described under this subsection (a)(i)) will terminate and forever lapse in the event of Executive’s breach (in accordance with Section 10 below), and Executive shall be required to reimburse OSH for any portion of the Salary Continuation paid during the Salary Continuation Period.

ii. Continuation of Benefits.

1. During the Salary Continuation Period, Executive will be entitled to participate in all benefit plans and programs (except as specified in this subsection (a)(ii)), as an active associate, in which Executive was eligible to participate on the Date of Termination (subject to the terms and conditions and continued availability of such plans and programs); provided, however, that Executive will not be eligible to participate in the long-term disability plan (as of the 15^th day following the Date of Termination), health care flexible spending account (except on an after-tax basis and only through the earlier of the end of Salary Continuation Period or the calendar year in which the Separation from Service occurs), company paid life insurance and the Orchard Supply Hardware Retirement Savings Plan during the Salary Continuation Period. Executive and Executive’s eligible dependents shall be entitled to continue to participate, as active participants, in company medical and dental plans (subject to the terms and conditions and continued availability of such plans) during the Salary Continuation Period.

2. If Executive does not timely execute and submit the General Release and Waiver (in accordance with subsection 4(e) herein) by the deadline specified therein, Executive shall be required to reimburse OSH for the portion of the cost for the benefits referred to under subsection (a)(ii)(1) immediately above paid by OSH during the Salary Continuation Period, and Executive shall instead be eligible for COBRA continuation coverage under the company medical and dental plans as of Executive’s Date of Termination.

3. Subject to subsection (a)(ii)(4) immediately below, in the event Executive provides services to another employer and is covered by such employer’s health benefits plan or program, the medical and dental

2

    /    /20    

benefits provided by OSH hereunder shall be secondary to such employer’s health benefits plan or program in accordance with the terms of the company health benefit plans.

4. All of the benefits described in this subsection (a)(ii) will terminate and forever lapse in the event of Executive’s breach (in accordance with Section 10 below), and Executive shall be required to reimburse OSH for any portion of the cost for the benefits referred to under subsection (a)(ii)(1) immediately above paid by OSH during the Salary Continuation Period, and Executive shall instead be eligible for COBRA continuation coverage under the company medical and dental plans as of Executive’s Severance from Service date.

iii. Outplacement. As of Executive’s Separation from Service, Executive will be immediately eligible for reasonable outplacement services at the expense of OSH or the appropriate OSH Affiliate. OSH and Executive will mutually agree on which outplacement firm, among current vendors used by OSH, will provide these services. Such services will be provided for up to six (6) months from the Separation from Service or until employment is obtained, whichever occurs first. Outplacement benefits described in this subsection (a)(iii) will terminate and forever lapse in the event of Executive’s breach (in accordance with Section 10 below).

iv. Other.

1. In addition to the foregoing Severance Benefits, a lump sum payment will be made to Executive within ten (10) business days following the Date of Termination in an amount equal to the sum of any base salary and any vacation benefits that have accrued through the Date of Termination to the extent not already paid. No vacation will accrue during the Salary Continuation Period.

2. Notwithstanding the foregoing and anything herein to the contrary, in the event of Executive’s death during the Salary Continuation Period, any unpaid portion of the Salary Continuation payable in accordance with subsection (a)(i) above shall be paid in a lump sum, within sixty (60) days of death (and no later than amounts would have been paid absent death), to Executive’s estate, and any eligible dependents who are covered dependents as of the date of death shall incur a qualifying event under COBRA as a result of such death.

(b) Impact of Termination on Certain Other Plans/Programs.

i. Annual Incentive Plan. Upon Executive’s Date of Termination, Executive’s entitlement to any award under the applicable annual incentive plan (“AIP”) sponsored by OSH or an OSH Affiliate, shall be determined in accordance with the terms and conditions of the AIP document regarding termination of employment.

3

    /    /20    

ii. Stock Plan. Upon Executive’s Date of Termination, Executive’s entitlement to any unvested options, restricted stock or other equity award granted to Executive under the Orchard Supply Hardware Stores Corporation Stock Incentive Plan (“Stock Incentive Plan”) or any other stock plan sponsored by OSH or an OSH Affiliate shall be determined in accordance with the terms and conditions of the applicable award agreement and stock plan document regarding termination of employment.

(c) Post-Termination Forfeiture of Severance Benefits. If OSH or an OSH Affiliate determines after Executive’s Date of Termination that Executive engaged in activity during employment with OSH that OSH or an OSH Affiliate determines constituted Cause, Executive shall immediately cease to be eligible for Severance Benefits and shall be required to reimburse OSH for any portion of the Salary Continuation paid to Executive and for the cost of other Severance Benefits received by Executive during the Salary Continuation Period.

2. Definitions. For purposes of this Agreement, each capitalized term in this Agreement is either defined in the section, exhibit or appendix in which it first appears or in this Section 2. The following capitalized terms shall have the definitions as set forth below:

(a) “Cause” shall mean (i) a material breach by Executive (other than a breach resulting from Executive’s incapacity due to a Disability) of Executive’s duties and responsibilities which breach is demonstrably willful and deliberate on Executive’s part, is committed in bad faith or without reasonable belief that such breach is in the best interests of OSH or the OSH Affiliates and is not remedied in a reasonable period of time after receipt of written notice from OSH specifying such breach; (ii) the commission by Executive of a felony; or (iii) dishonesty or willful misconduct in connection with Executive’s employment.

(b) “Disability” shall mean disability as defined under the company long-term disability plan (regardless of whether the Executive is a participant under such plan).

(c) “Good Reason” shall mean, without Executive’s written consent, (i) a reduction of more than ten percent (10%) in the sum of Executive’s annual base salary and target AIP bonus from those in effect as of the date of this Agreement; (ii) Executive’s mandatory relocation to an office more than fifty (50) miles from the primary location at which Executive is required to perform Executive’s duties immediately prior to the date of this Agreement; or (iii) any other action or inaction that constitutes a material breach of the terms of this Agreement, including failure of a successor company to assume or fulfill the obligations under this Agreement. In each case, Executive must provide OSH with written notice of the facts giving rise to a claim that “Good Reason” exists for purposes of this Agreement, within thirty (30) days of the initial existence of such Good Reason event, and OSH shall have a right to remedy such event within sixty (60) days after receipt of Executive’s written notice (“the sixty (60) day period”). If OSH remedies the Good Reason event within the sixty (60) day period, the Good Reason event (and Executive’s right to receive any benefit under this Agreement on account of termination of employment for Good Reason) shall cease to exist. If OSH does not remedy the Good Reason event within the sixty (60) day period, and Executive does not incur a termination of employment within thirty (30)

4

    /    /20    

days following the earlier of: (y) the date OSH notifies Executive that it does not intend to remedy the Good Reason or does not agree that there has been a Good Reason event, or (z) the expiration of the sixty (60) day period, the Good Reason event (or any claim of Good Reason) shall cease to exist. Notwithstanding the foregoing, if Executive fails to provide written notice to OSH of the facts giving rise to a claim of Good Reason within thirty (30) days of the initial existence of such Good Reason event, the Good Reason event (and Executive’s right to receive any benefit under this Agreement on account of termination of employment for Good Reason) shall cease to exist as of the thirty-first (31^st) day following the later of its occurrence or Executive’s knowledge thereof.

(d) “OSH Affiliate” shall mean any person with whom OSH is considered to be a single employer under Code Section 414 (b) and all persons with whom OSH would be considered a single employer under Code Section 414 (c), substituting “50%” for the “80%” standard that would otherwise apply.

(e) “Section 409A Threshold” shall mean an amount equal to two times the lesser of (i) Executive’s base salary for services provided to OSH and any OSH Affiliate as an employee for the calendar year preceding the calendar year in which Executive has a Separation from Service; or (ii) the maximum amount that may be taken into account under a qualified plan in accordance with Code Section 401(a)(17) for the calendar year in which the Executive has a Separation from Service. In all events, this amount shall be limited to the amount specified under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) or any successor thereto.

(f) “Separation from Service” shall mean a “separation from service” with OSH (including any OSH Affiliate) within the meaning of Code Section 409A (and regulations issued thereunder). Notwithstanding anything herein to the contrary, the fact that Executive is treated as having incurred a Separation from Service under Code Section 409A and the terms of this Agreement shall not be determinative, or in any way affect the analysis, of whether Executive has retired, terminated employment, separated from service, incurred a severance from employment or become entitled to a distribution, under the terms of any retirement plan (including pension plans and 401(k) savings plans) maintained by OSH (including by an OSH Affiliate).

(g) “Specified Employee” shall mean a “specified employee” under Code Section 409A (and regulations issued thereunder), which shall be determined in accordance with the provisions of Supplement A to the Supplemental Retirement Income Plan (as amended and restated effective January 1, 2008).

3. Intellectual Property Rights. Executive acknowledges that Executive’s development, work or research on any and all inventions or expressions of ideas, that may or may not be eligible for patent, copyright, trademark or trade secret protection, hereafter made or conceived solely or jointly within the scope of employment at OSH or any OSH Affiliate, provided such invention or expression of an idea relates to the business of OSH or any OSH Affiliate, or relates to actual or demonstrably anticipated research or development of OSH or any OSH Affiliate, or results from any work performed by Executive for or on behalf of OSH or any OSH Affiliate, are hereby assigned to OSH, including Executive’s entire rights, title and interest. Executive will promptly disclose such invention or expression of an idea to Executive’s

5

    /    /20    

management and will, upon request, promptly execute a specific written assignment of title to OSH. If Executive currently holds any inventions or expressions of an idea, regardless of whether they were published or filed with the U.S. Patent and Trademark Office or the U.S. Copyright Office, or is under contract to not so assign, Executive will list them on the last page of this Agreement.

4. Protective Covenants. Executive acknowledges that this Agreement provides for additional consideration beyond what OSH or any OSH Affiliate is otherwise obligated to pay. In consideration of the opportunity for the Severance Benefits, and other good and valuable consideration, Executive agrees to the following:

(a) Non-Disclosure of OSH Confidential Information. Executive acknowledges and agrees to be bound by the following, whether or not Executive receives any Severance Benefits under this Agreement:

i. Non-Disclosure.

1. Executive will not, during the term of Executive’s employment with OSH or any OSH Affiliate or thereafter, and other than in the performance of his duties and obligations during his employment with OSH or as required by law or legal process, and except as OSH may otherwise consent or direct in writing, reveal or disclose, sell, use, lecture upon or publish any “OSH Confidential Information” (as defined in subsection 4(a)(ii) below) until such time as the information becomes publicly known other than as a result of its disclosure, directly or indirectly, by Executive; and

2. Executive understands that if Executive possesses any proprietary information of another person or company as a result of prior employment or otherwise, OSH expects and requires that Executive will honor any and all legal obligations that Executive has to that person or company with respect to proprietary information, and Executive will refrain from any unauthorized use or disclosure of such information.

ii. OSH Confidential Information. For purposes of this Agreement, “OSH Confidential Information” means trade secrets and non-public information which OSH or any OSH Affiliate designates as being confidential or which, under the circumstances, should be treated as confidential, including, without limitation, any information received in confidence or developed by OSH or any OSH Affiliate, its long and short term goals, vendor and supply agreements, databases, methods, programs, techniques, business information, financial information, marketing and business plans, proprietary software, personnel information and files, client information, pricing, and other information relating to the business of OSH or any OSH Affiliate that is not known generally to the public or in the industry.

iii. Return of OSH Property. All documents and other property that relate to the business of OSH or any OSH Affiliate are the exclusive property of OSH, even if Executive authored or created them. Executive agrees to return all

6

    /    /20    

such documents and tangible property to OSH upon termination of employment or at such earlier time as OSH may request Executive to do so.

iv. Conflict of Interest. During Executive’s employment with OSH or any OSH Affiliate and during any Salary Continuation Period, except as may be approved in writing by OSH, neither Executive nor members of Executive’s immediate family (which shall refer to Executive, any spouse or any child) will have financial investments or other interests or relationships with OSH’s or any OSH Affiliate’s customers or suppliers which might impair Executive’s independence of judgment on behalf of the Company. Also during Executive’s employment with OSH or any OSH Affiliate, Executive agrees further not to engage in any activity in competition with OSH or any OSH Affiliate and will avoid any outside activity that could adversely affect the independence and objectivity of Executive’s judgment, interfere with the timely and effective performance of Executive’s duties and responsibilities to OSH or any OSH Affiliate, discredit OSH or any OSH Affiliate or otherwise conflict with the best interests of OSH or any OSH Affiliate.

(b) Non-Solicitation of Employees. During Executive’s employment with OSH or any OSH Affiliate and for twelve (12) months following Executive’s Date of Termination, whether or not Executive receives any Severance Benefits under this Agreement, Executive will not, directly or indirectly, solicit or encourage any person to leave her/his employment with OSH or any OSH Affiliate or assist in any way with the hiring of any OSH or any OSH Affiliate employee by any future employer or other entity.

(c) Compliance with Protective Covenants. Executive will provide OSH with such information as OSH may from time to time reasonably request to determine Executive’s compliance with this Section 4. Executive authorizes OSH to contact Executive’s future employers and other entities with which Executive has any business relationship to determine Executive’s compliance with this Agreement or to communicate the contents of this Agreement to such employers and entities. Executive releases OSH, OSH Affiliates, their agents and employees, from all liability for any damage arising from any such contacts or communications.

(d) Necessity and Reasonableness. Executive agrees that the restrictions set forth herein are necessary to prevent the use and disclosure of OSH Confidential Information and to otherwise protect the legitimate business interests of OSH and OSH Affiliates. Executive further agrees and acknowledges that the provisions of this Agreement are reasonable.

(e) General Release and Waiver. Upon Executive’s Date of Termination (whether initiated by OSH or Executive in accordance with subsection l(a) above) potentially entitling Executive to Severance Benefits, Executive will execute a binding general release and waiver of claims in a form to be provided by OSH (“General Release and Waiver”), which is incorporated by reference under this Agreement. This General Release and Waiver will be in a form substantially similar to the attached sample. If the General Release and Waiver is not signed within the time required by the waiver or is signed but subsequently revoked, Executive will not continue to receive any Severance

7

    /    /20    

Benefits otherwise payable under subsection 1(a) above. Further, Executive shall be obligated to reimburse OSH for any portion of (i) the Salary Continuation paid during the Salary Continuation Period under subsection (1)(a)(i) herein, and (ii) the cost for the benefits provided during the Salary Continuation Period under subsection (1)(a)(ii) herein. A sample of this General Release and Waiver is provided as Exhibit A to this Agreement.

5. Irreparable Harm. Executive acknowledges that irreparable harm would result from any breach by Executive of the provisions of this Agreement, including without limitation subsections 4(a) and 4(b), and that monetary damages alone would not provide adequate relief for any such breach. Accordingly, if Executive breaches or threatens to breach this Agreement, Executive consents to injunctive relief in favor of OSH without the necessity of OSH posting a bond. Moreover, any award of injunctive relief shall not preclude OSH from seeking or recovering any lawful compensatory damages which may have resulted from a breach of this Agreement, including a forfeiture of any future payments and a return of any payments and benefits already received by Executive.

6. Non-Disparagement. Executive will not take any actions that would reasonably be expected to be detrimental to the interests of OSH or any OSH Affiliate, nor make derogatory statements, either written or oral to any third party, or otherwise publicly disparage OSH or any OSH Affiliate, its products, services, or present or former employees, officers or directors, and will not authorize others to make derogatory or disparaging statements on Executive’s behalf. This provision does not and is not intended to preclude Executive from providing truthful testimony in response to legal process or governmental inquiry.

7. Cooperation. Executive agrees, without receiving additional compensation, to fully and completely cooperate with OSH, both during and after the period of employment with OSH or any OSH Affiliate (including any Salary Continuation Period), with respect to matters that relate to Executive’s period of employment, in all investigations, potential litigation or litigation in which OSH or any OSH Affiliate is involved or may become involved other than any such investigations, potential litigation or litigation between OSH and Executive. OSH will reimburse Executive for reasonable travel and out-of-pocket expenses incurred in connection with any such investigations, potential litigation or litigation.

8. Future Enforcement or Remedy. Any waiver, or failure to seek enforcement or remedy for any breach or suspected breach, of any provision of this Agreement by OSH or Executive in any instance shall not be deemed a waiver of such provision in the future.

9. Acting as Witness. Executive agrees that both during and after the period of employment with OSH or any OSH Affiliate (including any Salary Continuation Period), Executive will not voluntarily act as a witness, consultant or expert for any person or party in any action against or involving OSH or any OSH Affiliate or corporate relative of OSH, unless subject to judicial enforcement to appear as a fact witness only.

10. Breach by Executive. In the event of a breach by Executive of any of the provisions of this Agreement, including without limitation the non-disparagement provision (Section 6) of this Agreement, the obligation of OSH or any OSH Affiliate to pay Salary Continuation or to provide other Severance Benefits under this Agreement will immediately cease and any Salary Continuation payments already received and the value of any other

8

    /    /20    

Severance Benefits already received will be returned by Executive to OSH. Further, Executive agrees that OSH shall be entitled to recovery of its attorneys’ fees and other associated costs incurred as a result of any attempt to redress a breach by Executive or to enforce its rights and protect its interests under the Agreement.

11. Severability. If any provision(s) of this Agreement shall be found invalid, illegal, or unenforceable, in whole or in part, then such provision(s) shall be modified or restricted so as to effectuate as nearly as possible in a valid and enforceable way the provisions hereof, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision(s) had been originally incorporated herein as so modified or restricted or as if such provision(s) had not been originally incorporated herein, as the case may be.

12. Governing Law. This Agreement will be governed under the internal laws of the state of California without regard to principles of conflicts of laws. Executive agrees that the state and federal courts located in the state of California shall have exclusive jurisdiction in any action, lawsuit or proceeding based on or arising out of this Agreement, and Executive hereby: (a) submits to the personal jurisdiction of such courts; (b) consents to the service of process in connection with any action, suit, or proceeding against Executive; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, venue or service of process.

13. Right to Jury. Executive agrees to waive any right to a jury trial on any claim contending that this Agreement or the General Release and Waiver is illegal or unenforceable in whole or in part, and Executive agrees to try any claims brought in a court or tribunal without use of a jury or advisory jury. Further, should any claim arising out of Executive’s employment, termination of employment or Salary Continuation Period (if any) be found by a court or tribunal of competent jurisdiction to not be released by the General Release and Waiver, Executive agrees to try such claim to the court or tribunal without use of a jury or advisory jury.

14. Employment-at-Will. This Agreement does not constitute a contract of employment, and Executive acknowledges that Executive’s employment with OSH or any OSH Affiliate is terminable “at-will” by either party with or without cause and with or without notice.

15. Other Plans, Programs, Policies and Practices. If any provision of this Agreement conflicts with any other plan, programs, policy, practice or other OSH or OSH Affiliate document, then the provisions of this Agreement will control, except as otherwise precluded by law. Executive shall not be eligible for any benefits under any broad-based company sponsored severance pay program.

16. Entire Agreement. This Agreement, including any exhibits or appendices hereto, contains and comprises the entire understanding and agreement between Executive and OSH (including any OSH Affiliate) and fully supersedes any and all prior agreements or understandings between Executive and OSH with respect to the subject matter contained herein, and may be amended only by the Chief Executive Officer of OSH.

17. Confidentiality. Executive agrees that the existence and terms of the Agreement, including any compensation paid to Executive, and discussions with OSH (including any OSH Affiliate) regarding this Agreement, shall be considered confidential and shall not be disclosed or communicated in any manner except: (a) as required by law or legal process; (b) to Executive’s

9

    /    /20    

spouse or domestic partner, or (c) to Executive’s financial/legal advisors, all of whom shall agree to keep such information confidential.

18. Tax Withholding. Any compensation paid or provided to Executive under this Agreement shall be subject to any applicable federal, state or local income and employment tax withholding requirements.

19. Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive: At the most recent address on file at OSH.
If to OSH:	Orchard Supply Hardware Stores Corporation
	6450 Via Del Oro
	San Jose, California, 95119
	Attention to both: Senior Vice President, Human Resources Chief Executive Officer

20. Assignment. OSH may assign its rights under this Agreement to any successor in interest, whether by merger, consolidation, sale of assets, or otherwise. This Agreement shall be binding whether it is between OSH and Executive or between any successor or assignee of OSH or affiliate thereof and Executive.

21. Section 409A Compliance. To the extent that a payment or benefit under this Agreement is subject to Code Section 409A, it is intended that this Agreement as applied to that payment or benefit comply with the requirements of Code Section 409A, and the Agreement shall be administered and interpreted consistent with this intent.

22. Counterparts. This Agreement may be executed in one or more counterparts, which together shall constitute a valid and binding agreement.

[Remainder of page intentionally left blank.]

10

    /    /20    

IN WITNESS WHEREOF, Executive and OSH, by its duly authorized representative, have executed this Agreement on the dates stated below, effective as of the date first set forth above.

EXECUTIVE	ORCHARD SUPPLY HARDWARE STORES CORPORATION
/s/ Mark Bussard	By:	/s/ David Bogage
Mark Bussard
10/7/2011		10/7/2011
Date		Date

11

    /    /20    

EXHIBIT A

NOTICE: YOU MAY CONSIDER THIS GENERAL RELEASE AND WAIVER FOR UP TO TWENTY-ONE (21) DAYS. YOU MAY NOT SIGN IT UNTIL ON OR AFTER YOUR LAST DAY OF WORK. IF YOU DECIDE TO SIGN IT, YOU MAY REVOKE THE GENERAL RELEASE AND WAIVER WITHIN SEVEN (7) DAYS AFTER SIGNING. ANY REVOCATION WITHIN THIS PERIOD MUST BE IMMEDIATELY SUBMITTED IN WRITING TO [DIRECTOR, HUMAN RESOURCES], ORCHARD SUPPLY HARDWARE STORES CORPORATION, 6450 VIA DEL ORO, SAN JOSE, CALIFORNIA, 95119. YOU MAY WISH TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS DOCUMENT.

GENERAL RELEASE AND WAIVER

In consideration for the benefits that I will receive under the attached Executive Severance Agreement, I, and any person acting by, through, or under me hereby release Orchard Supply Hardware Stores Corporation, its current and former agents, parents, subsidiaries, affiliates, employees, officers, stockholders, successors, and assigns (“OSH”) from any and all claims arising out of my employment or the termination thereof. This General Release and Waiver is to be broadly construed to encompass all claims of any kind or character whatsoever, whether known or unknown, based upon any matter occurring prior to my execution of this General Release and Waiver and including, but without limiting the generality of the foregoing, any and all claims under the Age Discrimination in Employment Act (“ADEA”), Title VII of the Civil Rights Act of 1964, Section 1981 of the Civil Rights Act of 1866, the Americans with Disabilities Act (“ADA”), the Employee Retirement Income Security Act (“ERISA”), the Worker Adjustment and Retraining Notification Act (“WARN”), the Family and Medical Leave Act (“FMLA”) and any other federal, state or local constitution, statute, regulation, or ordinance, and any and all common law claims including, but not limited to, claims for wrongful or retaliatory discharge, intentional infliction of emotional distress, negligence, defamation, invasion of privacy, and breach of contract. This General Release and Waiver does not apply to any claims or rights that may arise after the date that I signed this General Release and Waiver. I understand that OSH is not admitting to any violation of my rights or any duty or obligation owed to me.

Excluded from this General Release and Waiver are any claims which cannot be waived by law, including but not limited to (1) the right to file a charge with or participate in an investigation conducted by certain government agencies, and (2) any rights or claims to benefits accrued under benefit plans maintained by OSH pursuant to ERISA. I do, however, waive my right to any monetary recovery should any agency or other third party pursue any claims on my behalf. I represent and warrant that I have not filed any complaint, charge, or lawsuit against OSH with any governmental agency and/or any court.

I hereby expressly waive all rights and benefits under section 1542 of the California Civil Code. Section 1542 provides as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Page 1 of 2

Return both pages of the signed General Release and Waiver

GENERAL RELEASE AND WAIVER (continued)

I hereby acknowledge that the foregoing waiver of the provisions of Section 1542 of the California Civil Code was separately bargained for. Notwithstanding the provisions of Section 1542, it is my intention to hereby irrevocably and unconditionally release and forever discharge Holdings and all persons acting by, through, under, or in concert with Holdings from any and all charges, complaints, claims, and liabilities of any kind or nature whatsoever, known or unknown, suspected or unsuspected, which I may have or claim to have regarding events that have occurred as of or before the effective date of this Agreement, including, without limitation, any and all claims related or in any manner or incidental to my hiring, employment with, and the termination of employment. I expressly consent that this General Release and Waiver shall be given full force and effect in accordance with each and all of its terms and provisions relating to unknown and unsuspected claims, demands, causes of action, if any, to the same effect as those terms and provisions relating to any other claims, demands, and causes of action.

I have read this General Release and Waiver and I understand its legal and binding effect. I am acting voluntarily and of my own free will in executing this General Release and Waiver.

I have had the opportunity to seek, and I was advised in writing to seek, legal counsel prior to signing this General Release and Waiver.

I was given at least twenty-one (21) days to consider signing this General Release and Waiver. Any immaterial modification of this General Release and Waiver does not restart the twenty-one (21) day consideration period.

I understand that, if I sign the General Release and Waiver, I can change my mind and revoke it within seven (7) days after signing it by notifying the Vice President, Human Resources at OSH in writing at Orchard Supply Hardware Stores Corporation, 6450 Via Del Oro, San Jose, California 95119. I understand that this General Release and Waiver will not be effective until after this seven (7) day revocation period has expired.

Date:	SAMPLE ONLY - DO NOT DATE	Signed by:	SAMPLE ONLY - DO NOT SIGN
		Witness by:	SAMPLE ONLY - DO NOT SIGN

Page 2 of 2

Return both pages of the signed General Release and Waiver

EX-10.24

Exhibit 10.24

EXECUTIVE SEVERANCE AGREEMENT

By this Executive Severance Agreement dated and effective as of October 3, 2011 (“Agreement”), Orchard Supply Hardware Stores Corporation and its parents, affiliates and subsidiaries (“OSH” or the “Company”) and Michael Fox (“Executive”), intending to be legally bound, and for good and valuable consideration, agree as follows:

1. Effect of Severance.

(a) Severance Benefits. If Executive is involuntarily terminated without “Cause” or Executive voluntarily terminates Executive’s employment for “Good Reason” (as such terms are defined in Section 2 below), Executive shall be entitled to the benefits described in subsection (i), (ii) and (iii) below (collectively referred to herein as “Severance Benefits”). Executive shall not be entitled to the Severance Benefits if Executive’s employment terminates for any other reason, including due to death or “Disability” (as defined in Section 2 below). Executive shall also not be entitled to Severance Benefits if Executive does not meet all of the other requirements under this Agreement, including under subsection 4(e).

i. Continuation of Salary.

1. OSH or the appropriate “OSH Affiliate” (as defined in Section 2 below) shall pay Executive cash severance equal to Executive’s annual base salary rate as of the date Executive’s employment terminates (“Date of Termination”). Subject to subsection (a)(i)(2) below, payment of such amount (“Salary Continuation”) shall commence on Executive’s “Separation from Service” (as defined in Section 2 below) and shall be paid in substantially equal installments on each regular salary payroll date for a period of six (6) months following Date of Termination (“Salary Continuation Period”), except as otherwise provided in this Agreement.

Notwithstanding the foregoing, the OSH or OSH Affiliate obligations under this subsection (a)(i)(l) shall be reduced on a dollar-for-dollar basis (but not below zero), by the amount, if any, of fees, salary or wages that Executive earns from a subsequent employer (including those arising from self-employment) during the Salary Continuation Period. For avoidance of doubt, Executive shall not be obligated to seek affirmatively or accept an employment, contractor, consulting or other arrangement in order to mitigate Salary Continuation. Further, to the extent Executive does not execute and timely submit the General Release and Waiver (in accordance with subsection 4(e) below) by the deadline specified therein, Salary Continuation payments shall terminate and forever lapse, and Executive shall be required to reimburse OSH for any portion of the Salary Continuation paid during the Salary Continuation Period.

2. Notwithstanding anything in this subsection (a)(i) to the contrary, if the Salary Continuation payable to Executive in accordance with subsection (a)(i)(1) above during the six (6) months after Executive’s Separation from Service would exceed the “Section 409A

Threshold” and if as of the date of the Separation from Service Executive is a “Specified Employee” (as such terms are defined in Section 2 below), then, payment shall be made to Executive on each regular salary payroll date during the six (6) months of the Salary Continuation Period until the aggregate amount received equals the Section 409A Threshold. Any portion of the Salary Continuation in excess of the Section 409A Threshold that would otherwise be paid during such [first] six (6) months or any portion of the Salary Continuation that is otherwise subject to Section 409A, shall instead be paid to Executive in a lump sum payment on the date that is six (6) months and one (1) day after the date of Executive’s Separation from Service.

3. All Salary Continuation payments (described under this subsection (a)(i)) will terminate and forever lapse in the event of Executive’s breach (in accordance with Section 10 below), and Executive shall be required to reimburse OSH for any portion of the Salary Continuation paid during the Salary Continuation Period.

ii. Continuation of Benefits.

1. During the Salary Continuation Period, Executive will be entitled to participate in all benefit plans and programs (except as specified in this subsection (a)(ii)), as an active associate, in which Executive was eligible to participate on the Date of Termination (subject to the terms and conditions and continued availability of such plans and programs); provided, however, that Executive will not be eligible to participate in the long-term disability plan (as of the 15^th day following the Date of Termination), health care flexible spending account (except on an after-tax basis and only through the earlier of the end of Salary Continuation Period or the calendar year in which the Separation from Service occurs), company paid life insurance and the Orchard Supply Hardware Retirement Savings Plan during the Salary Continuation Period. Executive and Executive’s eligible dependents shall be entitled to continue to participate, as active participants, in company medical and dental plans (subject to the terms and conditions and continued availability of such plans) during the Salary Continuation Period.

2. If Executive does not timely execute and submit the General Release and Waiver (in accordance with subsection 4(e) herein) by the deadline specified therein, Executive shall be required to reimburse OSH for the portion of the cost for the benefits referred to under subsection (a)(ii)(1) immediately above paid by OSH during the Salary Continuation Period, and Executive shall instead be eligible for COBRA continuation coverage under the company medical and dental plans as of Executive’s Date of Termination.

3. Subject to subsection (a)(ii)(4) immediately below, in the event Executive provides services to another employer and is covered by such employer’s health benefits plan or program, the medical and dental

2

    /    /20    

benefits provided by OSH hereunder shall be secondary to such employer’s health benefits plan or program in accordance with the terms of the company health benefit plans.

4. All of the benefits described in this subsection (a)(ii) will terminate and forever lapse in the event of Executive’s breach (in accordance with Section 10 below), and Executive shall be required to reimburse OSH for any portion of the cost for the benefits referred to under subsection (a)(ii)(1) immediately above paid by OSH during the Salary Continuation Period, and Executive shall instead be eligible for COBRA continuation coverage under the company medical and dental plans as of Executive’s Severance from Service date.

iii. Outplacement. As of Executive’s Separation from Service, Executive will be immediately eligible for reasonable outplacement services at the expense of OSH or the appropriate OSH Affiliate. OSH and Executive will mutually agree on which outplacement firm, among current vendors used by OSH, will provide these services. Such services will be provided for up to six (6) months from the Separation from Service or until employment is obtained, whichever occurs first. Outplacement benefits described in this subsection (a)(iii) will terminate and forever lapse in the event of Executive’s breach (in accordance with Section 10 below).

iv. Other.

1 In addition to the foregoing Severance Benefits, a lump sum payment will be made to Executive within ten (10) business days following the Date of Termination in an amount equal to the sum of any base salary and any vacation benefits that have accrued through the Date of Termination to the extent not already paid. No vacation will accrue during the Salary Continuation Period.

2. Notwithstanding the foregoing and anything herein to the contrary, in the event of Executive’s death during the Salary Continuation Period, any unpaid portion of the Salary Continuation payable in accordance with subsection (a)(i) above shall be paid in a lump sum, within sixty (60) days of death (and no later than amounts would have been paid absent death), to Executive’s estate, and any eligible dependents who are covered dependents as of the date of death shall incur a qualifying event under COBRA as a result of such death.

(b) Impact of Termination on Certain Other Plans/Programs.

i. Annual Incentive Plan. Upon Executive’s Date of Termination, Executive’s entitlement to any award under the applicable annual incentive plan (“AIP”) sponsored by OSH or an OSH Affiliate, shall be determined in accordance with the terms and conditions of the AIP document regarding termination of employment.

3

    /    /20    

ii. Stock Plan. Upon Executive’s Date of Termination, Executive’s entitlement to any unvested options, restricted stock or other equity award granted to Executive under the Orchard Supply Hardware Stores Corporation Stock Incentive Plan (“Stock Incentive Plan”) or any other stock plan sponsored by OSH or an OSH Affiliate shall be determined in accordance with the terms and conditions of the applicable award agreement and stock plan document regarding termination of employment.

(c) Post-Termination Forfeiture of Severance Benefits. If OSH or an OSH Affiliate determines after Executive’s Date of Termination that Executive engaged in activity during employment with OSH that OSH or an OSH Affiliate determines constituted Cause, Executive shall immediately cease to be eligible for Severance Benefits and shall be required to reimburse OSH for any portion of the Salary Continuation paid to Executive and for the cost of other Severance Benefits received by Executive during the Salary Continuation Period.

2. Definitions. For purposes of this Agreement, each capitalized term in this Agreement is either defined in the section, exhibit or appendix in which it first appears or in this Section 2. The following capitalized terms shall have the definitions as set forth below:

(a) “Cause” shall mean (i) a material breach by Executive (other than a breach resulting from Executive’s incapacity due to a Disability) of Executive’s duties and responsibilities which breach is demonstrably willful and deliberate on Executive’s part, is committed in bad faith or without reasonable belief that such breach is in the best interests of OSH or the OSH Affiliates and is not remedied in a reasonable period of time after receipt of written notice from OSH specifying such breach; (ii) the commission by Executive of a felony; or (iii) dishonesty or willful misconduct in connection with Executive’s employment.

(b) “Disability” shall mean disability as defined under the company long-term disability plan (regardless of whether the Executive is a participant under such plan).

(c) “Good Reason” shall mean, without Executive’s written consent, (i) a reduction of more than ten percent (10%) in the sum of Executive’s annual base salary and target AIP bonus from those in effect as of the date of this Agreement; (ii) Executive’s mandatory relocation to an office more than fifty (50) miles from the primary location at which Executive is required to perform Executive’s duties immediately prior to the date of this Agreement; or (iii) any other action or inaction that constitutes a material breach of the terms of this Agreement, including failure of a successor company to assume or fulfill the obligations under this Agreement. In each case, Executive must provide OSH with written notice of the facts giving rise to a claim that “Good Reason” exists for purposes of this Agreement, within thirty (30) days of the initial existence of such Good Reason event, and OSH shall have a right to remedy such event within sixty (60) days after receipt of Executive’s written notice (“the sixty (60) day period”). If OSH remedies the Good Reason event within the sixty (60) day period, the Good Reason event (and Executive’s right to receive any benefit under this Agreement on account of termination of employment for Good Reason) shall cease to exist. If OSH does not remedy the Good Reason event within the sixty (60) day period, and Executive does not incur a termination of employment within thirty (30)

4

    /    /20    

days following the earlier of: (y) the date OSH notifies Executive that it does not intend to remedy the Good Reason or does not agree that there has been a Good Reason event, or (z) the expiration of the sixty (60) day period, the Good Reason event (or any claim of Good Reason) shall cease to exist. Notwithstanding the foregoing, if Executive fails to provide written notice to OSH of the facts giving rise to a claim of Good Reason within thirty (30) days of the initial existence of such Good Reason event, the Good Reason event (and Executive’s right to receive any benefit under this Agreement on account of termination of employment for Good Reason) shall cease to exist as of the thirty-first (31^st) day following the later of its occurrence or Executive’s knowledge thereof.

(d) “OSH Affiliate” shall mean any person with whom OSH is considered to be a single employer under Code Section 414 (b) and all persons with whom OSH would be considered a single employer under Code Section 414 (c), substituting “50%” for the “80%” standard that would otherwise apply.

(e) “Section 409A Threshold” shall mean an amount equal to two times the lesser of (i) Executive’s base salary for services provided to OSH and any OSH Affiliate as an employee for the calendar year preceding the calendar year in which Executive has a Separation from Service; or (ii) the maximum amount that may be taken into account under a qualified plan in accordance with Code Section 401(a)(17) for the calendar year in which the Executive has a Separation from Service. In all events, this amount shall be limited to the amount specified under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) or any successor thereto.

(f) “Separation from Service” shall mean a “separation from service” with OSH (including any OSH Affiliate) within the meaning of Code Section 409A (and regulations issued thereunder). Notwithstanding anything herein to the contrary, the fact that Executive is treated as having incurred a Separation from Service under Code Section 409A and the terms of this Agreement shall not be determinative, or in any way affect the analysis, of whether Executive has retired, terminated employment, separated from service, incurred a severance from employment or become entitled to a distribution, under the terms of any retirement plan (including pension plans and 401(k) savings plans) maintained by OSH (including by an OSH Affiliate).

(g) “Specified Employee” shall mean a “specified employee” under Code Section 409A (and regulations issued thereunder), which shall be determined in accordance with the provisions of Supplement A to the Supplemental Retirement Income Plan (as amended and restated effective January 1, 2008).

3. Intellectual Property Rights. Executive acknowledges that Executive’s development, work or research on any and all inventions or expressions of ideas, that may or may not be eligible for patent, copyright, trademark or trade secret protection, hereafter made or conceived solely or jointly within the scope of employment at OSH or any OSH Affiliate, provided such invention or expression of an idea relates to the business of OSH or any OSH Affiliate, or relates to actual or demonstrably anticipated research or development of OSH or any OSH Affiliate, or results from any work performed by Executive for or on behalf of OSH or any OSH Affiliate, are hereby assigned to OSH, including Executive’s entire rights, title and interest. Executive will promptly disclose such invention or expression of an idea to Executive’s

5

    /    /20    

management and will, upon request, promptly execute a specific written assignment of title to OSH. If Executive currently holds any inventions or expressions of an idea, regardless of whether they were published or filed with the U.S. Patent and Trademark Office or the U.S. Copyright Office, or is under contract to not so assign, Executive will list them on the last page of this Agreement.

4. Protective Covenants. Executive acknowledges that this Agreement provides for additional consideration beyond what OSH or any OSH Affiliate is otherwise obligated to pay. In consideration of the opportunity for the Severance Benefits, and other good and valuable consideration, Executive agrees to the following:

(a) Non-Disclosure of OSH Confidential Information. Executive acknowledges and agrees to be bound by the following, whether or not Executive receives any Severance Benefits under this Agreement:

i. Non-Disclosure.

1. Executive will not, during the term of Executive’s employment with OSH or any OSH Affiliate or thereafter, and other than in the performance of his duties and obligations during his employment with OSH or as required by law or legal process, and except as OSH may otherwise consent or direct in writing, reveal or disclose, sell, use, lecture upon or publish any “OSH Confidential Information” (as defined in subsection 4(a)(ii) below) until such time as the information becomes publicly known other than as a result of its disclosure, directly or indirectly, by Executive; and

2. Executive understands that if Executive possesses any proprietary information of another person or company as a result of prior employment or otherwise, OSH expects and requires that Executive will honor any and all legal obligations that Executive has to that person or company with respect to proprietary information, and Executive will refrain from any unauthorized use or disclosure of such information.

ii. OSH Confidential Information. For purposes of this Agreement, “OSH Confidential Information” means trade secrets and non-public information which OSH or any OSH Affiliate designates as being confidential or which, under the circumstances, should be treated as confidential, including, without limitation, any information received in confidence or developed by OSH or any OSH Affiliate, its long and short term goals, vendor and supply agreements, databases, methods, programs, techniques, business information, financial information, marketing and business plans, proprietary software, personnel information and files, client information, pricing, and other information relating to the business of OSH or any OSH Affiliate that is not known generally to the public or in the industry.

iii. Return of OSH Property. All documents and other property that relate to the business of OSH or any OSH Affiliate are the exclusive property of OSH, even if Executive authored or created them. Executive agrees to return all

6

    /    /20    

such documents and tangible property to OSH upon termination of employment or at such earlier time as OSH may request Executive to do so.

iv. Conflict of Interest. During Executive’s employment with OSH or any OSH Affiliate and during any Salary Continuation Period, except as may be approved in writing by OSH, neither Executive nor members of Executive’s immediate family (which shall refer to Executive, any spouse or any child) will have financial investments or other interests or relationships with OSH’s or any OSH Affiliate’s customers or suppliers which might impair Executive’s independence of judgment on behalf of the Company. Also during Executive’s employment with OSH or any OSH Affiliate, Executive agrees further not to engage in any activity in competition with OSH or any OSH Affiliate and will avoid any outside activity that could adversely affect the independence and objectivity of Executive’s judgment, interfere with the timely and effective performance of Executive’s duties and responsibilities to OSH or any OSH Affiliate, discredit OSH or any OSH Affiliate or otherwise conflict with the best interests of OSH or any OSH Affiliate.

(b) Non-Solicitation of Employees. During Executive’s employment with OSH or any OSH Affiliate and for twelve (12) months following Executive’s Date of Termination, whether or not Executive receives any Severance Benefits under this Agreement, Executive will not, directly or indirectly, solicit or encourage any person to leave her/his employment with OSH or any OSH Affiliate or assist in any way with the hiring of any OSH or any OSH Affiliate employee by any future employer or other entity.

(c) Compliance with Protective Covenants. Executive will provide OSH with such information as OSH may from time to time reasonably request to determine Executive’s compliance with this Section 4. Executive authorizes OSH to contact Executive’s future employers and other entities with which Executive has any business relationship to determine Executive’s compliance with this Agreement or to communicate the contents of this Agreement to such employers and entities. Executive releases OSH, OSH Affiliates, their agents and employees, from all liability for any damage arising from any such contacts or communications.

(d) Necessity and Reasonableness. Executive agrees that the restrictions set forth herein are necessary to prevent the use and disclosure of OSH Confidential Information and to otherwise protect the legitimate business interests of OSH and OSH Affiliates. Executive further agrees and acknowledges that the provisions of this Agreement are reasonable.

(e) General Release and Waiver. Upon Executive’s Date of Termination (whether initiated by OSH or Executive in accordance with subsection 1(a) above) potentially entitling Executive to Severance Benefits, Executive will execute a binding general release and waiver of claims in a form to be provided by OSH (“General Release and Waiver”), which is incorporated by reference under this Agreement. This General Release and Waiver will be in a form substantially similar to the attached sample. If the General Release and Waiver is not signed within the time required by the waiver or is signed but subsequently revoked, Executive will not continue to receive any Severance

7

    /    /20    

Benefits otherwise payable under subsection 1(a) above. Further, Executive shall be obligated to reimburse OSH for any portion of (i) the Salary Continuation paid during the Salary Continuation Period under subsection (1)(a)(i) herein, and (ii) the cost for the benefits provided during the Salary Continuation Period under subsection (1)(a)(ii) herein. A sample of this General Release and Waiver is provided as Exhibit A to this Agreement.

5. Irreparable Harm. Executive acknowledges that irreparable harm would result from any breach by Executive of the provisions of this Agreement, including without limitation subsections 4(a) and 4(b), and that monetary damages alone would not provide adequate relief for any such breach. Accordingly, if Executive breaches or threatens to breach this Agreement, Executive consents to injunctive relief in favor of OSH without the necessity of OSH posting a bond. Moreover, any award of injunctive relief shall not preclude OSH from seeking or recovering any lawful compensatory damages which may have resulted from a breach of this Agreement, including a forfeiture of any future payments and a return of any payments and benefits already received by Executive.

6. Non-Disparagement. Executive will not take any actions that would reasonably be expected to be detrimental to the interests of OSH or any OSH Affiliate, nor make derogatory statements, either written or oral to any third party, or otherwise publicly disparage OSH or any OSH Affiliate, its products, services, or present or former employees, officers or directors, and will not authorize others to make derogatory or disparaging statements on Executive’s behalf. This provision does not and is not intended to preclude Executive from providing truthful testimony in response to legal process or governmental inquiry.

7. Cooperation. Executive agrees, without receiving additional compensation, to fully and completely cooperate with OSH, both during and after the period of employment with OSH or any OSH Affiliate (including any Salary Continuation Period), with respect to matters that relate to Executive’s period of employment, in all investigations, potential litigation or litigation in which OSH or any OSH Affiliate is involved or may become involved other than any such investigations, potential litigation or litigation between OSH and Executive. OSH will reimburse Executive for reasonable travel and out-of-pocket expenses incurred in connection with any such investigations, potential litigation or litigation.

8. Future Enforcement or Remedy. Any waiver, or failure to seek enforcement or remedy for any breach or suspected breach, of any provision of this Agreement by OSH or Executive in any instance shall not be deemed a waiver of such provision in the future.

9. Acting as Witness. Executive agrees that both during and after the period of employment with OSH or any OSH Affiliate (including any Salary Continuation Period), Executive will not voluntarily act as a witness, consultant or expert for any person or party in any action against or involving OSH or any OSH Affiliate or corporate relative of OSH, unless subject to judicial enforcement to appear as a fact witness only.

10. Breach by Executive. In the event of a breach by Executive of any of the provisions of this Agreement, including without limitation the non-disparagement provision (Section 6) of this Agreement, the obligation of OSH or any OSH Affiliate to pay Salary Continuation or to provide other Severance Benefits under this Agreement will immediately cease and any Salary Continuation payments already received and the value of any other

8

    /    /20    

Severance Benefits already received will be returned by Executive to OSH. Further, Executive agrees that OSH shall be entitled to recovery of its attorneys’ fees and other associated costs incurred as a result of any attempt to redress a breach by Executive or to enforce its rights and protect its interests under the Agreement.

11. Severability. If any provision(s) of this Agreement shall be found invalid, illegal, or unenforceable, in whole or in part, then such provision(s) shall be modified or restricted so as to effectuate as nearly as possible in a valid and enforceable way the provisions hereof, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision(s) had been originally incorporated herein as so modified or restricted or as if such provision(s) had not been originally incorporated herein, as the case may be.

12. Governing Law. This Agreement will be governed under the internal laws of the state of California without regard to principles of conflicts of laws. Executive agrees that the state and federal courts located in the state of California shall have exclusive jurisdiction in any action, lawsuit or proceeding based on or arising out of this Agreement, and Executive hereby: (a) submits to the personal jurisdiction of such courts; (b) consents to the service of process in connection with any action, suit, or proceeding against Executive; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, venue or service of process.

13. Right to Jury. Executive agrees to waive any right to a jury trial on any claim contending that this Agreement or the General Release and Waiver is illegal or unenforceable in whole or in part, and Executive agrees to try any claims brought in a court or tribunal without use of a jury or advisory jury. Further, should any claim arising out of Executive’s employment, termination of employment or Salary Continuation Period (if any) be found by a court or tribunal of competent jurisdiction to not be released by the General Release and Waiver, Executive agrees to try such claim to the court or tribunal without use of a jury or advisory jury.

14. Employment-at-Will. This Agreement does not constitute a contract of employment, and Executive acknowledges that Executive’s employment with OSH or any OSH Affiliate is terminable “at-will” by either party with or without cause and with or without notice.

15. Other Plans, Programs, Policies and Practices. If any provision of this Agreement conflicts with any other plan, programs, policy, practice or other OSH or OSH Affiliate document, then the provisions of this Agreement will control, except as otherwise precluded by law. Executive shall not be eligible for any benefits under any broad-based company sponsored severance pay program.

16. Entire Agreement. This Agreement, including any exhibits or appendices hereto, contains and comprises the entire understanding and agreement between Executive and OSH (including any OSH Affiliate) and fully supersedes any and all prior agreements or understandings between Executive and OSH with respect to the subject matter contained herein, and may be amended only by the Chief Executive Officer of OSH.

17. Confidentiality. Executive agrees that the existence and terms of the Agreement, including any compensation paid to Executive, and discussions with OSH (including any OSH Affiliate) regarding this Agreement, shall be considered confidential and shall not be disclosed or communicated in any manner except: (a) as required by law or legal process; (b) to Executive’s

9

    /    /20    

spouse or domestic partner, or (c) to Executive’s financial/legal advisors, all of whom shall agree to keep such information confidential.

18. Tax Withholding. Any compensation paid or provided to Executive under this Agreement shall be subject to any applicable federal, state or local income and employment tax withholding requirements.

19. Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:	At the most recent address on file at OSH.
If to OSH:	Orchard Supply Hardware Stores Corporation
	6450 Via Del Oro
	San Jose, California, 95119
	Attention to both:	Senior Vice President, Human Resources Chief Executive Officer

20. Assignment. OSH may assign its rights under this Agreement to any successor in interest, whether by merger, consolidation, sale of assets, or otherwise. This Agreement shall be binding whether it is between OSH and Executive or between any successor or assignee of OSH or affiliate thereof and Executive.

21. Section 409A Compliance. To the extent that a payment or benefit under this Agreement is subject to Code Section 409A, it is intended that this Agreement as applied to that payment or benefit comply with the requirements of Code Section 409A, and the Agreement shall be administered and interpreted consistent with this intent.

22. Counterparts. This Agreement may be executed in one or more counterparts, which together shall constitute a valid and binding agreement.

[Remainder of page intentionally left blank.]

10

    /    /20    

IN WITNESS WHEREOF, Executive and OSH, by its duly authorized representative, have executed this Agreement on the dates stated below, effective as of the date first set forth above.

EXECUTIVE	ORCHARD SUPPLY HARDWARE STORES CORPORATION
/s/ Michael Fox	BY:	/s/ David Bogage
Michael Fox
10/3/11		10/7/2011
Date		Date

11

    /    /20    

EXHIBIT A

NOTICE: YOU MAY CONSIDER THIS GENERAL RELEASE AND WAIVER FOR UP TO TWENTY-ONE (21) DAYS. YOU MAY NOT SIGN IT UNTIL ON OR AFTER YOUR LAST DAY OF WORK. IF YOU DECIDE TO SIGN IT, YOU MAY REVOKE THE GENERAL RELEASE AND WAIVER WITHIN SEVEN (7) DAYS AFTER SIGNING. ANY REVOCATION WITHIN THIS PERIOD MUST BE IMMEDIATELY SUBMITTED IN WRITING TO [DIRECTOR, HUMAN RESOURCES], ORCHARD SUPPLY HARDWARE STORES CORPORATION, 6450 VIA DEL ORO, SAN JOSE, CALIFORNIA, 95119. YOU MAY WISH TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS DOCUMENT.

GENERAL RELEASE AND WAIVER

In consideration for the benefits that I will receive under the attached Executive Severance Agreement, I, and any person acting by, through, or under me hereby release Orchard Supply Hardware Stores Corporation, its current and former agents, parents, subsidiaries, affiliates, employees, officers, stockholders, successors, and assigns (“OSH”) from any and all claims arising out of my employment or the termination thereof. This General Release and Waiver is to be broadly construed to encompass all claims of any kind or character whatsoever, whether known or unknown, based upon any matter occurring prior to my execution of this General Release and Waiver and including, but without limiting the generality of the foregoing, any and all claims under the Age Discrimination in Employment Act (“ADEA”), Title VII of the Civil Rights Act of 1964, Section 1981 of the Civil Rights Act of 1866, the Americans with Disabilities Act (“ADA”), the Employee Retirement Income Security Act (“ERISA”), the Worker Adjustment and Retraining Notification Act (“WARN”), the Family and Medical Leave Act (“FMLA”) and any other federal, state or local constitution, statute, regulation, or ordinance, and any and all common law claims including, but not limited to, claims for wrongful or retaliatory discharge, intentional infliction of emotional distress, negligence, defamation, invasion of privacy, and breach of contract. This General Release and Waiver does not apply to any claims or rights that may arise after the date that I signed this General Release and Waiver. I understand that OSH is not admitting to any violation of my rights or any duty or obligation owed to me.

Excluded from this General Release and Waiver are any claims which cannot be waived by law, including but not limited to (1) the right to file a charge with or participate in an investigation conducted by certain government agencies, and (2) any rights or claims to benefits accrued under benefit plans maintained by OSH pursuant to ERISA. I do, however, waive my right to any monetary recovery should any agency or other third party pursue any claims on my behalf. I represent and warrant that I have not filed any complaint, charge, or lawsuit against OSH with any governmental agency and/or any court.

I hereby expressly waive all rights and benefits under section 1542 of the California Civil Code. Section 1542 provides as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Page 1 of 2

Return both pages of the signed General Release and Waiver

GENERAL RELEASE AND WAIVER (continued)

I hereby acknowledge that the foregoing waiver of the provisions of Section 1542 of the California Civil Code was separately bargained for. Notwithstanding the provisions of Section 1542, it is my intention to hereby irrevocably and unconditionally release and forever discharge Holdings and all persons acting by, through, under, or in concert with Holdings from any and all charges, complaints, claims, and liabilities of any kind or nature whatsoever, known or unknown, suspected or unsuspected, which I may have or claim to have regarding events that have occurred as of or before the effective date of this Agreement, including, without limitation, any and all claims related or in any manner or incidental to my hiring, employment with, and the termination of employment. I expressly consent that this General Release and Waiver shall be given full force and effect in accordance with each and all of its terms and provisions relating to unknown and unsuspected claims, demands, causes of action, if any, to the same effect as those terms and provisions relating to any other claims, demands, and causes of action.

I have read this General Release and Waiver and I understand its legal and binding effect. I am acting voluntarily and of my own free will in executing this General Release and Waiver.

I have had the opportunity to seek, and I was advised in writing to seek, legal counsel prior to signing this General Release and Waiver.

I was given at least twenty-one (21) days to consider signing this General Release and Waiver. Any immaterial modification of this General Release and Waiver does not restart the twenty-one (21) day consideration period.

I understand that, if I sign the General Release and Waiver, I can change my mind and revoke it within seven (7) days after signing it by notifying the Vice President, Human Resources at OSH in writing at Orchard Supply Hardware Stores Corporation, 6450 Via Del Oro, San Jose, California 95119. I understand that this General Release and Waiver will not be effective until after this seven (7) day revocation period has expired.

Date:	SAMPLE ONLY - DO NOT DATE	Signed by:	SAMPLE ONLY - DO NOT SIGN
		Witness by:	SAMPLE ONLY - DO NOT SIGN

Page 2 of 2

Return both pages of the signed General Release and Waiver

EX-10.30

Exhibit 10.30

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is made as of                     , 20     among Orchard Supply Hardware Stores Corporation, a Delaware corporation (the “Company”) and                      (“Indemnitee”), and, with respect to its guarantee set forth on the signature pages hereto only, Orchard Supply Hardware LLC, a Delaware limited liability company.

RECITALS

WHEREAS, highly competent persons have become more reluctant to serve as directors, officers or in other capacities unless they are provided with adequate protection through insurance and/or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation.

WHEREAS, the Company has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company and that the Company should act to assure such persons that there will be increased certainty of such protection in the future.

WHEREAS, the General Corporation Law of the State of Delaware, as amended (the “DGCL”), expressly provides that the indemnification provisions set forth therein are not exclusive, and thereby contemplates that contracts may be entered into between a corporation and members of its board of directors, officers and others with respect to indemnification.

WHEREAS, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company.

WHEREAS, Indemnitee may not be willing to serve as a director and/or officer without the additional protection provided for under this Agreement, and the Company desires Indemnitee to serve in such capacity and Indemnitee is willing to serve and continue to serve on the condition that Indemnitee and each Related Person (as defined below) be so indemnified;

NOW, THEREFORE, the Company and Indemnitee do hereby agree as follows:

1. DEFINITIONS. As used in this Agreement:

(a) “Action” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise, and whether of a civil, criminal, administrative or investigative nature.

(b) “Affiliate” means as to a specified Person, each Person directly or indirectly controlling or controlled by or under common control with such specified Person.

(c) “Board” means the Board of Directors of the Company.

(d) “Bylaws” means the bylaws of the Company, as amended.

(e) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(i) Change in Board of Directors. During any period of two consecutive years (starting after the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 1(e)(ii) or 1(e)(iii)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least 2/3 of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board;

(ii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity unless the voting securities of the Company outstanding immediately prior to such transaction continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such transaction that have the power to elect at least a majority of the board of directors or other governing body of such surviving entity.

(iii) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

(iv) Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement.

(f) “Charter” the Amended and Restated Certificate of Incorporation of the Company, as amended.

(g) “Corporate Status” describes a Person who is or was serving as a director, officer, employee or agent of the Company or, at the request of the Company, as a director, officer, employee or agent of any other Person. References to “serving at the request of the Company” shall include, without limitation, any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries.

(h) “Disinterested Director” means a director of the Company who is not, and was not, a party to (or a Related Person of a party to) the Proceeding in respect of which indemnification is sought by an Indemnified Person.

2

(i) “Enterprise” means the Company and any other corporation, limited liability company, partnership, joint venture, association, Governmental Authority, trust, employee benefit plan or other enterprise.

(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(k) “Expenses” means all costs, disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in a Proceeding, including (without limitation) attorneys’ fees and expenses, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, and delivery service fees, other out-of-pocket costs, and reasonable compensation for time spent by the Indemnified Person for which such Person is not otherwise compensated by the Company. Expenses also include disbursements and expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation, the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent.

(l) “Governmental Authority” means any United States federal, state, provincial, supranational, county or local or any foreign government, governmental, regulatory or administrative authority, agency, self-regulatory body, instrumentality or commission, and any court, tribunal, or judicial or arbitral body (including private bodies) and any political or other subdivision, department or branch of any of the foregoing.

(m) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither is, nor in the past five years has been, retained to represent: (i) the Company or the Indemnified Person in any matter material to either such party (other than with respect to matters concerning such Indemnified Person under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. “Independent Counsel” shall not include any Person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or such Indemnified Person in an action to determine such Indemnified Person’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(n) “Indemnified Person” means Indemnitee and each Related Person of Indemnitee.

(o) “Person” means any individual or Enterprise.

(p) “Proceeding” means any Action in which any Indemnified Person was, is or will be involved (as a party or otherwise) directly or indirectly by reason of (i) Indemnitee’s Corporate Status, (ii) any action alleged to be taken by him or omitted or of any action alleged on his part while acting in his Corporate Status, or (iii) establishing or enforcing a right to

3

indemnification under this Agreement or Section 145 of the DGCL or otherwise, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses can be provided under this Agreement.

(q) “Related Person” means, with respect to any Person (i) any Affiliate of such Person, (ii) any investment fund, investment account or investment Person whose investment manager, investment advisor or general partner, is such Person or any Affiliate of such Person or any member, partner, officer or employee of such Person or any Affiliate of such Person, (iii) any member or partner of any Person specified in clause (i) or (ii) above, and (iv) any officer, director or employee of any Person specified in clause (i), (ii) or (iii) above.

(r) For purposes of this Agreement:

(i) references to “fines” shall include any excise tax assessed with respect to any employee benefit plan.

(ii) a Person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in manner “not opposed to the best interests of the Company”.

(iii) references “to the fullest extent permitted by applicable law” shall include, but not be limited to:

(A) to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL; and

(B) to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its directors and/or officers, as applicable.

2. SERVICES TO THE COMPANY. The Indemnitee agrees to serve and/or continue to serve as agent of the Company, at its will (or under separate agreement, if such agreement exists), in the capacity Indemnitee currently serves as an agent of the Company, so long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the Charter and By-laws of the Company or any subsidiary of the Company or until such time as Indemnitee tenders his resignation in writing; provided, however, that nothing contained in this Agreement is intended to create any right to continued employment by Indemnitee.

3. THIRD-PARTY PROCEEDINGS. If an Indemnified Person is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor against such Indemnified Person, the

4

Company shall indemnify such Indemnified Person to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement directly or indirectly incurred by or behalf of such Indemnified Person in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his conduct was unlawful.

4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. If an Indemnified Person is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor, the Company shall indemnify such Indemnified Person to the fullest extent permitted by applicable law against all Expenses directly or indirectly incurred by or on behalf of such Indemnified Person in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which such Indemnified Person shall have been finally adjudged by a court to be liable to the Company unless the Chancery Court of the State of Delaware or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such Indemnified Person is fairly and reasonably entitled to indemnification.

5. PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL.

(a) Notwithstanding any other provisions of this Agreement, to the fullest extent permitted by applicable law:

(i) To the extent that an Indemnified Person is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify such Indemnified Person against all Expenses directly or indirectly incurred by or on behalf of such Indemnified Person in connection therewith.

(ii) If an Indemnified Person is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify such Indemnified Person against all Expenses directly or indirectly incurred by or on behalf of such Indemnified Person in connection with (x) each successfully resolved claim, issue or matter and (y) each claim, issue, or matter related to any claim, issue or matter on which such Indemnified Person was successful.

(b) For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law, the Company shall indemnify each Indemnified Person against all Expenses directly or indirectly incurred by

5

or on behalf of such Indemnified Person if, by reason of the Corporate Status of Indemnitee, such Indemnified Person is a witness in any Action to which such Indemnified Person is not a party.

7. ADDITIONAL INDEMNIFICATION. Notwithstanding any limitation in Sections 3, 4, 5 or 6, the Company shall indemnify any Indemnified Person to the fullest extent permitted by applicable law if such Indemnified Person is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement in connection with the Proceeding; provided, that the Company shall have the right to consent to any settlement, which consent shall not be unreasonably withheld.

8. EXCLUSIONS. The Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against any Indemnified Person:

(a) for an accounting of profits made from the purchase and sale (or sale and purchase) by such Indemnified Person of securities of the Company within the meaning of Section 16(b) of the Exchange Act, or similar provisions of other federal or state statutory law or common law; or

(b) in connection with any Proceeding (or any part of any Proceeding) initiated by such Indemnified Person, unless (i) such indemnification is expressly required to be made by applicable law; or (ii) a majority of the Disinterested Directors authorized the Proceeding (or any part of any Proceeding) prior to its initiation.

9. ADVANCES OF EXPENSES. Notwithstanding any provision of this Agreement, to the fullest extent permitted by applicable law, the Company shall advance the Expenses incurred by or on behalf of each Indemnified Person in connection with any Proceeding within 10 days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free, and made without regard to the ability of such Indemnified Person to repay the expenses or ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include all reasonable Expenses incurred pursuing an Action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. Such Indemnified Person shall qualify for advances solely upon the execution and delivery to the Company of an undertaking to repay the advance to the extent that it is ultimately determined that such Indemnified Person is not entitled to be indemnified by the Company. This Section 9 shall not apply to any claim made by any Indemnified Person for which indemnity is excluded pursuant to Section 8.

10. PROCEDURE FOR NOTIFICATION AND DEFENSE OF CLAIM.

(a) Within 30 days after an Indemnified Person is served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder, such Indemnified Person shall submit to the Company a written request, including such documentation and information as is reasonably available to such Indemnified

6

Person and is reasonably necessary to determine whether and to what extent such Indemnified Person is entitled to indemnification. The failure to notify the Company within such period will not relieve the Company from any liability that it may have to such Indemnified Person (i) under this Agreement except to the extent the failure adversely affects the Company’s rights, legal position, ability to defend or ability to obtain insurance coverage with respect to such Proceeding or (ii) otherwise than under this Agreement. The Secretary of the Company shall advise the Board in writing promptly upon receipt of such a request for indemnification.

(b) If the Company shall be obligated to pay the Expenses in connection with any Proceeding against an Indemnified Person, the Company shall be entitled to assume and control the defense of such Proceeding (with counsel consented to by such Indemnified Person, which consent shall not be unreasonably withheld), upon the delivery to such Indemnified Person of written notice of its election so to do. After delivery of such notice, consent to such counsel by such Indemnified Person and the retention of such counsel by the Company, the Company will not be liable to such Indemnified Person under this Agreement for any fees of separate counsel subsequently incurred by such Indemnified Person with respect to the same Proceeding, provided that the reasonable fees and expenses of such Indemnified Person’s counsel shall be at the expense of the Company if:

(i) the employment of separate counsel by such Indemnified Person has been previously authorized by the Company;

(ii) such Indemnified Person or counsel selected by the Company shall have concluded that there may be a conflict of interest between the Company and such Indemnified Person or among another indemnified Person jointly represented in the conduct of any such defense; or

(iii) the Company shall not, in fact, have employed counsel, to which such Indemnified Person has consented as aforesaid, to assume the defense of such Proceeding.

(c) The Company may participate in the Proceeding at its own expense. The Company will not, without prior written consent of an Indemnified Person, effect any settlement of a claim in any threatened or pending Proceeding unless such settlement solely involves the payment of money and includes an unconditional release of such Indemnified Person from all liability on any claims that are or were threatened to be made against such Indemnified Person in the Proceeding.

11. PROCEDURE UPON APPLICATION FOR INDEMNIFICATION.

(a) Upon written request by an Indemnified Person for indemnification pursuant to the first sentence of Section 10(a), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case:

(i) if a Change in Control has occurred, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to such Indemnified Person; or

(ii) if a Change in Control has not occurred,

7

(A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board,

(B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board,

(C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to such Indemnified Person, or

(D) if so directed by the Board, by the stockholders of the Company.

If it is so determined that an Indemnified Person is entitled to indemnification, payment to such Indemnified Person shall be made within 10 days after such determination.

Each Indemnified Person shall cooperate with the Person or Persons making such determination with respect to such Indemnified Person’s entitlement to indemnification, including providing to such Person or Persons upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and reasonably available to such Indemnified Person and reasonably necessary to such determination. Any Expenses incurred by such Indemnified Person in so cooperating with the Person or Persons making such determination shall be borne by the Company (irrespective of the determination as to such Indemnified Person’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold such Indemnified Person harmless therefrom.

(b) If the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected as follows:

(i) If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to the Indemnified Person advising him of the identity of the Independent Counsel so selected.

(ii) If a Change in Control shall have occurred, the Independent Counsel shall be selected by the Indemnified Person (unless he shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and such Indemnified Person shall give written notice to the Company advising it of the identity of the Independent Counsel so selected.

In either event, the Indemnified Person or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been given, deliver to the Company or to such Indemnified Person, as the case may be, a written objection to such selection; provided, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the Person so selected shall act as Independent Counsel. If such written

8

objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by such Indemnified Person of a written request for indemnification pursuant to Section 10(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or such Indemnified Person may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or such Indemnified Person to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a Person selected by the Court or by such other Person as the Court shall designate, and the Person with respect to whom all objections are so resolved or the Person so appointed shall act as Independent Counsel under Section 11(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 13(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

12. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.

(a) In making a determination with respect to entitlement to indemnification hereunder, the Person or Persons making such determination shall presume that an Indemnified Person is entitled to indemnification under this Agreement if such Indemnified Person has submitted a request for indemnification in accordance with Section 10(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption by clear and convincing evidence in connection with the making by any Person or Persons of any determination contrary to that presumption.

(b) Neither the failure of the Company (including by its Board or one of its committees, its stockholders or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(c) If the Person or Persons empowered or selected to determine whether an Indemnified Person is entitled to indemnification shall not have made a determination within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and such Indemnified Person shall be entitled to such indemnification, absent a prohibition of such indemnification under applicable law; provided, that

(i) such 60-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the Person or Persons making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and

(ii) the provisions of this Section 12(c) shall not apply (1) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to

9

Section 11(a) of this Agreement and if (A) within 15 days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within 75 days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within 15 days after such receipt for the purpose of making such determination, such meeting is held for such purpose within 60 days after having been so called and such determination is made thereat, or (2) if the determination of entitlement to indemnification is made by Independent Counsel pursuant to Section 11(a) of this Agreement.

(d) The termination of a Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself adversely affect the right of any Indemnified Person to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

(e) Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by the Enterprise. The provisions of this Section 12(e) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

(f) The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of any Person shall not be imputed to any Indemnified Person for purposes of determining the right to indemnification under this Agreement.

13. REMEDIES OF INDEMNITEE.

(a) If:

(i) a determination is made pursuant to Section 11 of this Agreement that an Indemnified Person is not entitled to indemnification under this Agreement,

(ii) advancement of Expenses is not timely made pursuant to Section 9 of this Agreement,

(iii) no determination of entitlement to indemnification shall have been made pursuant to Section 11(a) of this Agreement within 45 days after receipt by the Company of the request for indemnification,

(iv) payment of indemnification is not made pursuant to Section 5 or 6 or the last sentence of Section 11(a) of this Agreement within 10 days after receipt by the Company of a written request therefor, or

10

(v) payment of indemnification pursuant to Section 3, 4 or 7 of this Agreement is not made within 10 days after a determination has been made that an Indemnified Person is entitled to indemnification,

then an Indemnified Person shall be entitled to an adjudication by a court of such Indemnified Person’s entitlement to such indemnification or advancement of Expenses. Alternatively, an Indemnified Person, at such Indemnified Person’s option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose such Indemnified Person’s right to seek any such adjudication or award in arbitration.

(b) If a determination shall have been made pursuant to Section 11(a) of this Agreement that an Indemnified Person is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and such Indemnified Person shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 13, the Company shall have the burden of proving such Indemnified Person is not entitled to indemnification or advancement of Expenses, as the case may be.

(c) If a determination shall have been made pursuant to Section 11(a) of this Agreement that an Indemnified Person is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, absent a prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. The Company shall indemnify any Indemnified Person against any and all Expenses and, if requested by an Indemnified Person, shall (within 10 days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by applicable law, such expenses to such Indemnified Person, which are incurred by such Indemnified Person in connection with any Action brought by such Indemnified Person for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether such Indemnified Person ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery.

14. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; SUBROGATION.

(a) The rights provided by this Agreement shall not be deemed exclusive of any other rights to which an Indemnified Person may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of an Indemnified Person under this Agreement in respect of any action taken or omitted by such Indemnified Person prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision,

11

permits greater indemnification or advancement of Expenses than would be afforded currently under the Charter, the Bylaws and this Agreement, it is the intent of the parties hereto that each Indemnified Person shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any other Person that Indemnitee serves at the request of the Company, Indemnitee shall be an insured under such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. The Company agrees to promptly notify Indemnitee of any material change in any such policy. The Company may, but will not be required to, create a trust fund, grant a security interest or use other means, including, without limitation, a letter of credit, to ensure the payment of such amounts as may be necessary to satisfy the obligations to indemnify and advance Expenses pursuant to this Agreement. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company and Indemnitee shall mutually cooperate and take all reasonable actions to cause such insurers to pay on behalf of the insureds, all amounts payable as a result of such proceeding in accordance with the terms of all applicable policies.

(c) The Company shall be subrogated to the extent of any payment under this Agreement to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. The Corporation shall pay or reimburse all Expenses actually and reasonably incurred by any Indemnified Person in connection with such subrogation.

(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that the Indemnified Person has otherwise actually received such payment under any insurance policy, the Charter, the Bylaws, contract, agreement or otherwise.

(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any Person shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other Person.

15. DURATION OF AGREEMENT, SUCCESSORS AND ASSIGNS. This Agreement shall continue until and terminate upon the later of: (a) ten years after Indemnitee has ceased to occupy any positions or have any relationships described in Section 2 of this Agreement; and (b) the final termination of all Proceedings pending or threatened during such

12

period to which any Indemnified Person may be subject. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of and be enforceable by each Indemnified Person and his personal and legal representatives, heirs, executors, administrators, distributees, legatees and other successors.

16. SECURITY. To the extent requested by an Indemnified Person and approved by the Board of Directors of the Company, the Company may at any time and from time to time provide security to such Indemnified Person for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to an Indemnified Person, may not be revoked or released without the prior written consent of such Indemnified Person.

17. SEVERABILITY. If any provision or provisions of this Agreement or any application of any provision hereof shall be held to be invalid, illegal or unenforceable for any reason whatsoever:

(a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law;

(b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and

(c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

18. ENFORCEMENT.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby to induce Indemnitee to serve as a director and/or officer of the Company and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director and/or officer of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of any Indemnified Person thereunder.

19. MODIFICATION AND WAIVER. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver

13

of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

20. NOTICES. Any notices or other communications required or permitted under, or otherwise in connection with this Agreement, shall be in writing and shall be deemed to have been duly given when delivered in person or upon confirmation of receipt when transmitted by facsimile transmission (but only if followed by transmittal by national overnight courier or hand for delivery on the next business day) or on receipt after dispatch by registered or certified mail, postage prepaid, addressed, or on the next business day if transmitted by national overnight courier, in each case as follows:

(a) if to the Company, directed to the Chief Executive Officer and General Counsel at its principal place of business; and

(b) if to an Indemnified Person, to such address as set forth below Indemnitee’s name on the signature page to this Agreement; or such other Persons or addresses as shall be furnished in writing by such Indemnified Person to the Company.

21. CONTRIBUTION. To the fullest extent permissible by applicable law, if the indemnification provided for in this Agreement is unavailable to an Indemnified Person for any reason whatsoever, the Company, in lieu of indemnifying such Indemnified Person, shall contribute to the amount incurred by such Indemnified Person, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s). The relative fault of a Person shall be determined by reference to, among other things, the degree to which such Person’s: (i) actions were motivated by intent to gain personal profit or advantage; (ii) liability is primary or secondary; and (iii) conduct is active or passive.

22. APPLICABLE LAW AND CONSENT TO JURISDICTION. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by an Indemnified Person pursuant to Section 13 of this Agreement, the parties hereby irrevocably and unconditionally:

(a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware, and not in any other state or federal court in the United States of America or any court in any other country;

(b) consent to submit to the exclusive jurisdiction of the Chancery Court of the State of Delaware for purposes of any action or proceeding arising out of or in connection with this Agreement;

14

(c) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably Corporation Service Company, 2711 Centreville Road, Suite 400, Wilmington, Delaware 19808 as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware;

(d) waive any objection to the laying of venue of any such action or proceeding in the Chancery Court of the State of Delaware, and

(e) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Chancery Court of the State of Delaware has been brought in an improper or inconvenient forum.

23. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

24. THIRD PARTY BENEFICIARIES. Except as otherwise set forth herein, nothing in this Agreement is intended or shall be construed to entitle any Person, other than the parties hereto and each other Indemnified Person, and their respective transferees and assigns permitted hereby, to any claim, cause of action, remedy or right of any kind in respect of this Agreement.

25. MISCELLANEOUS. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

15

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

ORCHARD SUPPLY HARDWARE STORES CORPORATION	INDEMNITEE
By:
Its:	Name:

Address:

Orchard Supply Hardware LLC hereby unconditionally guarantees the due and punctual payment and performance of all obligations of the Company under this Agreement in accordance with the terms set forth herein.

ORCHARD SUPPLY HARDWARE LLC
By:	Orchard Supply Hardware Stores Corporation, its Managing Member
	By:
	Its:

16

EX-10.31

Exhibit 10.31

PURCHASE AND SALE AGREEMENT

BETWEEN

OSH PROPERTIES LLC, a Delaware limited liability company

(“Seller”)

and

LBA REALTY LLC, a Delaware limited liability company

(“Buyer”)

FOR PREMISES LOCATED AT

2650 NORTH MAC ARTHUR BOULEVARD, TRACY, CALIFORNIA

DATED

OCTOBER 24, 2011

TABLE OF CONTENTS

		Page
1.	Property Included in Sale		1
2.	Purchase Price		2
3.	Title to the Property		2
4.	Due Diligence and Time for Satisfaction of Conditions		3
5.	Conditions to Closing		3
6.	Remedies		6
7.	Closing and Escrow		6
8.	Representations and Warranties of Seller		9
9.	Representations and Warranties of Buyer		11
10.	Buyer and Seller Indemnification		12
11.	Risk of Loss		12
12.	Possession		13
13.	Maintenance of the Property		14
14.	New Contracts; Termination of Existing Contracts		14
15.	Insurance		14
16.	Cooperation with Buyer		14
17.	Miscellaneous		14

-i-

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is dated as of October 24, 2011, by and between OSH PROPERTIES LLC, a Delaware limited liability company (“Seller”), and LBA REALTY LLC, a Delaware limited liability company (“Buyer”).

IN CONSIDERATION of the respective agreements hereinafter set forth, Seller and Buyer agree as follows:

1. Property Included in Sale. Seller hereby agrees to sell and convey to Buyer, and Buyer hereby agrees to purchase from Seller, subject to the terms and conditions set forth herein, the following:

(a) that certain real property commonly known as 2650 North MacArthur Boulevard located in the City of Tracy and County of San Joaquin, California and being more particularly described in Exhibit A attached hereto and incorporated herein by this reference (the “Real Property”);

(b) to the extent owned by Seller, all rights, privileges and easements appurtenant to the Real Property, including, without limitation, all minerals, oil, gas and other hydrocarbon substances on and under the Real Property, as well as all development rights, air rights, water, water rights, riparian rights and water stock relating to the Real Property and any rights-of-way or other appurtenances used in connection with the beneficial use and enjoyment of the Real Property and all of Seller’s right, title and interest in and to all roads and alleys adjoining or servicing the Real Property (collectively, the “Appurtenances”);

(c) all improvements and fixtures located on the Real Property, including, without limitation, all buildings and structures presently located on the Real Property, all apparatus, equipment and appliances used in connection with the operation or occupancy of the Real Property, such as heating and air conditioning systems and facilities used to provide any utility, refrigeration, ventilation, garbage disposal, or other services on the Real Property, and along with all on-site parking (collectively, the “Improvements”);

(d) that personal property owned by Seller and described in Exhibit B attached hereto and incorporated herein by this reference (the “Personal Property”); and

(e) intangible personal property now or hereafter owned by Seller and used in the ownership, use or operation of the Real Property, Improvements and Personal Property, described as follows: guaranties, warranties, indemnities, licenses, permits, plans, specifications and similar documents and rights, together with, to the extent approved by Buyer pursuant to this Agreement, any contract or lease rights, utility contracts or other agreements or rights relating to the ownership, use and operation of the Property, as defined below (collectively, the “Intangible Property”).

All of the items referred to in Subparagraphs (a), (b), (c), (d) and (e) above are collectively referred to as the “Property.”

1

2. Purchase Price.

(a) The purchase price of the Property (“Purchase Price”) is Twenty-One Million Two Hundred Fifty Thousand and No/100 Dollars ($21,250,000.00), subject to reduction by any credits due Buyer hereunder and increase by any credits due Seller hereunder.

(b) The Purchase Price shall be paid as follows:

(i) Buyer shall deposit in escrow with First American Title Company (“Title Company”), having its office at 5 American Way, Santa Ana, California 92707 (Attn: Patty Beverly; (714) 250-8455 (p.beverly@firstam.com)), an initial deposit in the amount of Five Million and No/100 Dollars ($5,000,000.00) (the “Deposit”) not later than the expiration of the Due Diligence Period (unless Buyer has previously terminated this Agreement). The Deposit shall be held by escrow in an interest bearing account and interest accruing thereon shall be held with and become a part of the Deposit. In the event the sale of the Property as contemplated hereunder is consummated, the Deposit plus interest accrued thereon shall be credited against the Purchase Price.

(ii) The balance of the Purchase Price (i.e., the Purchase Price less the Deposit), as decreased by any prorations payable by Seller hereunder and increased by any portion payable by Buyer hereunder, shall be paid to Seller in immediately available funds at the closing of the purchase and sale contemplated hereunder (the “Closing”).

(c) Independent Consideration. Contemporaneously with the execution and delivery of this Agreement, Purchaser has paid to Seller as further consideration for this Agreement, in cash, the sum of One Hundred Dollars ($100.00) (the “Independent Consideration”), in addition to the Deposit and the balance of the Purchase Price and independent of any other consideration provided hereunder, which Independent Consideration is fully earned by Seller and is non-refundable under any circumstances.

3. Title to the Property.

(a) At the Closing, Seller shall convey to Buyer marketable and insurable fee simple title to the Real Property, the Appurtenances and the Improvements, by duly executed and acknowledged grant deed substantially in the form of Exhibit D attached hereto and incorporated herein by this reference (the “Deed”). Evidence of delivery of marketable and insurable fee simple title shall be the issuance by Title Company to Buyer of a 2006 ALTA Extended Coverage Owner’s Policy of Title Insurance in the amount of the Purchase Price, insuring fee simple title to the Real Property, the Appurtenances and the Improvements in Buyer, and otherwise in the form of the Pro Forma Owner’s Policy (as defined below), including, without limitation any and all endorsements contained therein (collectively, the “Title Policy”).

(b) At the Closing, Seller shall transfer title to the Personal Property by a bill of sale in the form of Exhibit E attached hereto and incorporated herein by this reference (the “Bill of Sale”), such title to be free of any liens, encumbrances or interests.

2

(c) At the Closing, Seller shall transfer title to the Intangible Property by such instruments as Buyer may reasonably determine to be necessary, including, without limitation, an assignment of Intangible Property in the form attached of Exhibit F attached hereto and incorporated herein by this reference (the “Assignment of Intangible Property”), pursuant to which Buyer shall assume only those Service Contracts (as defined in Paragraph 5(c) below) and Other Documents (as defined in Paragraph 5(c) below) which appear on the Schedule of Agreements (as defined below) and which are not required to be terminated prior to Closing pursuant to the provisions of Paragraph 14(b) below (collectively, the “Assumed Contracts”).

4. Due Diligence and Time for Satisfaction of Conditions. Buyer, or its designees, shall commence due diligence with respect to the Property promptly upon Seller’s and Buyer’s mutual execution hereof (the “Execution Date”), and the due diligence period shall expire on October 27, 2011 (such period being hereinafter referred to as the “Due Diligence Period”). Seller agrees to deliver or make available to Buyer, at Seller’s cost and expense, all of the items described in Paragraph 5 below as to the date hereof. Seller may make all or some of such items available to Buyer by placing such items in, and providing Buyer access to, an on-line electronic vault (i.e. an FTP site).

Notwithstanding anything in this Agreement to the contrary, Buyer shall have the right to terminate this Agreement for any reason or for no reason whatsoever at any time during the Due Diligence Period. This Paragraph 4 is subject to, and shall not serve to modify or limit, any right or remedy of Buyer arising under Paragraph 6(b) of this Agreement.

5. Conditions to Closing. The following conditions are precedent to Buyer’s obligation to purchase the Property (collectively, the “Conditions Precedent”):

(a) Buyer’s review and approval of title to the Property, as follows:

(i) a current preliminary title report on the Real Property, issued by Title Company, accompanied by copies of all documents referred to in the report (collectively, the “Preliminary Report”);

(ii) Seller’s existing ALTA survey of the Real Property and Improvements prepared by a surveyor licensed in the State in which the Property is located. Buyer shall have the right, at Buyer’s cost and expense, to update or recertify said survey; and

(iii) copies of the property tax bills for the Property for the past three (3) years.

Buyer shall, prior to the expiration of the Due Diligence Period, provide written notice to Seller and Title Company setting forth (A) any items contained in the Preliminary Report and/or the survey of the Property to which Buyer objects and (B) any and all endorsements required by Buyer, in Buyer’s sole discretion. Any item contained in the Preliminary Report or the survey of the Property to which Buyer does not object in writing within such time period shall be deemed to be approved by Buyer. Anything to the contrary notwithstanding, in no event shall Seller be obligated to remove any item disapproved by Buyer, except that Seller agrees that it shall discharge, prior to Closing, all monetary liens and encumbrances affecting the Property other

3

than non-delinquent taxes and assessments, regardless of whether or not Buyer shall provide written notice of its objection to the same.

(b) Buyer’s review and approval, within the Due Diligence Period, of a pro forma Title Policy (the “Pro Forma Owner’s Policy”). The Pro Forma Owner’s Policy shall show title to the Property vested in Buyer, or such other persons or entities designated by Buyer, subject only to the lien of real property taxes for the current fiscal year not yet due and payable and exceptions on the Preliminary Report accepted or deemed accepted by Buyer pursuant to Paragraph 5(a) above, and shall contain such endorsements as Buyer shall require pursuant to Paragraph 5(a) above. Buyer shall cause a copy of the Pro Forma Owner’s Policy to be delivered to Seller prior to the expiration of the Due Diligence Period. At Closing, Title Company shall be irrevocably committed to issue to Buyer the Title Policy in the form of the Pro Forma Owner’s Policy.

(c) Buyer’s review and approval, within the Due Diligence Period, of all documents evidencing or securing all service contracts, utility contracts, maintenance contracts, management contracts, leasing contracts, and brokerage and leasing commission agreements which, by their terms, shall continue after Closing, certificates of occupancy, presently effective warranties, indemnities or guaranties received by Seller from any contractors, subcontractors, suppliers or materialmen in connection with any construction, repairs or alterations of the Improvements or any tenant improvements, reports of insurance carriers insuring the Property and each portion thereof respecting the claims history of the Property, if any, environmental reports, subdivision or zoning documents, soils reports, insurance policies, insurance certificates of Tenants (as defined in Paragraph 5(h) below), and other contracts or documents affecting the Property (collectively, the “Service Contracts”); such other information and documents relating to the Property that is specifically and requested by Buyer of Seller in writing during the Due Diligence Period (but only to the extent such information or documents either are in the possession or control of Seller, or any affiliate of Seller) (collectively, the “Other Documents”); and a schedule (the “Schedule of Agreements,” which is attached hereto as Exhibit I) setting forth an exclusive list of all of the Service Contracts.

(d) Buyer’s review and approval, within the Due Diligence Period, of the structural, mechanical, electrical and other physical characteristics and condition of the Property, structural calculations for the Improvements, if any, site plans, engineering reports and plans, landscape plans, and floor plans, certified copies of the as-built plans and specifications for the Property. Such review may include, at Buyer’s option, an examination for the presence or absence of hazardous material and/or asbestos containing material, which shall be performed or arranged by Buyer at Buyer’s sole expense. In the event that Buyer’s consultants reasonably determine that, based upon their Phase I examination of the Real Property, a Phase II examination is necessary with respect to all or a part of the Real Property, Buyer may elect to perform a Phase II examination of the Real Property, provided that Buyer obtains Seller’s prior written consent, which consent shall not unreasonably be withheld or delayed.

(e) Buyer’s review and approval, within the Due Diligence Period, of all governmental permits and approvals relating to the construction, operation, use or occupancy of the Property, and all zoning, land-use, subdivision, environmental, building and construction

4

laws and regulations restricting or regulating or otherwise affecting the use, occupancy or enjoyment of the Property.

(f) Buyer’s and Seller’s entry into a Lease for the Property in the form attached hereto as Exhibit C (the “Lease”).

(g) All of Seller’s representations and warranties contained in or made pursuant to this Agreement shall have been true and correct when made and shall be true and correct as of the Closing Date. Notwithstanding anything in this Agreement to the contrary, should a representation and warranty made by Seller under this Agreement be true and correct as of the Agreement Date, but due to no act or omission of Seller become untrue and/or incorrect as of the Closing Date, Buyer’s sole remedy shall be to terminate this Agreement pursuant to Section 6(b) below prior to Closing (in which event the parties shall be relieved of all obligations under this Agreement, except for those that expressly survive and except as set forth in Section 6(b) below), or to proceed with the Closing in which event Seller shall have no liability with regard to such representation/warranty that became untrue and/or incorrect.

(h) Seller shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Seller as of the date of Closing.

The Conditions Precedent contained in Paragraphs 5(a) through (h) are intended solely for the benefit of Buyer. Subject to the provisions of Paragraph 6 below, if any of the Conditions Precedent is not satisfied, Buyer shall have the right in its sole discretion either to waive in writing the Condition Precedent and proceed with the purchase or terminate this Agreement. If Buyer shall not have approved or waived in writing all of the Conditions Precedent which state that they shall be satisfied within the Due Diligence Period by the end of the Due Diligence Period, then this Agreement shall automatically terminate. In addition, as to all Conditions Precedent which do not expressly state that they are to be satisfied within the Due Diligence Period, then if Buyer shall not have approved or waived the same by the Closing Date, at Buyer’s option this Agreement shall terminate. In the event of the termination of this Agreement pursuant to the provisions of this Paragraph 5, then the Deposit shall be returned to Buyer. Anything in this Agreement to the contrary notwithstanding, Seller’s obligation to provide documents and materials to Buyer shall only apply to the extent that such documents/materials are in Seller’s possession or control. After completion of any inspections or examinations by Buyer, Buyer shall, at Buyer’s expense, promptly cause (1) all borings to be plugged or capped in a safe manner; (2) all property, both real and personal, and improvements, if any, damaged or destroyed by Buyer or Buyer’s representatives to be repaired, restored or replaced substantially to its pre-existing condition; and (3) any debris resulting from the investigations and examinations to be removed from the Property. Buyer shall keep the Property free from any liens arising from or related to the investigations and examinations. Buyer shall furnish to Seller copies of all final reports resulting from or relating to the investigations and examinations without any representation or warranty with respect thereto.

Seller’s obligation to consummate the sale of the Property shall be subject to Buyer having performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Buyer as of the date of Closing.

5

6. Remedies.

(a) In the event the sale of the Property is not consummated because of the failure of any condition or any other reason except a default under this Agreement on the part of Buyer, the Deposit plus interest accrued thereon shall immediately be returned to Buyer. IF SAID SALE IS NOT CONSUMMATED BECAUSE OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF BUYER, THE DEPOSIT PLUS INTEREST ACCRUED THEREON SHALL BE PAID TO AND RETAINED BY SELLER AS LIQUIDATED DAMAGES. THE PARTIES HAVE AGREED THAT SELLER’S ACTUAL DAMAGES, IN THE EVENT OF A DEFAULT BY BUYER, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE. THEREFORE, BY PLACING THEIR INITIALS BELOW, THE PARTIES ACKNOWLEDGE THAT THE DEPOSIT PLUS INTEREST ACCRUED THEREON HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES’ REASONABLE ESTIMATE OF SELLER’S DAMAGES AND AS SELLER’S EXCLUSIVE REMEDY AGAINST BUYER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF BUYER.

INITIALS: Seller                          Buyer                         

(b) In the event the sale of the Property is not consummated because of a default under this Agreement on the part of Seller or the failure of the Condition Precedents set forth in Paragraphs 5(f), 5(g) and/or 5(h) above, Buyer may elect as its sole remedy to either (1) terminate this Agreement by delivery of notice of termination to Seller, whereupon (A) the Deposit plus all interest accrued thereon shall be immediately returned to Buyer, and (B) Seller shall reimburse Buyer (such reimbursement not to exceed a total of Fifty Thousand Dollars ($50,000)) for any and all out of pocket costs actually incurred by Buyer in connection with the negotiation, execution and performance of its due diligence under this Agreement, including, without limitation, reasonable attorneys’ fees and expenses, and, upon such return and reimbursement neither party shall have any further rights or obligations hereunder, or (2) continue this Agreement pending Buyer’s action for specific performance and/or damages hereunder, including Buyer’s costs and expenses incurred hereunder.

7. Closing and Escrow.

(a) Promptly following the Execution Date, the parties hereto shall each deposit an original executed counterpart of this Agreement with Title Company and Title Company shall notify the parties, in writing, of its receipt of such counterparts (the “Opening of Escrow”). This Agreement shall serve as escrow instructions to Title Company, as escrow holder, for consummation of the purchase and sale contemplated hereby. Seller and Buyer agree to execute such additional or supplementary escrow instructions as may be appropriate to enable the escrow holder to comply with the terms of this Agreement; provided, however, that in the event of any conflict between the provisions of this Agreement and any such additional or supplementary escrow instructions, the terms of this Agreement shall control.

(b) The Closing shall be on or before October 28, 2011, as the same may be extended pursuant to the terms of this Agreement or by agreement of Buyer and Seller (the “Closing Date”). In the event the Closing does not occur on or before the Closing Date, the

6

escrow holder shall, unless it is notified by either party to the contrary within five (5) days after the Closing Date, return to the depositor thereof items which were deposited hereunder. Any such return shall not, however, relieve either party of any liability it may have for its wrongful failure to consummate the transaction contemplated hereby.

(c) At or before the Closing, Seller shall deposit with Title Company, in escrow, the following:

(i) a duly executed and acknowledged Deed;

(ii) four (4) originals of a duly executed Bill of Sale;

(iii) four (4) originals of a duly executed Lease;

(iv) originals of the Service Contracts and the Other Documents not previously delivered to Buyer pursuant to Paragraph 5(c) above;

(v) four (4) originals of a duly executed Assignment of Intangible Property;

(vi) originals of the building permits and certificates of occupancy for the Improvements and all occupied space included within the Improvements not previously delivered to Buyer pursuant to Paragraph 5 above;

(vii) four (4) originals of a duly executed affidavit pursuant to Section 1445(b)(2) of the Federal Code, and on which Buyer is entitled to rely, that Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Federal Code, in the form of Exhibit K attached hereto and incorporated herein by this reference;

(viii) four (4) originals of a completed and duly executed California Form 593 C;

(ix) such resolutions, authorizations and organizational documents relating to Seller and its members, partners, principals or shareholders, as applicable, as shall be reasonably required by Title Company and an owner’s affidavit, on Title Company’s standard form, and such other affidavits, indemnities and similar documents as may be reasonably required by Title Company, each completed and duly executed by Seller;

(x) a closing statement duly executed by Seller in form and content satisfactory to Buyer and Seller; and

(xi) any other instruments, records or correspondence called for hereunder which have not previously been delivered to Buyer.

(d) At or before the Closing, Buyer shall deposit with Title Company, in escrow, the following:

(i) four (4) originals of a duly executed Lease;

7

(ii) four (4) originals of a duly executed Assignment of Intangible Property;

(iii) closing statement duly executed by Buyer in form and content satisfactory to Buyer and Seller;

(iv) such resolutions, authorizations and organizational documents relating to Buyer and its members, partners, principals or shareholders, as applicable, as shall be reasonably required by Title Company; and

(v) the balance of the Purchase Price (plus any other sums owed by Buyer).

(e) Seller and Buyer shall each deposit such other instruments as are reasonably required by the escrow holder or otherwise required to close the escrow and consummate the transaction contemplated hereby in accordance with the terms hereof.

(f) The following are to be apportioned as of the Closing Date, as follows:

(i) Utility Charges. Seller shall cause all the utility meters to be read on the Closing Date, and will be responsible for the cost of all utilities used prior to the Closing Date, except to the extent such utility charges are billed to and paid by Tenants directly.

(ii) Other Apportionments. Amounts payable under the Assumed Contracts, annual or periodic permit and/or inspection fees (calculated on the basis of the period covered), insurance premiums (as to those policies, if any, that Buyer continues after the Closing), and liability for other Property operation and maintenance expenses and other recurring costs shall be apportioned as of the Closing Date. Buyer shall pay for any update to the ALTA survey of the Property, and for the ALTA portion of the premium for the Title Policy and any endorsements. Seller shall pay the CLTA portion of the premium for the Title Policy. Escrow fees and recording fees, if any, shall be paid in equal shares by Buyer and Seller. Seller shall pay the cost of the documentary transfer taxes applicable to the sale. Seller shall be responsible for all costs incurred in connection with the prepayment or satisfaction of any loan or bond secured by the Property including, without limitation, any prepayment fees, penalties or charges. All other costs and charges of the escrow for the sale not otherwise provided for in this Subparagraph 7(f)(ii) or elsewhere in this Agreement shall be allocated in accordance with the closing customs for San Joaquin County, California.

(iii) Real Estate Taxes and Special Assessments. Non delinquent general real estate taxes for the tax year of the Closing and any non-delinquent bonds or assessments against the Property, including interest in connection payable therewith, for the tax year of the Closing shall be prorated by Seller and Buyer as of the Closing Date.

(iv) Preliminary Closing Adjustment. Seller and Buyer shall jointly prepare a preliminary Closing adjustment on the basis of the Leases and other sources of income and expenses, and shall deliver such computation to the Title Company prior to Closing.

8

(v) Post-Closing Reconciliation. Subject to the provisions of Subparagraph 7(f)(iii) above, if any of the aforesaid prorations cannot be calculated accurately on the Closing Date, then they shall be calculated as soon after the Closing Date as feasible, but in any event, not later than thirty (30) days after the last of the calendar year in which the Closing shall occur. Either party owing the other party a sum of money based on such subsequent proration(s) shall promptly pay said sum to the other party.

(vi) Survival; Payment by Tenant. The provisions of this Paragraph 7(f) shall survive the Closing. The parties acknowledge that an entity related to Seller is leasing the Property, and that under the proposed lease many of the items delineated above for apportionment will actually become the obligation of the new tenant. To the extent that is the case, Seller and the new tenant will address the payment and transitioning of the charges and related accounts (e.g. utility charges) set forth above.

(g) At Closing, Title Company shall:

(i) at such time as Title Company is irrevocably obligated to issue the Title Policy to Buyer, record the Deed in the Official Records of San Joaquin County, California.

(ii) upon confirmation that the Deed has been recorded pursuant to Subparagraph 7(g)(i) above, deliver to Seller the Purchase Price (as adjusted for the prorations hereunder) by wire transfer of immediately available federal funds to a bank account designated by Seller in writing to Title Company prior to the Closing.

(iii) deliver to each of Seller and Buyer two (2) fully executed counterparts of the instruments described in Subparagraphs 7(c)(ii), (iii), (v), (vii) and (viii) above.

(iv) deliver to Buyer the instruments described in Subparagraphs 7(c)(iv), (vi) and (x) above.

(v) deliver to Seller and Buyer the closing statements approved by Seller and Buyer, as applicable.

(vi) deliver the Title Policy to Buyer.

8. Representations and Warranties of Seller. Seller hereby represents and warrants to and covenants with Buyer as follows:

(a) Seller is a limited liability company duly organized and validly existing and in good standing under the laws of the State of Delaware; this Agreement and all documents executed by Seller which are to be delivered to Buyer at the Closing are and at the time of the Closing will be duly authorized, executed and delivered by Seller, are and at the time of the Closing will be legal, valid and binding obligations of Seller enforceable against Seller in accordance with their respective terms, are and at the time of the Closing will be sufficient to convey title (if they purport to do so), and do not and at the time of the Closing will not violate any provision of any agreement or judicial order to which Seller or the Property is subject.

9

(b) Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Federal Code.

(c) Seller has not either filed or been the subject of any filing of a petition under the Federal Bankruptcy Law or any federal or state insolvency laws or laws for composition of indebtedness or for the reorganization of debtors.

(d) Except as disclosed on Exhibit G, there is no litigation pending or, to the best of Seller’s knowledge, threatened, against Seller or any basis therefor that arises out of the ownership of the Property or that might detrimentally affect the value or the use or operation of the Property for its intended purpose or the ability of Seller to perform its obligations under this Agreement.

(e) Except as disclosed to Buyer in writing prior to the date hereof, Seller does not have knowledge of any condemnation, environmental, zoning or other land-use regulation proceedings, either instituted or planned to be instituted, which would detrimentally affect the use, operation or value of the Property, nor has Seller received notice of any special assessment proceedings affecting the Property (other than as set forth in the Preliminary Report).

(f) Seller has received no written notice that the Property or the current use and operation thereof violate any applicable federal, state or municipal law, statute, code, ordinance, rule or regulation, except with respect to such violations as have been fully cured prior to the date hereof.

(g) Seller knows of no facts nor has Seller failed to disclose any fact which would prevent Buyer from using and operating the Property after the Closing in the manner in which it is currently operated.

(h) Seller has delivered to Buyer a complete list of all service contracts, utility contracts, maintenance contracts, management contracts, leasing contracts, and brokerage and leasing commission agreements with respect to the Property which, by their terms, shall continue after Closing (a copy of which is attached hereto as Exhibit I). The copies of the Service Contracts delivered or which will be delivered by Seller to Buyer pursuant to this Agreement are true, correct and complete copies of such documents and agreements.

(i) There are no existing or pending leases, licenses or other agreements granting to any party any right to occupy all or any portion of the Property.

(i) The copies of the reports, due diligence materials and other documents and instruments delivered or which will be delivered by Seller to Buyer pursuant to this Agreement are true, correct and complete copies of such documents and instruments.

(ii) Seller and, to Seller’s actual knowledge, each person or entity owning an interest in Seller is (i) not currently identified on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) and/or on any other similar list maintained by OFAC pursuant to any authorizing statute, executive order or regulation (collectively, the “List”), and (ii) not a person or entity with whom a citizen of the United States is prohibited to engage in transactions by any

10

trade embargo, economic sanction, or other prohibition of United States law, regulation, or Executive Order of the President of the United States, and (iii) not an “Embargoed Person,” to Seller’s actual knowledge, none of the funds or other assets of Seller constitute property of, or are beneficially owned, directly or indirectly, by any Embargoed Person (as hereinafter defined), and to Seller’s actual knowledge, no Embargoed Person has any interest of any nature whatsoever in Seller (whether directly or indirectly). The term “Embargoed Person” means any person, entity or government subject to trade restrictions under U.S. law, including but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. § 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder.

Whenever the phrase “to the best of Seller’s knowledge” or a similar phrase referencing the knowledge of Seller is used herein, such phrase shall refer only to the actual knowledge of Seller’s property manager Anita Haws (which person Seller represents and warrants is the person most knowledgeable with respect to the Property and the operation thereof). There shall be no obligation by Seller (or Anita Haws) to undertake any inspection or investigation.

EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR ENVIRONMENTAL CONDITION, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTY WITH GOVERNMENTAL LAWS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE PROPERTY DOCUMENTS OR ANY OTHER INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO BUYER, OR ANY OTHER MATTER OR THING REGARDING THE PROPERTY. BUYER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO BUYER AND BUYER SHALL ACCEPT THE PROPERTY “AS IS, WHERE IS, WITH ALL FAULTS”, EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT.

9. Representations and Warranties of Buyer. Buyer hereby represents and warrants to Seller as follows:

(a) Buyer is a limited liability company duly organized and validly existing and in good standing under the laws of the State of Delaware; this Agreement and all documents executed by Buyer which are to be delivered to Seller at the Closing are and at the time of the Closing will be duly authorized, executed and delivered by Buyer, are and at the time of the Closing will be legal, valid and binding obligations of Buyer enforceable against Buyer in accordance with their respective terms, and do not and at the time of the Closing will not violate any provision of any agreement or judicial order to which Buyer is subject. Buyer has full and complete power and authority to enter into this Agreement and the Lease and to perform its obligations hereunder.

11

(b) Buyer has not filed nor been the subject of any filing of a petition under the Federal Bankruptcy Law or any federal or state insolvency laws or laws for composition of indebtedness or for the reorganization of debtors.

(c) There is no litigation pending or, after due and diligent inquiry, to the best of Buyer’s knowledge, threatened, against Buyer or any basis therefor or that might detrimentally affect the ability of Buyer to perform its obligations under this Agreement.

(d) Buyer represents and warrants that (a) Buyer and, to Buyer’s actual knowledge, each person or entity owning an interest in Buyer is (i) not currently identified on the Specially Designated Nationals and Blocked Persons List maintained by the OFAC and/or on any other similar List; (ii) not a person or entity with whom a citizen of the United States is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of United States law, regulation, or Executive Order of the President of the United States; and (iii) not an “Embargoed Person” (b) to Buyer’s actual knowledge, none of the funds or other assets of Buyer constitute property of, or are beneficially owned, directly or indirectly, by any Embargoed Person (as hereinafter defined), and (c) to Buyer’s actual knowledge, no Embargoed Person has any interest of any nature whatsoever in Buyer (whether directly or indirectly).

10. Buyer and Seller Indemnification. Each party hereby agrees to indemnify the other party and defend and hold it harmless from and against any and all claims, demands, liabilities, costs, expenses, penalties, damages and losses, including, without limitation, attorneys’ fees, resulting from (i) any misrepresentation or breach of warranty made by such party in Paragraph 8 or Paragraph 9 of this Agreement, as applicable, or in any document, certificate, or Exhibit given or delivered to the other pursuant to or in connection with this Agreement, or (ii) post-Closing or post-termination breach of a covenant which, by the terms hereof, survives the Closing or earlier termination of this Agreement. The provisions of this Paragraph 10 shall survive the Closing or the earlier termination of this Agreement; provided that the representations and warranties of Seller and Buyer pursuant to Paragraph 8 and Paragraph 9 hereof, respectively, shall survive the Closing only for a period of two (2) years.

11. Risk of Loss. If any of the Property is damaged or destroyed prior to the Closing Date, and such damage or destruction (a) is fully covered by Seller’s insurance, except for the deductible amounts thereunder, and the insurer agrees to timely pay for the entire cost of such repair, and (b) would cost less than One Hundred Thousand Dollars and No/100 Dollars ($100,000.00) to repair or restore, then this Agreement shall remain in full force and effect and Buyer shall acquire the Property upon the terms and conditions set forth herein. In such event, Buyer shall receive a credit against the Purchase Price equal to such deductible amount under Seller’s insurance, and Seller shall assign to Buyer all of Seller’s right, title and interest in and to all proceeds of insurance on account of such damage or destruction, including, without limitation, all rental interruption insurance proceeds. If any of the Property is damaged or destroyed prior to the Closing Date, and such damage or destruction (c) is not fully covered by Seller’s insurance (or the insurer does not agree to timely pay for the entire cost of such repair), other than the deductible amounts, and (d) would cost less than One Hundred Thousand and No/100 Dollars ($100,000.00) to repair or restore, then the transaction contemplated by this Agreement shall be consummated with Buyer receiving a credit against the Purchase Price at the

12

Closing in an amount reasonably determined by Seller and Buyer (after consultation with unaffiliated experts) to be the cost of repairing such damage or destruction, but in no event more than One Hundred Thousand and No/100 Dollars ($100,000.00). If (e) any of the Property is damaged or destroyed prior to the Closing, and the cost of repair would exceed One Hundred Thousand and No/100 Dollars ($100,000.00), then, notwithstanding anything to the contrary set forth in this Paragraph 11, Buyer shall have the right, at its election, either to terminate this Agreement and receive a return of the Deposit or to not terminate this Agreement and purchase the Property. Buyer shall have prior to the end of the Due Diligence Period to make such election by delivery to Seller of an election notice (the “Election Notice”). Buyer’s failure to deliver the Election Notice prior to the end of the Due Diligence Period shall be deemed an election to terminate this Agreement and receive a return of the Deposit. In the event condemnation proceedings are commenced against any or all of the Property prior to the Closing Date, then, notwithstanding anything to the contrary set forth in this Paragraph 11, Buyer and Seller shall each have the right, at its election, to terminate the Agreement by notifying the other party in writing of such election prior to the end of the Due Diligence Period. If this Agreement is terminated pursuant to this Paragraph 11, then the Deposit shall be returned to Buyer and Buyer and Seller shall each be released from all obligations hereunder. If Buyer elects not to terminate this Agreement, Seller shall (g) notify Buyer of Seller’s intention to repair such damage or destruction (to the extent feasible in the case of condemnation), in which case this Agreement shall remain in full force and effect, or (h) notify Buyer of Seller’s intention to give Buyer a credit against the Purchase Price at the Closing in the amount reasonably determined by Buyer and Seller (after consultation with unaffiliated experts) to be the cost of repairing such damage or destruction (and, in the event of a condemnation proceeding, the value of any Property taken as a result of such proceeding), in which case this Agreement shall otherwise remain in full force and effect, and Seller shall be entitled to any proceeds of insurance or condemnation awards. Any repairs elected to be made by Seller pursuant to this Paragraph 11 shall be made within one hundred and eighty (180) days following such damage or destruction and the Closing shall be extended until the repairs are substantially completed, as determined by Buyer in its reasonable discretion.

12. Possession. Possession of the Property shall be delivered to Buyer on the Closing Date, provided, however, that prior to the Closing Date Seller shall afford authorized representatives of Buyer reasonable access to the Property for purposes of satisfying Buyer with respect to the representations, warranties and covenants of Seller contained herein and with respect to satisfaction of any Conditions Precedent contained herein, including, without limitation, the drilling of test wells and the taking of soil borings. Buyer hereby agrees to indemnify and hold Seller harmless from any damage or injury to persons or property caused by Buyer or its authorized representatives during their entry and investigations prior to the Closing; provided, however that such indemnification obligations shall not include any damage or injury to the extent the same shall arise (i) from the negligence or intentional misconduct of Seller, or (ii) out of the discovery of a pre-existing condition with respect to the Property. In the event this Agreement is terminated, Buyer shall restore the Property to substantially the condition in which it was found (ordinary wear and tear excepted). This indemnity shall survive the termination of this Agreement or the Closing, as applicable, provided that Seller must give notice of any claim it may have against Buyer under such indemnity within one (1) year of such termination or the Closing Date, as applicable.

13

13. Maintenance of the Property. Between the Execution Date and the Closing, Seller shall (i) maintain the Property in good order, condition and repair, reasonable wear and tear excepted, and (ii) make all repairs, maintenance and replacements of the Improvements and any Personal Property and otherwise operate the Property in the same manner as before the Execution Date, as if Seller were retaining the Property.

14. New Contracts; Termination of Existing Contracts.

(a) Seller shall not, after the date of Seller’s execution of this Agreement, enter into any lease or contract affecting the Property, or any amendment, renewal or extension thereof without in each case obtaining Buyer’s prior written consent thereto (which consent may be granted or withheld in Buyer’s sole and absolute discretion).

(b) Seller shall terminate prior to the Closing, at no cost or expense to Buyer, any and all management and/or leasing agreements affecting the Property (whether or not objected to by Buyer) and any and all other Service Contracts and Other Documents which are objected to in writing by Buyer prior to the expiration of the Due Diligence Period. Notwithstanding the foregoing, should Seller not terminate any such agreements or items, Seller shall not be in default hereunder and such failure shall not affect Closing; however, Seller shall be responsible for all obligations and for amounts accruing following the Closing Date under any such agreements or items Seller was called upon, but was unable, to terminate.

15. Insurance. Through the Closing Date, Seller shall maintain or cause to be maintained, at Seller’s sole cost and expense, a policy or policies of insurance in amounts equal to the full replacement value of the Improvements, insuring against all insurable risks, including, without limitation, fire, vandalism, malicious mischief, lightning, windstorm, water, earthquake and other perils customarily covered by casualty insurance and the costs of demolition and debris removal. Seller may satisfy its obligations under this Paragraph 15 by utilizing one or more blanket/umbrella policies of insurance.

16. Cooperation with Buyer. Seller shall cooperate and do all acts as may be reasonably required or requested by Buyer with regard to the fulfillment of any Condition Precedent including execution of any documents, applications or permits. Seller hereby irrevocably authorizes Buyer and its agents to make all inquiries with and applications to any third party, including any Tenant or governmental authority, as Buyer may reasonably require to complete its due diligence. To the extent that Seller has any material business relationship (e.g., a banking relationship) with any person or entity to which Buyer will make any inquiry or application (and Seller has disclosed the existence of such relationship to Buyer in writing or Buyer has discovered the same in the course of its due diligence), Buyer shall coordinate its contact with such person/entity through Seller.

17. Miscellaneous.

(a) Notices. Any notice, consent or approval required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given upon

14

(i) hand-delivery or transmittal by facsimile telecopy; (ii) one (1) day after being deposited with Federal Express or another reliable overnight courier service; or (iii) two (2) days after being deposited in the United States mail, registered or certified mail, postage prepaid, return receipt required, and addressed as follows:

If to Seller:

OSH PROPERTIES LLC

6450 Via Del Oro

San Jose, California 95119

Attn: Paul Griffith

Telephone: (408) 361-2203

Facsimile: (408) 365-2425

E-mail: paul.griffith@osh.com

With a copy to:

Michael Fox, Esq.

General Counsel

6450 Via Del Oro

San Jose, California 95119

Telephone: (408) 361-2518

Facsimile: (408) 629-7174

E-mail: Michael.fox@osh.com

If to Buyer:

LBA Realty, LLC

17901 Von Karman Avenue, Suite 950

Irvine, CA 92614

Attn: Steve Layton

Facsimile— (949) 955-9325

With a copy to:

DLA Piper LLP (US)

550 South Hope Street, Suite 2300

Los Angeles, California 90071

Attn: Richard C. Mendelson, Esq.

Facsimile: (213) 330-7545

or such other address as either party may from time to time specify in writing to the other.

(b) Brokerage Commissions. In the event the transaction contemplated by this Agreement is consummated, but not otherwise, Buyer agrees to pay to Oppidan (the “Broker”) at Closing a brokerage commission pursuant to a separate written agreement between Buyer and Broker. Each party agrees that should any claim be made for brokerage commissions or finder’s fees by any broker or finder other than the Broker by, through or on account of any

15

acts of said party or its representatives, said party will indemnify and hold the other party free and harmless from and against any and all loss, liability, cost, damage and expense in connection therewith. Buyer acknowledges that Oppidan has a service agreement with Seller, and has certain obligations (including without limitation fiduciary obligations) to Seller. Seller and Buyer hereby agree that Oppidan may continue to provide services to Seller, and at the same time obtain a brokerage commission in connection with the transaction contemplated under this Agreement. The provisions of this Paragraph 17(b) shall survive Closing or earlier termination of this Agreement.

(c) Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors, heirs, administrators and assigns. Provided that any such assignee is an entity related to Buyer, Buyer shall have the right, without notice to Seller, to assign its right, title and interest in and to this Agreement to one or more assignees at any time on or before the Closing Date, and in such event, the party originally designated as Buyer shall be relieved of any and all obligations under this Agreement and any other instruments executed pursuant hereto, and such assignee(s) shall be substituted in its place.

(d) Amendments. Except as otherwise provided herein, this Agreement may be amended or modified only by a written instrument executed by Seller and Buyer.

(e) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

(f) Merger of Prior Agreements. This Agreement and the exhibits hereto constitute the entire agreement between the parties and supersede all prior agreements and understandings between the parties relating to the subject matter hereof.

(g) Enforcement. If either party hereto fails to perform any of its obligations under this Agreement or if a dispute arises between the parties hereto concerning the meaning or interpretation of any provision of this Agreement, then the defaulting party or the party not prevailing in such dispute shall pay any and all costs and expenses incurred by the other party on account of such default and/or in enforcing or establishing its rights hereunder, including, without limitation, court costs and attorneys’ fees and disbursements. Any such attorneys’ fees and other expenses incurred by either party in enforcing a judgment in its favor under this Agreement shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys’ fees obligation is intended to be severable from the other provisions of this Agreement and to survive and not be merged into any such judgment.

(h) Time of the Essence. Time is of the essence of this Agreement.

(i) Severability. If any provision of this Agreement, or the application thereof to any person, place, or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied to other persons, places and circumstances shall remain in full force and effect.

(j) Marketing. Notwithstanding anything in this Agreement to the contrary, Seller agrees during the term of this Agreement not to market, show, negotiate, solicit offer or entertain offers for the Property or any interest therein from any other party.

16

(k) Confidentiality. Prior to Closing, Buyer and Seller shall each maintain as confidential any and all material obtained about the other, this Agreement or the transactions contemplated hereby or, in the case of Buyer, about the Property, and shall not disclose such information to any third party (except for Buyer’s employees, consultants, experts, accountants or attorneys) without the consent of the Buyer or Seller, as applicable. This provision shall survive any termination of this Agreement.

(l) 1031 Exchange. Either party hereto may elect to seek to structure its purchase or sale, as applicable, of the Property as a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, and the treasury regulations promulgated thereunder (“1031 Exchange”), subject to the limitations set forth herein. Each party shall reasonably cooperate with the other, at no material cost to such cooperating party, in connection with the same, including, but not limited to, executing and delivering a consent to an assignment to a qualified exchange intermediary of rights (but not obligations) under this Agreement; provided that (i) neither party shall be required to incur any additional liabilities or financial obligations as a consequence of such cooperation; (ii) neither party shall be relieved of its obligations, representations or warranties under this Agreement; and (iii) any attempt to structure an acquisition or sale of the Property as a 1031 Exchange shall not be a condition to, and shall not delay or extend, the Closing. Additionally, in connection with any 1031 Exchange, neither party shall be required to acquire title to any other property. Any risk that such an exchange or conveyance might not qualify as a tax-deferred transaction shall also be borne solely by the party seeking to effectuate the same, and each party acknowledges that the other has not provided, and will not provide, any tax, accounting, legal or other advice regarding the efficacy of any attempt to structure the transaction as a 1031 Exchange. Each party hereby agrees to save, protect, defend, indemnify and hold the other harmless from any and all losses, costs, claims, liabilities, penalties, and expenses, including, without limitation, reasonable attorneys’ fees, fees of accountants and other experts, and costs of any judicial or administrative proceeding or alternative dispute resolution to which the other may be exposed, due to any attempt to structure the transaction as a 1031 Exchange.

(m) Indemnification for Third-Party Claims. Seller hereby agrees to indemnify Buyer and defend and hold Buyer harmless from and against any and all claims, demands, liabilities, costs, expenses, penalties, damages and losses, including, without limitation, attorneys’ fees, resulting from third party claims, suits or actions with respect to the Property arising out of events occurring prior to the Closing. Buyer hereby agrees to indemnify Seller and defend and hold Seller harmless from and against any and all claims, demands, liabilities, costs, expenses, penalties, damages and losses, including, without limitation, attorneys’ fees, resulting from third party claims, suits or actions with respect to the Property arising out of events occurring on or after the Closing. The obligations of the parties under this Paragraph 17(m) shall survive the termination of this Agreement and shall survive the Closing.

(n) Calculation of Time Periods. Unless otherwise specified, in computing any period of time described in this Agreement, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday under the laws of the State in which the Property is located, in which event the period shall run until the

17

end of the next day which is neither a Saturday, Sunday or legal holiday. The final day of any such period shall be deemed to end at 5 p.m., local time at the Property.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

BUYER:	LBA REALTY, LLC, a Delaware limited liability company
	By:	LBA Inc., a California corporation
		By:	/s/ Perry Schonfeld
		Name:	Perry Schonfeld
		Title:	Authorized Signatory
SELLER:	OSH PROPERTIES LLC, a Delaware limited liability company
	By:	/s/ Mark Baker
	Name:	Mark Baker
	Title:	President and CEO

18

LIST OF EXHIBITS

Exhibit A-	Description of Real Property
Exhibit B -	Description of Personal Property
Exhibit C -	Form of Lease Grant Deed
Exhibit D -	Grant Deed
Exhibit E -	Warranty Bill of Sale
Exhibit F -	Assignment of Service Contracts, Warranties and Guaranties and Other Intangible Property
Exhibit G -	Litigation List FIRPTA Affidavit
Exhibit H -	FIRPTA Affidavit
Exhibit I -	Schedule of Agreements

19

EXHIBIT A

Legal Description

(See attached) File Number: 326756

Parcels 1, 2, and 3 as shown upon Parcel Map filed for record in Book 18 of Parcel Maps at Page 65, San Joaquin County Records.

EXCEPT THEREFROM Fifty Percent (50%) of all oil, gas, hydrocarbons and associated substances in, under, or produced and saved from said real property but without the right of entry to the surface of said real property or the top Five Hundred (500) feet of the subsurface of said real property for the purpose of exploring for, developing, and removing such oil, gas, hydrocarbons, and associated substances as reserved in Deed recorded November 15, 1985, Document No. 85077155.

APN: 213-070-61, 62 & 63

EXHIBIT B

Personal Property

None

EXHIBIT C

Form of Lease

EXHIBIT D

Form of Grant Deed

RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: DLA Piper US LLP 550 South Hope Street, Suite 2300 Los Angeles, California 90071 Attention: Richard C. Mendelson, Esq. MAIL TAX STATEMENTS TO:
	(Above Space for Recorder’s Use Only)

GRANT DEED

In accordance with Section 11932 of the California Revenue and Taxation Code, Grantor has declared the amount of the transfer tax which is due by a separate statement which is not being recorded with this Grant Deed.

FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, the undersigned,                                         , a                                         , hereby grants to                              , that certain real property in the City of                     , County of                             , State of California described in Exhibit A attached hereto and incorporated herein, together with all buildings and improvements located thereon.

Dated: , 200    

GRANTOR: a

By:

Name:

Title:

MAIL TAX STATEMENTS AS SET FORTH ABOVE

D-1

ACKNOWLEDGMENT

State of California

County of                             

On                     , before me,                             , (here insert name and title of the notary) personally appeared                                      who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing Paragraph is true and correct.

WITNESS my hand and official seal.

Signature (Seal)

D-2

EXHIBIT “A”

TO

GRANT DEED

D-3

Document No.:
Date Recorded:	,         20

STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION NOT BE

MADE A PART OF THE PERMANENT RECORD IN THE OFFICE OF THE COUNTY

RECORDER

(Pursuant to Section 11932 R&T Code)

To: Registrar Recorder

County of                     , California

Request is hereby made in accordance with the provisions of the Documentary Transfer Tax Act that the amount of tax due not be shown on the original document which names—

(as grantor)

(as grantee)

Property described in the accompanying document is located in

(  ) unincorporated area of the County of                     

(  ) City of                             

The amount of tax due on the accompanying document is $                    

    X       Computed on full value of property conveyed, or

Computed on full value less liens and encumbrances remaining at time of sale.

“GRANTOR”		,
	a
	By:
	Name:
	Title:

D-4

EXHIBIT E

Form of Bill of Sale

BILL OF SALE

For good and valuable consideration, the receipt of which is hereby acknowledged,                             ,                             a (“Seller”), does hereby sell, transfer and convey to                                          (“Purchaser”), without recourse or warranty, any and all personal property (the “Personal Property”) owned by Seller, located on the real property described below and used exclusively in connection with the operation of that certain real property known as                                         , California, and more particularly described in Exhibit A attached hereto.

Dated as of this                  day of                 , 20    .

“	SELLER:
		,
	a
	By:
	Name:
	Title:
	SELLER:

EXHIBIT F

Form of Assignment of Intangible Property

ASSIGNMENT OF OPERATING AGREEMENTS AND INTANGIBLES

This Assignment of Operating Agreements and Intangibles (this “Assignment”) is executed as of                             , 20     by and between                                         , a                      (“Assignor”), and                             , a                              (“Assignee”), with reference to the following facts:

A. Assignor and Assignee have entered into that certain Purchase and Sale Agreement dated as of                     , 200     (as amended, the “Purchase Agreement”) pursuant to which Assignor has agreed to sell and Assignee has agreed to purchase the real property more particularly described on Exhibit A attached hereto and incorporated herein by this reference, together with the improvements located thereon (herein referred to collectively as the “Real Property”).

B. Pursuant to the Purchase Agreement, Assignor has agreed to assign to Assignee (a) all security deposits and prepaid rent, if any, under the leases affecting the Real Property and any and all guaranties of such leases, (b) all maintenance, service and other operating contracts, equipment leases and other arrangements or agreements to which Assignor is a party affecting the ownership, repair, maintenance, management, leasing or operation of the Real Property (collectively, the “Operating Agreements”) and (c) any and all transferable or assignable permits, building plans and specifications, architectural proposals and renderings, certificates of occupancy, operating permits, sign permits, development rights and approvals, Title 24 approvals, certificates, licenses, warranties and guarantees, trade names, service marks, engineering, soils, pest control and any other reports (whether or not known to Assignor), tenant lists, advertising materials, and telephone exchange numbers relating to the Real Property, together with all other transferable intangible property, miscellaneous rights, benefits or privileges of any kind or character with respect to the Real Property (collectively, the “Intangibles”).

THEREFORE, for valuable consideration, the parties agree as follows:

1. Assignment. Subject to the terms of the Purchase Agreement, Assignor hereby assigns and transfers to Assignee, effective as of the Closing Date (as defined in the Purchase Agreement), all of Assignor’s right, title and interest in and to the Operating Agreements and the Intangibles.

2. Assumption. Assignee hereby agrees to and accepts the assignment of Assignor’s rights under each of the Operating Agreements and the Intangibles as provided in Section 1 above, and Assignee assumes and agrees to perform all obligations required to be kept and performed by Assignor under each of the Operating Agreements and Intangibles arising or accruing from and after the Closing Date.

F-1

3. Counterparts. This Assignment may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

4. Miscellaneous. This Assignment shall be binding on the parties and their respective successors and assigns. The headings to sections of this Assignment are for convenient reference only and shall not be used in interpreting this Assignment.

5. Indemnification.

(a) Assignee agrees to and shall indemnify, defend and hold Assignor harmless from and against any and all claims, costs, demands, losses, damages, liabilities, lawsuits, actions and other proceedings in law or in equity or otherwise, judgments, awards and expenses of every kind and nature whatsoever, including without limitation, attorneys’ fees, asserted against or incurred by Assignor by reason of or arising out of any failure by Assignee to perform and observe the obligations assigned to Assignee hereunder.

(b) Assignor agrees to and shall indemnify, defend and hold Assignee harmless from and against any and all claims, costs, demands, losses, damages, liabilities, lawsuits, actions and other proceedings in law or in equity or otherwise, judgments, awards and expenses of every kind and nature whatsoever, including without limitation, attorneys’ fees, asserted against or incurred by Assignee by reason of or arising out of any failure by Assignor to perform and observe Assignor’s obligations under the Operating Agreements and Intangibles accruing prior to the Closing Date.

6. Further Actions. Assignor shall, at any time and from time to time, upon the request of Assignee, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances, and take all such further actions, as shall be necessary or desirable to give effect to the transactions hereby consummated and to collect and reduce to the possession of Assignee any and all of the interests and assets hereby transferred to Assignee.

7. Attorneys’ Fees. If any action or proceedings is commenced by either party to enforce its rights under this Assignment, the prevailing party in such action or proceeding shall be entitled to recover all reasonable costs and expenses incurred in such action or proceeding, including reasonable attorneys’ fees and costs, in addition to any other relief awarded by the court.

[Next page is signature page]

F-2

IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment as of the date first set forth above.

ASSIGNOR:
	By:
	Name:
	Title:
ASSIGNEE:
	By:
	Name:
	Title:

F-3

EXHIBIT G

Litigation

None.

EXHIBIT H

Form of FIRPTA Affidavit

FIRPTA AFFIDAVIT

Section 1445 of the Internal Revenue Code provides that a transferee (buyer) of a U.S. real property interest must withhold tax if the transferor (seller) is a foreign person. For U.S. tax purposes (including Section 1445), the owner of a disregarded entity (which has legal title to a U.S. real property interest under local law) will be the transferor of the property and not the disregarded entity. To inform the transferee (buyer) that withholding of tax is not required upon the disposition of a U.S. real property interest by                                     , a                              (“Seller”), the undersigned hereby certifies the following on behalf of Seller:

1. Seller is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations);

2. Seller is not a disregarded entity as defined in Section 1.1445-2(b)(2)(iii) of the Income Tax Regulations;

3. Seller’s U. S. employer identification number is ; and

4. Seller’s office address is:

Seller understands that this certification may be disclosed to the Internal Revenue Service by the transferee (buyer) and that any false statement contained herein could be punished by fine, imprisonment, or both.

Under penalties of perjury, the undersigned declares that he has examined this certification and to the best of his knowledge and belief it is true, correct and complete, and he further declares that he has the authority to sign this document on behalf of Seller.

[Next page is signature page]

H-1

IN WITNESS WHEREOF, the undersigned has executed this FIRPTA Affidavit as of the day and year first above written.

SELLER:
	By:
	Name:
	Title:

H-2

EXHIBIT I

Schedule of Agreements

1. Universal Sweeping Services, Inc.

Landscape Services

Effective Date: 02/01/09

Expiration Date: 01/31/12

Early Termination: With 30-days written notice to contractor

2. Platinum Roofing Inc.

Annual Roof Preventative Maintenance/Inspection

Effective Date: 02/02/09

Expiration Date: 01/31/2012

Early Termination: With 30-days written notice to contractor

3. Commercial Mechanical Service, Inc.

HVAC Preventative Maintenance

Effective Date: 02/23/09

Expiration Date: 01/31/2012

Early Termination: With 30-days written notice to contractor

4. US Security Associates, Inc.

On-site Security Services

Effective Date: 03/20/06

Expiration Date: 03/20/2014

Early Termination: With 30-days written notice to contractor

EX-10.32

Exhibit 10.32

SINGLE-TENANT

COMMERCIAL/INDUSTRIAL LEASE (NNN)

2650 N. MacArthur Drive,

Tracy, California

LANDLORD:

LBA RIV-COMPANY XVII, LLC,

a Delaware limited liability company

TENANT:

ORCHARD SUPPLY HARDWARE LLC,

a Delaware limited liability company

TABLE OF CONTENTS

ARTICLE 1	- LEASE SUMMARY AND PROPERTY SPECIFIC PROVISIONS	1
ARTICLE 2	- LEASE	6
ARTICLE 3	- PREMISES	7
ARTICLE 4	- TERM AND POSSESSION	7
ARTICLE 5	- RENT	7
ARTICLE 6	- SECURITY DEPOSIT	8
ARTICLE 7	- OPERATING EXPENSES/UTILITIES/SERVICES	8
ARTICLE 8	- MAINTENANCE AND REPAIR	10
ARTICLE 9	- USE	11
ARTICLE 10	- HAZARDOUS MATERIALS	12
ARTICLE 11	- PARKING	13
ARTICLE 12	- TENANT SIGNS	13
ARTICLE 13	- ALTERATIONS	14
ARTICLE 14	- TENANT’S INSURANCE	16
ARTICLE 15	- LANDLORD’S INSURANCE	17
ARTICLE 16	- INDEMNIFICATION AND EXCULPATION	17
ARTICLE 17	- CASUALTY DAMAGE/DESTRUCTION	19
ARTICLE 18	- CONDEMNATION	21
ARTICLE 19	- WAIVER OF CLAIMS; WAIVER OF SUBROGATION	22
ARTICLE 20	- ASSIGNMENT AND SUBLETTING	22
ARTICLE 21	- SURRENDER AND HOLDING OVER	24
ARTICLE 22	- DEFAULTS	25
ARTICLE 23	- REMEDIES OF LANDLORD	26
ARTICLE 24	- ENTRY BY LANDLORD	28
ARTICLE 25	- LIMITATION ON LANDLORD’S LIABILITY	28
ARTICLE 26	- SUBORDINATION	29
ARTICLE 27	- ESTOPPEL CERTIFICATE	29
ARTICLE 28	- RELOCATION OF PREMISES	29
ARTICLE 29	- MORTGAGEE PROTECTION	29
ARTICLE 30	- QUIET ENJOYMENT	30

i

ARTICLE 31	- MISCELLANEOUS PROVISIONS	30
EXHIBITS:
Exhibit A	Building Floor Plan
Exhibit B	Premises Site Plan
Exhibit C	Intentionally Omitted
Exhibit D	Notice of Lease Term Dates
Exhibit E	Rules and Regulations
Exhibit F	Estoppel Certificate
Exhibit G	Environmental Questionnaire and Disclosure Statement

ii

THIS LEASE, entered into as of this 28^th day of October, 2011 for reference purposes, is by and between LBA RIV-COMPANY XVII, LLC, a Delaware limited liability company, hereinafter referred to as “Landlord,” and ORCHARD SUPPLY HARDWARE LLC, a Delaware limited liability company, hereinafter referred to as “Tenant.”

ARTICLE 1 - LEASE SUMMARY AND PROPERTY SPECIFIC PROVISIONS

1.1 Landlord’s Address:	LBA RIV-Company XVII, LLC 2550 North First Street, Suite 180 San Jose, CA 95131 Attn: Regional Director of Operations Telephone: (408) 435-1221 Facsimile: (408) 435-7836]
With copies to:	17901 Von Karman, Suite 950 Irvine, California 92614 Attn: SVP – Operations Telephone: (949) 833-0400 Facsimile: (949) 955-9350
For payment of Rent:	LBA RIV-Company XVII, LLC P.O. Box 101104 Pasadena, CA 91189-1104
1.2 Tenant’s Address:	Orchard Supply Hardware LLC 6450 Via del Oro San Jose, California 95119-1208 Attn: Director of Real Estate Telephone: (408) 281-3500 Facsimile: (408) 365-2425 Orchard Supply Hardware LLC 6450 Via del Oro San Jose, California 95119-1208 Attn: General Counsel Telephone: (408) 281-3500 Facsimile: (408) 629-7174

1.3 Building. The Building commonly known as 2650 N. MacArthur Drive, Tracy, California, containing approximately 517,458 rentable square feet, as depicted on Exhibit A attached hereto.

1.4 Premises. The property (“Property”) depicted on Exhibit B attached hereto, including the Building, and all other improvements and facilities located on the Property, including all drive aisles, parking areas, sidewalks, wall, landscaping and exterior improvements. Landlord and Tenant stipulate and agree that the aggregate rentable area of the Building is 517,458 rentable square feet, for all purposes of this Lease.

1

1.5 City. The City of Tracy, County of San Joaquin, State of California.

1.6 Commencement Date. October 28, 2011.

1.7 Term. Two hundred forty (240) full calendar months plus the partial month from the Commencement Date through and including October 31, 2011, commencing on the Commencement Date and ending on October 31, 2031 (the “Expiration Date”).

1.8 Monthly Base Rent. Initially $141,666.67 per month subject to adjustment as provided below.

Months	Monthly Base Rent
1-60*	$	141,666.67
61-120	$	155,833.34
121-180	$	171,416.67
181-240	$	188,558.34

* Includes the partial month for period from Commencement Date through and including October 31, 2011, prorated on a daily basis.

1.9 Security Deposit. None.

1.10 Permitted Use. Distribution and general industrial use, or any other legal use, subject to the provisions set forth in this Lease and as permitted by Law.

1.11 Parking. Subject to Article 11 of this Lease, during the Term, Tenant shall be entitled to utilize all on site parking spaces within the Property, for vehicle parking and storage in compliance with all applicable Laws and zoning regulations. All responsibility for damage to or loss of vehicles is assumed by the parker except to the extent such damage is caused by the gross negligence or willful misconduct of Landlord or the Landlord Parties, and Landlord shall not be responsible for any such damage or loss by water, fire, defective brakes, the act or omissions of others, theft, or for any other cause.

1.12 Brokers. LBA Realty, representing Landlord. Oppidan Investment Company, representing Tenant.

1.13 Interest Rate. The lesser of: (a) ten percent (10%) or (b) the maximum rate permitted by law in the State where the Property is located.

1.14 Insurance Amounts.

(a) Commercial General Liability Insurance. General liability of not less than Two Million Dollars ($2,000,000.00) per occurrence and Five Million Dollars ($5,000,000.00) in the aggregate.

2

(b) Commercial Automobile Liability Insurance. Limit of liability of not less than One Million Dollars ($1,000,000.00) per accident.

(c) Workers’ Compensation and Employers Liability Insurance. With limits as mandated pursuant to the laws in the State in which the Property is located, or One Million Dollars ($1,000,000.00) per person, disease and accident, whichever is greater.

(d) Umbrella Liability Insurance. Limits of not less than Ten Million Dollars ($10,000,000.00) per occurrence.

1.15 Tenant Improvements. The improvements previously installed in the Premises. Landlord shall have no obligation to make any improvements with respect to the Premises pursuant to this Lease.

1.16 Intentionally Omitted.

1.17 Intentionally Omitted.

1.18 Insurance Costs and Management Fee. In addition to the Monthly Base Rent, as additional rent, (a) Tenant shall pay to Landlord, a management fee in the amount of One Thousand Five Hundred Dollars ($1,500.00) per month, each month of the Term from and after the Commencement Date, monthly in advance, and (b) Tenant shall reimburse Landlord for all Insurance Costs incurred by Landlord, within fifteen (15) days following receipt of billing therefor accompanied by copies of invoices or other reasonable evidence of the amount of such Insurance Costs.

1.19 Utilities and Services, and Additional Maintenance Obligations.

(a) Utilities and Services. As used in this Lease, “Utilities Costs” shall mean all actual charges for utilities for the Premises of any kind, including but not limited to water, sewer and electricity, telecommunications and cable service, and the costs of heating, ventilating and air conditioning and other utilities as well as related fees, assessments and surcharges. Tenant shall contract directly for all utilities services for the Premises and shall pay all Utilities Costs directly to the various utility service providers providing such utility services to the Premises. Except as provided in Section 7.5, in no event shall Landlord be liable, nor shall Tenant have any remedy, for any interruption or failure in the supply of any such utility or other services to Tenant.

(b) Maintenance/Janitorial/Service Contracts. Tenant shall, at its sole cost and expense, enter into maintenance/service contracts to perform landscaping, roof-cleaning, and regularly scheduled preventative maintenance and repair of all hot water, and all heating, ventilation and air conditioning systems and equipment (“HVAC”) within the Premises, or which serve the Premises exclusively, including, without limitation, any rooftop package HVAC units, distribution lines and internal venting, ducting and control systems. Such maintenance contracts shall be with contractors providing services for Tenant’s retail stores, or shall be subject to Landlord’s reasonable approval. All cleaning and janitorial services, including regular removal of trash and debris, for the Premises shall be performed and obtained, at Tenant’s sole cost and expense, exclusively by or through Tenant or Tenant’s janitorial contractors. All

3

maintenance/service contracts shall include all services recommended by the equipment manufacturer within the operation/maintenance manual and shall become effective (and a copy thereof delivered to Landlord) upon the Commencement Date.

(c) Tenant’s Additional Repair Obligations. Subject to Section 8.1 of the Lease, Tenant shall at all times and at Tenant’s sole cost and expense, keep, maintain, clean, repair, renovate, retrofit and preserve the Premises and all non-structural parts thereof and the Building floor and floor slab in good condition and repair, reasonable wear and tear excepted, including, without limitation, plumbing/pipes and conduits at the point of entry into the building and inside the Building, all heating, ventilating and air conditioning systems located within the Premises, all windows, restrooms, ceilings, interior walls, non-structural elements of the roof, roof membrane, skylights, interior and demising walls, doors, electrical and lighting equipment, sprinkler systems, parking areas, including slurry seal and restripe, and replacement (as reasonably required) of asphalt, loading dock areas and doors, fences, signs, lawns and landscaping, if any, and any Tenant Improvements, Alterations or other alterations located within and upon the Premises. Without limiting the generality of the foregoing: (i) the parties acknowledge that the existing roof membrane is in need of replacement and Tenant shall be solely responsible for replacement of such roof membrane, as needed, at Tenant’s sole cost, by no later than December 31, 2012, in accordance with plans and specifications for such replacement which shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed; (ii) promptly following the Commencement Date, Tenant shall install burglar bars and fall protection for the existing skylights in the Building, at Tenant’s sole cost, but Tenant shall not be required to spend more than $75,000.00 in performing the work specified in this clause (ii); (iii) promptly following the Commencement Date, Tenant shall perform such work as is necessary to cure any existing fire code violations with respect to the Premises, at Tenant’s sole cost; and (iv) Tenant’s obligations for maintenance, repair and replacement (as necessary) of the Building slab shall include, without limitation, cure of cracks, leaks and/or other causes of effervescence. Tenant’s repair and maintenance obligations shall include, but not be limited to, slurry coating the parking areas every sixty (60) months; parking area sweeping and repairing; and responsibility for painting. Tenant shall at all times during the Term make all non-structural changes, repairs and improvements to the Premises which may be required by any Laws or for the safety of the Premises. Such maintenance and repairs shall be performed with due diligence, lien-free and in a good and workmanlike manner, by licensed contractor(s) which are selected by Tenant. Except as otherwise provided in this Lease (such as Section 8.1), Landlord has no obligation whatsoever to alter, remodel, improve, repair, renovate, retrofit, replace, redecorate or paint all or any part of the Premises.

1.20 Additional Hazardous Materials Requirements. In addition to Tenant’s obligations under Article 10 of the Standard Provisions, Tenant shall comply with the following provisions with respect to Hazardous Materials (as that term is defined in Article 10):

(a) Environmental Questionnaire; Disclosure. Prior to the execution of this Lease, Tenant and Landlord shall share, review and approve any and all environmental studies and reports in each of their possession, and Tenant shall complete, execute and deliver to Landlord an Environmental Questionnaire and Disclosure Statement (the “Environmental Questionnaire”) in the form of Exhibit G, and Tenant shall certify to Landlord all information

4

contained in the Environmental Questionnaire as true and correct to the best of Tenant’s knowledge and belief. The completed Environmental Questionnaire shall be deemed incorporated into this Lease for all purposes, and Landlord shall be entitled to rely fully on the information contained therein. Subject to Section 10, Tenant shall disclose to Landlord in writing the names and amounts of all Hazardous Materials, or any combination thereof, that are stored, generated, used or disposed of on or about the Premises for the twelve (12) month period prior to each Disclosure Date, and that Tenant intends to store, generate, use or dispose of on the Premises. Tenant shall provide to Landlord a copy of the Hazardous Materials Inventory Statement and the Hazardous Materials Business Plan as submitted to the local Fire Department as part of the permitting requirements. In addition to the foregoing, Tenant shall promptly notify Landlord of Environmental issues pertaining to the property.

(b) Inspection; Compliance. Landlord and Landlord Parties (as that term is defined in Article 10) shall have the right, but not the obligation, to inspect, investigate, sample and/or monitor the Premises, including any air, soil, water, groundwater or other sampling, and any other testing, digging, drilling or analyses, at any time to determine whether Tenant is complying with the terms of this Section 1.20 and Article 10, and in connection therewith, Tenant shall provide Landlord with access to all relevant facilities, records and personnel. If Tenant is not in compliance with any of the provisions of this Section 1.20 and Article 10, or in the event of a release of any Hazardous Materials on, under, from or about the Premises, Landlord and Landlord Parties shall have the right, but not the obligation, without limitation on any of Landlord’s other rights and remedies under this Lease, to immediately enter upon the Premises and to discharge Tenant’s obligations under this Section 1.20 and Article 10 at Tenant’s expense, including without limitation the taking of emergency or long term remedial action. Landlord and Landlord Parties shall endeavor to minimize interference with Tenant’s business but shall not be liable for any such interference. All sums reasonably disbursed, deposited or incurred by Landlord in connection herewith, including, but not limited to, all reasonable costs, expenses and reasonable attorneys’ fees, shall be due and payable by Tenant to Landlord, as an item of Additional Rent, on demand by Landlord.

(c) Tenant Obligations. If the presence of any Hazardous Materials on, under or about the Premises which is either (x) existing as of the Commencement Date, or (y) caused or permitted by Tenant or Tenant’s Parties, results in (i) injury to any person; (ii) injury to or contamination of the Premises; or (iii) injury to or contamination of any real or personal property wherever situated, Tenant, at its sole cost and expense, shall promptly take all actions necessary to return the Premises to the condition existing prior to the introduction of such Hazardous Materials to the Premises and to remedy or repair any such injury or contamination. Without limiting any other rights or remedies of Landlord under this Lease, Tenant shall pay the cost of any cleanup work performed on, under or about the Premises as required by this Lease or any Environmental Laws in connection with the removal, disposal, neutralization or other treatment of such Hazardous Materials existing as of the Commencement Date or caused or permitted by Tenant or Tenant’s Parties (provided that with regard to contamination existing as of the Commencement Date not causing injury to persons, Tenant’s obligations shall be limited to those required to comply with Environmental Laws).

5

(d) Tenant’s Responsibility at Conclusion of Lease. Promptly upon the expiration or sooner termination of this Lease, Tenant shall represent to Landlord in writing that (i) to the best of Tenant’s actual knowledge whether any Hazardous Materials are on, under or about the Premises, as a result of any acts or omissions of Tenant or Tenant’s Parties and (ii) to the best of Tenant’s actual knowledge, no such Hazardous Materials exist on, under or about the Premises, other than as specifically identified to Landlord by Tenant in writing. If Tenant discloses the existence of Hazardous Materials on, under or about the Premises or if Landlord at any time discovers that Tenant or Tenant’s Parties caused or permitted the release of any Hazardous Materials on, under, from or about the Premises or that any Hazardous Materials were existing on, under or about the Premises as of the Commencement Date, Tenant shall, at Landlord’s request, immediately prepare and submit to Landlord within thirty (30) days after such request a comprehensive plan, subject to Landlord’s approval, specifying the actions to be taken by Tenant to return the Premises to the condition existing prior to the introduction of such Hazardous Materials. Upon approval by the local, state or federal jurisdictions, Tenant shall, at Tenant’s sole cost and expense, without limitation on any rights and remedies of Landlord under this Lease or at law or in equity, immediately implement such plan and proceed to clean up such Hazardous Materials in accordance with all Environmental Laws and as required by such plan and this Lease.

1.21 Indemnification Regarding Certain Matters of Record. To the fullest extent permitted by law, Tenant agrees to promptly indemnify, protect, defend and hold harmless Landlord and the “Landlord Parties” (as hereinafter defined) from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including, without limitation, reasonable attorneys’ fees) which arise or result from any obligation for compliance with, and/or claimed non-compliance with, the “Designated Matters of Record” (as hereinafter defined). As used herein, the “Designated Matters of Record” shall mean those certain matters of record encumbering the Premises as described in exception numbers 12, 13, 14 and 15 of that certain preliminary title report issued by First American Title Insurance Company, dated as of October 22, 2011, Order No. NCS-511055-SA1. The provisions of this Section 1.21 will survive the expiration of the Term or earlier termination of this Lease.

ARTICLE 2 - LEASE

2.1 Lease Elements; Definitions; Exhibits. The Lease is comprised of the Lease Summary and Property Specific Provisions (the “Summary”), these Standard Lease Provisions (“Standard Provisions”) and all exhibits, and riders attached hereto (collectively, “Exhibits”), all of which are incorporated together as part of one and the same instrument. All references in any such documents and instruments to “Lease” means the Summary, these Standard Provisions and all Exhibits attached hereto. All terms used in this Lease shall have the meanings ascribed to such terms in the Summary, these Standard Provisions and any Exhibits. To the extent of any inconsistency between the terms and conditions of the Summary, these Standard Provisions, or any Exhibits attached hereto, the Summary and any Exhibits attached hereto shall control over these Standard Provisions.

6

ARTICLE 3 - PREMISES

3.1 Lease of Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises, upon and subject to, the terms, covenants and conditions of this Lease. Each party covenants and agrees, as a material part of the consideration for this Lease, to keep and perform their respective obligations under this Lease.

ARTICLE 4 - TERM AND POSSESSION

4.1 Term; Notice of Lease Dates. The Term shall be for the period designated in the Summary commencing on the Commencement Date and ending on the Expiration Date, unless the Term is sooner terminated or extended as provided in this Lease. Within ten (10) days after Landlord’s written request, Tenant shall execute a written confirmation of the Commencement Date and Expiration Date of the Term in Landlord’s form of the Notice of Lease Term Dates, which shall be binding upon Tenant unless Tenant reasonably objects thereto in writing within such ten (10) day period.

4.2 Possession. Tenant is currently in possession of the Premises as the former owner and occupant of the Premises.

4.3 Condition of Premises. The parties agree and acknowledge that Tenant was the owner of the Premises immediately prior to the Commencement Date and, upon the Commencement Date, Landlord has acquired the Premises from Tenant. Accordingly, Tenant agrees that, except as may be expressly otherwise provided in this Lease, Landlord has not made any representation or warranty with respect to the fitness or condition of the Property, that Tenant is familiar with the Premises, and that Tenant is leasing the Premises pursuant to this Lease on an entirely “as is”, “where is” and “with all faults” basis, and that Landlord shall have no obligation to make any Tenant Improvements with respect to the Premises pursuant to this Lease.

ARTICLE 5 - RENT

5.1 Monthly Base Rent. Tenant agrees to pay Landlord, the Monthly Base Rent as designated in the Summary. Monthly Base Rent and recurring monthly charges of Additional Rent (defined below) shall be paid by Tenant in advance on the first day of each and every calendar month (“Due Date”) during the Term. Monthly Base Rent for any partial month shall be prorated in the proportion that the number of days this Lease is in effect during such month bears to the actual number of days in such month.

5.2 Additional Rent. All amounts and charges payable by Tenant under this Lease in addition to Monthly Base Rent, if any, including, without limitation, payments for Operating Expenses, Taxes, Insurance Costs and Utilities Costs to the extent payable by Tenant under this Lease shall be considered “Additional Rent”, and the word “Rent” in this Lease shall include Monthly Base Rent and all such Additional Rent unless the context specifically states or clearly implies that only Monthly Base Rent is referenced. Rent shall be paid to Landlord, without any prior notice or demand therefor and without any notice, deduction or offset, in lawful money of the United States of America.

7

5.3 Late Charges & Interest Rate. If Landlord does not receive Rent or any other payment due from Tenant within five (5) days after the Due Date, Landlord shall first give written notice and Tenant shall have five (5) business days (cure period) to cure such non-payment and if after the expiration of such five (5) business day cure period Tenant has not cured such non-payment, then Tenant shall pay to Landlord a late charge equal to Three Thousand and 00/100 Dollars ($3,000.00). Tenant agrees that this late charge represents a fair and reasonable estimate of the cost Landlord will incur by reason of Tenant’s late payment. Accepting any late charge shall not constitute a waiver by Landlord of Tenant’s Default with respect to any overdue amount nor prevent Landlord from exercising any other rights or remedies available to Landlord. If any installment of Monthly Base Rent or Additional Rent, or any other amount payable by Tenant hereunder is not received by Landlord within thirty (30) days following Tenant’s receipt of written notice from Landlord that such amount is due, it shall bear interest at the Interest Rate set forth in the Summary from the Due Date until paid. All interest, and any late charges imposed pursuant to this Section 5.3, shall be considered Additional Rent due from Tenant to Landlord under the terms of this Lease.

ARTICLE 6 - SECURITY DEPOSIT

Intentionally Omitted.

ARTICLE 7 - OPERATING EXPENSES/UTILITIES/SERVICES

7.1 Operating Expenses. Except as otherwise provided in this Lease, Tenant shall pay for all Operating Expenses associated with the operation, maintenance, repair and replacement of the Premises.

7.2 Utilities and Services. Utilities and services to the Premises are described in the Summary.

7.3 Taxes. As used in this Lease, the term “Taxes” means: All real property taxes and assessments, possessory interest taxes, sales taxes, personal property taxes, business or license taxes or fees, gross receipts taxes, license or use fees, excises, transit charges, and other impositions of any kind (including fees “in-lieu” or in substitution of any such tax or assessment) which are now or hereafter assessed, levied, charged or imposed by any public authority upon the Premises or any portion thereof, its operations or the Rent derived therefrom (or any portion or component thereof, or the ownership, operation, or transfer thereof). Taxes shall not include inheritance or estate taxes imposed upon or assessed against the interest of Landlord, gift taxes, excess profit taxes, franchise taxes, or similar taxes on Landlord’s business or any other taxes computed upon the basis of the net income of Landlord. If it shall not be lawful for Tenant to reimburse Landlord for any such Taxes, the Monthly Base Rent payable to Landlord under this Lease shall be revised to net Landlord the same net rent after imposition of any such Taxes by Landlord as would have been payable to Landlord prior to the payment of any such Taxes. Tenant shall pay for Taxes as provided in the Summary. Tenant shall be liable for all taxes levied or assessed against personal property, furniture and fixtures. Tenant may contest the amount or validity of any Taxes by appropriate proceedings; provided that Tenant gives Landlord reasonable prior notice of any such contest and otherwise keeps Landlord apprised of such proceedings, and provided further that Tenant shall continue to pay for its share of Taxes as

8

provided in the Summary unless such proceeding shall operate to prevent or stay such payment and the collection of Taxes contested. Landlord shall join in any such proceedings if required by applicable Laws. If Tenant so elects, Tenant may pay its share of Taxes to the Landlord in equal monthly installments concurrently with Tenant’s payment of the Monthly Base Rent. Tenant shall provide Landlord with written notice of its election to pay its share of Taxes in monthly installments, and upon receipt of such notice (and thereafter prior to the commencement of each calendar year during the Term, Landlord shall give Tenant a written estimate of Tenant’s share of Taxes for the ensuing calendar year. Tenant shall pay 1/12 of such estimate each month together with its payment of the Monthly Base Rent. If Landlord has not furnished its written estimate by the time set forth above, Tenant shall pay monthly installments of its share of Taxes at the rates established for the prior calendar year, if any; provided, however, that when the new estimate is delivered to Tenant, Tenant shall at the next monthly payment date pay Landlord any accrued deficiency based on the new estimate, or Landlord shall credit any accrued overpayment based on such estimate toward Tenant’s next installment payment(s) of its share of Taxes. Within ninety (90) days after the end of each calendar year, Landlord shall furnish Tenant with a statement showing in detail the actual Taxes incurred for the period in question. If Tenant’s payments for that calendar year are less than its share of Taxes, as shown by the applicable statement, Tenant shall pay the difference to Landlord within thirty (30) days thereafter. If Tenant shall have overpaid Landlord, Landlord shall credit such overpayment toward Tenant’s future payments of Taxes. When the final determination is made of Taxes for the calendar year in which this Lease expires or terminates, Tenant shall, even if this Lease has expired or terminated, pay to Landlord upon notice the excess its share of Taxes over the estimate of its share of Taxes paid. Conversely, any overpayment shall be rebated by Landlord to Tenant. Landlord shall keep or cause to be kept separate and complete books of accounting covering all Taxes and showing the method of calculating Tenant’s share of Taxes and shall preserve for at least three (3) years after the close of each calendar year all material documents evidencing such Taxes for that calendar year. Tenant, at its sole cost and expense, shall have the right, during reasonable business hours and not more frequently than once during any calendar year, either itself or through its accountants or other employees or consultants, to examine and/or audit the books and documents mentioned above evidencing such costs and expenses for previous calendar year. If such audit should disclose that Tenant has been overcharged by Landlord for its share of Taxes for any year, Tenant shall be credited for such overpayment or if the Lease has expired, Landlord shall promptly refund such amount to Tenant. If the amount of any such overcharge exceeds two percent (2%) of Tenant’s share of Taxes for that year, Landlord shall promptly reimburse Tenant for the reasonable costs of such audit. Notwithstanding anything to the contrary herein, Landlord’s right to reconcile Taxes (and require back payment from Tenant) is limited to the two (2) year period immediately preceding the reconciliation date, and Tenant’s right to examine and/or audit Landlord’s books and documents relating to Taxes is limited to the two (2) year period immediately preceding the audit/examination date.

7.4 Insurance Costs. As used in this Lease, “Insurance Costs” means the cost of insurance obtained by Landlord pursuant to Article 14 (including self-insured amounts and deductibles, if any). Tenant shall pay for Insurance Costs as provided in the Summary.

7.5 Interruption of Utilities. Tenant hereby waives the provisions of any applicable existing or future Law, ordinance or governmental regulation permitting the termination of this Lease due to an interruption, failure or inability to provide any services. If

9

there is any disruption of utility service to the Premises, Landlord shall endeavor to restore such utility service as promptly as possible. If such disruption is the result of any negligent act or negligent omission of Landlord, then the Monthly Base Rent and Additional Rent shall be abated during such continued period of disruption in proportion to the interference with Tenant’s use of the Premises due to such disruption.

ARTICLE 8 - MAINTENANCE AND REPAIR

8.1 Landlord’s Repair/Replacement Obligations. Landlord, at Landlord’s sole cost and expense, shall repair, maintain and replace when necessary, all structural portions of the Building, excluding the Building floor and floor slab but including, without limitation, the foundation, , structural load bearing walls and roof structure; provided, however, to the extent such maintenance, repairs or replacements (excluding those caused by a casualty loss) are required as a result of any act, neglect, fault or omission of Tenant or any of Tenant’s Parties, Tenant shall pay to Landlord, as Additional Rent, the costs of such maintenance, repairs and replacements. Except as otherwise expressly provided in this Lease, Landlord shall have no obligation to alter, remodel, improve, repair, renovate, redecorate or paint all or any part of the Premises.

8.2 Tenant’s Repair Obligations. Except for Landlord’s obligations specifically set forth elsewhere in this Lease and in Section 8.1 above and in the Summary, Tenant shall at all times and at Tenant’s sole cost and expense, keep, maintain, clean, repair, preserve and replace, as necessary, the interior and exterior of the Premises and all parts thereof including, without limitation, as described in Section 1.19 of the Summary, and all Tenant Improvements, Alterations, and all furniture, fixtures and equipment, including, without limitation, all computer, telephone and data cabling and equipment, Tenant’s signs, if any, entrances, halls, doors, door locks, closing devices, security devices, interior of windows, window sashes, casements and frames, floors, floor slab and floor coverings, restroom facilities, custom lighting, all landscaping, parking areas, sidewalks and driveways, the HVAC equipment, and exterior lighting standards, and any additions and other property located within the Premises, so as to keep all of the foregoing elements of the Premises in good condition and repair, reasonable wear and tear and casualty damage excepted. Tenant shall replace, at its expense, any and all plate and other glass in and about the Premises which is damaged or broken from any cause whatsoever except due to the negligence or willful misconduct of Landlord, its agents or employees. Such maintenance and repairs shall be performed with due diligence, lien free and in a first class and workmanlike manner, by licensed contractor(s) that are selected by Tenant. All other repair and maintenance of the Premises to be performed by Tenant, if any, shall be as provided in the Summary. If Tenant refuses or neglects to repair and maintain the Premises properly as required hereunder, and should Tenant fail to complete such repair/maintenance within twenty (20) days following written demand from Landlord to effect such repairs/maintenance, and should failure continue beyond ten (10) days following a second written demand given by Landlord following the expiration of the twenty (20) days, Landlord may enter upon the Premises and make such repairs and/or maintenance, and upon completion thereof, Tenant agrees to pay to Landlord as Additional Rent, Landlord’s reasonable costs for making such repairs, within ten (10) days after receipt from Landlord of a written itemized bill therefor. Any amounts not reimbursed by Tenant within such ten (10) day period will bear interest at the Interest Rate until paid by Tenant. The twenty (20) day and ten (10) day time

10

periods set forth above for Tenant’s performance shall be extended by a reasonable time required for Tenant to effect such repairs/maintenance, should Tenant commence such repairs/maintenance within such time period and diligently pursue completion of such repairs/maintenance.

8.3 Self-Help. Notwithstanding anything to the contrary in this Article 8, if Landlord fails to perform any obligation under this Lease with respect to the Premises which it is obligated to perform under Article 8 within a reasonable period of time not to exceed sixty (60) days following receipt of written notice from Tenant as set forth above, Tenant shall be permitted to perform such obligations in the Premises on Landlord’s behalf, provided Tenant first delivers to Landlord an additional three (3) business days prior written notice indicating that Tenant will be performing such obligations and provided Landlord fails to commence to perform its obligation(s) within such additional three (3) business day period or thereafter fails to diligently complete performance of such obligations having commenced performance within such three (3) business day period. If the obligations to be performed by Tenant is an emergency, as reasonably determined by Tenant, and will affect the Building’s life safety, electrical, plumbing, or sprinkler systems, Tenant shall use only licensed, commercial contractors for work on such systems and shall not be obligated to give prior notice to Landlord but shall promptly give notice after the emergency work has been commenced, that such work is in progress or has been completed. Any work performed by or on behalf of Tenant shall be performed in accordance with the provisions of this Lease governing Alterations. Landlord agrees to reimburse Tenant within thirty (30) days following receipt from Tenant of a written statement of all reasonable and actual costs incurred by Tenant in performing such obligations on behalf of Landlord. Nothing contained in this paragraph shall be interpreted to mean that Tenant shall be excused from paying rent or any other amount due under this Lease in the event of any alleged default by Landlord.

ARTICLE 9 - USE

Tenant shall procure, at its sole cost and expense, any and all permits required by applicable Law for Tenant’s use and occupancy of the Premises. Tenant shall use the Premises solely for the Permitted Use specified in the Summary, and shall not use or permit the Premises to be used for any other use or purpose whatsoever without Landlord’s prior written approval. Tenant shall observe and comply with the Rules and Regulations attached hereto as Exhibit E, as the same may be modified by Landlord from time to time, and all reasonable non-discriminatory modifications thereof and additions thereto from time to time put into effect and furnished to Tenant by Landlord. Tenant shall, at its sole cost and expense, observe and comply with all Laws and all requirements of any board of fire underwriters or similar body relating to the Premises now or hereafter in force relating to or affecting the condition, use, occupancy, alteration or improvement of the Premises; provided, however, that Tenant shall not (and Landlord shall) be required to make any structural or capital modifications, alterations or repairs to the Premises necessary to comply with applicable Laws in effect as of the Commencement Date of this Lease, unless such modifications, alterations or repairs are necessitated by Tenant’s specific use of the Premises or on account of any physical requirements of the Tenant Improvements or of Tenant’s subsequent alterations to the Premises (as opposed to being required or triggered because of the cost, extent, value or scope of such work). To the extent any structural or capital modifications, alterations or repairs to the Premises become necessary to comply with applicable Laws which are enacted after the Commencement Date of this Lease

11

(“Post Commencement Structural Items”) and such Post Commencement Structural Items are not necessitated by Tenant’s specific use of the Premises or on account of any physical requirements of the Tenant Improvements or of Tenant’s subsequent alterations to the Premises, Landlord shall be responsible for all such Post Commencement Structural Items, but the actual and documented costs thereof shall be amortized on a straight-line basis over the reasonable useful life of any such Post Commencement Structural Items together with interest at the Interest Rate (as defined in Section 1.13 of the Lease Summary) and Tenant shall pay to Landlord monthly, within thirty (30) days of written invoice, such monthly amortization amount so determined for such Post Commencement Structural Items as Additional Rent during the remainder of the Term of this Lease. Tenant shall not use or allow the Premises to be used for any improper, immoral, unlawful or reasonably objectionable purpose. Tenant shall not cause, maintain or permit any nuisance in, on or about the Premises, nor commit or suffer to be committed any waste in, on or about the Premises.

ARTICLE 10 - HAZARDOUS MATERIALS

As used in this Lease, the term “Environmental Law(s)” means any past, present or future federal, state or local Law relating to (a) the environment, human health or safety, including, without limitation, emissions, discharges, releases or threatened releases of Hazardous Materials (as defined below) into the environment (including, without limitation, air, surface water, groundwater or land), or (b) the manufacture, generation, refining, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport, arranging for transport, or handling of Hazardous Materials. As used in this Lease, the term “Hazardous Materials” means and includes any hazardous or toxic materials, substances or wastes as now or hereafter designated or regulated under any Environmental Laws including, without limitation, asbestos, petroleum, petroleum hydrocarbons and petroleum based products, urea formaldehyde foam insulation, polychlorinated biphenyls (“PCBs”), and freon and other chlorofluorocarbons. In addition to ordinary and general office supplies, such as copier toner, liquid paper, glue, ink and common household cleaning materials, motor vehicle fuel stored in fuel tanks of motor vehicles and diesel fuel stored in the generator and 55 gallon drums used on site in compliance with all Environmental Laws, Tenant, as part of the on-site Lab, shall be allowed to possess, handle and/or store, on the Premises, limited quantities of Hazardous Materials that are found in a typical Orchard Supply Hardware store subject to what is allowed under the 2010 California Fire Code, Section 2703 and listed in table 2703.11.1, listed in the Hazardous Materials Inventory Statement (HMIS) and the Hazardous Materials Business Plan (HMPB). Upon the expiration or earlier termination of this Lease, Tenant agrees to promptly remove from the Premises, as part of its Environmental Closure activities, at its sole cost and expense, any and all Hazardous Materials, including any equipment or systems containing Hazardous Materials which are installed, brought upon, stored, used, generated or released upon, in, under or about the Premises or any portion thereof by Tenant or any of Tenant’s Parties or (if removal is required by Environmental Laws) which were existing on, under or about the Premises as of the Commencement Date. To the fullest extent permitted by law, Tenant agrees to promptly indemnify, protect, defend and hold harmless Landlord and Landlord’s members, shareholders, partners, officers, directors, managers, employees, agents, contractors, successors and assigns (collectively, “Landlord Parties”) from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including, without limitation, clean-up, removal, remediation and restoration costs, sums paid in settlement of

12

claims, attorneys’ fees, consultant fees and expert fees and court costs) which arise or result from the presence of Hazardous Materials on, in, under or about the Premises or any portion thereof and which either exist as of the Commencement Date and are required to be removed by Environmental Laws or are caused or permitted by Tenant or any of Tenant’s Parties. The provisions of this Article 10 will survive the expiration or earlier termination of this Lease. Tenant shall give Landlord written notice of any evidence of Mold, water leaks or water infiltration in the Premises promptly upon discovery of same and Tenant shall, at its expense, investigate, clean up and remediate any Mold in the Premises but only to the extent the Mold resulted from the breach by Tenant of its express obligations under this Lease. Investigation, clean up and remediation may be performed only after Tenant has Landlord’s written approval of a plan for such remediation. All clean up and remediation for which Tenant is responsible shall be done in compliance with all applicable Laws and to the reasonable satisfaction of Landlord. As used in this Lease, “Mold” means mold, fungi, spores, microbial matter, mycotoxins and microbiological organic compounds.

ARTICLE 11 - PARKING

During the Term, Tenant shall be entitled to utilize all of the parking spaces and area specified on the Premises Site Plan, Exhibit B, for the Property.

ARTICLE 12 - TENANT SIGNS

Tenant shall continue to have the right to maintain, at Tenant’s sole cost and expense, Tenant’s existing signs, banners and flags in place at the Premises as of the Commencement Date, subject to compliance with applicable governmental requirements. Tenant shall also be allowed to modify and/or add any additional signs that are part of the remodel of the Premises, subject to the provisions of this Article 12. Subsequent changes to Tenant’s existing signs, banners and flags, and/or any additional signs, to the extent permitted by Landlord herein, shall be made or installed at Tenant’s sole cost and expense. All aspects of any such signs or changes thereto shall be subject to the prior written consent of Landlord (which shall not be unreasonably withheld), and shall be per Landlord’s standard specifications and materials, as revised by Landlord from time to time. Tenant shall have no right to install or maintain any other signs, banners, advertising, notices, displays, stickers, decals or any other logo or identification of any person, product or service whatsoever, in any location on or in the Property except as (i) those currently in place at the time of signing this Lease and/or are a part of the remodel of the Premises, or shall have been expressly approved by Landlord in writing prior to the installation thereof (which approval may be granted or withheld in Landlord’s sole and absolute discretion), and (ii) are consistent and compatible with all applicable Laws, and the design, signage and graphics program from time to time implemented by Landlord with respect to the Premises, if any. Landlord shall have the right to remove any signs or signage material installed without Landlord’s permission, without being liable to Tenant by reason of such removal, and to charge the cost of removal to Tenant as Additional Rent hereunder, payable within ten (10) days after written demand by Landlord. Any additional sign rights of Tenant, if any, shall be as provided in the Summary.

13

ARTICLE 13 - ALTERATIONS

13.1 Alterations. Tenant may, at its sole cost and expense, make alterations, additions, improvements and decorations to the Premises (“Alteration(s)”) subject to and upon the following terms and conditions:

(a) Without Landlord’s prior written consent, which consent shall not be unreasonably withheld, Tenant shall not make any Alterations which: (i) affect any area outside the Building including the outside appearance, character or use of any portions of the Building or other portions of the Property outside of the Building; (ii) affect the Building’s roof, roof membrane, any structural component or any base Building equipment, services or systems (including fire and life/safety systems), or the proper functioning thereof, or Landlord’s access thereto; (iii) in the reasonable opinion of Landlord, lessen the value of the Premises; or (iv) would trigger a legal requirement which would require Landlord to make any alteration or improvement to the Premises, provided that if Landlord consents to any such Alterations described in this clause (iv), Tenant shall be responsible for the cost of compliance with such legal requirement. In addition, Tenant shall not make any Alterations which will violate or require a change in any occupancy certificate applicable to the Premises.

(b) Tenant shall not make any Alterations not prohibited by Section 13.1(a), unless Tenant first obtains Landlord’s prior written consent, which consent Landlord shall not unreasonably withhold, provided Landlord’s prior approval shall not be required for any Alterations that is not prohibited by Section 13.1(a) above and is of a cosmetic nature that satisfies all of the following conditions (hereinafter a “Pre-Approved Alteration”): (i) the costs of such Alterations do not exceed Three Hundred Thousand Dollars ($300,000.00) in the aggregate in any calendar year; (ii) to the extent reasonably required by Landlord or by law due to the nature of the work being performed, Tenant delivers to Landlord final plans, specifications, working drawings, permits and approvals for such Alterations at least ten (10) days prior to commencement of the work thereof; (iii) Tenant and such Alterations otherwise satisfy all other conditions set forth in this Section 13.1; and (iv) the making of such Alterations will not otherwise cause a Default by Tenant under any provision of this Lease. Tenant shall provide Landlord with ten (10) days’ prior written notice before commencing any Alterations. In addition, before proceeding with any Alteration, Tenant’s contractors shall obtain, on behalf of Tenant and at Tenant’s sole cost and expense: (A) all necessary governmental permits and approvals for the commencement and completion of such Alterations, and (B) if the cost of such Alterations exceeds $50,000.00, a completion and lien indemnity bond, or other surety satisfactory to Landlord for such Alterations. Landlord’s approval of any plans, contractor(s) and subcontractor(s) of Tenant shall not release Tenant or any such contractor(s) and/or subcontractor(s) from any liability with respect to such Alterations and will create no liability or responsibility on Landlord’s part concerning the completeness of such Alterations or their design sufficiency or compliance with Laws.

(c) All Alterations shall be performed: (i) in accordance with the approved plans, specifications and working drawings, if any; (ii) lien-free and in a first-class workmanlike manner; (iii) in compliance with all Laws; (iv) in such a manner so as not to impose any additional expense upon nor delay Landlord in the maintenance and operation of the Building; (v) by licensed and bondable contractors and subcontractors selected by Tenant and reasonably

14

approved by Landlord, and (v) at such times, in such manner and subject to such rules and regulations as Landlord may from time to time reasonably designate. Tenant shall pay to Landlord, within ten (10) days after written demand, the costs of any increased insurance premiums incurred by Landlord to include such Alterations in the causes of loss – special form property insurance obtained by Landlord pursuant to this Lease, if Landlord elects in writing to insure such Alterations; provided, however, Landlord shall not be required to include the Alterations under such insurance. If the Alterations are not included in Landlord’s insurance, Tenant shall insure the Alterations under its causes of loss-special form property insurance pursuant to this Lease.

(d) Tenant shall engage engineers and consultants as may be reasonably required in connection with any Alterations to building systems or structural elements based on the scope of such Alterations, and Tenant shall promptly provide to Landlord copies of all reports prepared by such engineers and consultants prior to commencing work requiring such engineering work.

(e) Throughout the performance of the Alterations, Tenant shall obtain, or cause its contractors to obtain, workers compensation insurance and commercial general liability insurance in compliance with the insurance provisions of this Lease.

13.2 Removal of Alterations. All Alterations and the initial Tenant Improvements in the Premises (whether installed or paid for by Landlord or Tenant), shall become the property of Landlord and shall remain upon and be surrendered with the Premises at the end of the Term; provided, however, and excepting all existing improvements, Landlord may, by written notice delivered to Tenant within thirty (30) days after Landlord’s receipt of plans for any Alterations identify those Alterations which Landlord shall require Tenant to remove at the end of the Term. If Landlord requires Tenant to remove any such Alterations, Tenant shall, at its sole cost, remove the identified items on or before the expiration or sooner termination of this Lease and repair any damage to the Premises caused by such removal to its original condition (or, at Landlord’s option, Tenant shall pay to Landlord all of Landlord’s costs of such removal and repair).

13.3 Liens. Tenant shall not permit any mechanic’s, materialmen’s or other liens to be filed against all or any part of the Property, nor against Tenant’s leasehold interest in the Premises, by reason of or in connection with any repairs, alterations, improvements or other work contracted for or undertaken by Tenant or any of Tenant’s Parties. If any such liens are filed, Tenant shall, at its sole cost, immediately cause such liens to be released of record or bonded so that such lien(s) no longer affect(s) title to the Property. If Tenant fails to cause any such lien to be released or bonded within ten (10) days after filing thereof, Landlord may cause such lien to be released by any means it shall deem proper, including payment in satisfaction of the claim giving rise to such lien, and Tenant shall reimburse Landlord within five (5) business days after receipt of invoice from Landlord, any sum paid by Landlord to remove such liens, together with interest at the Interest Rate from the date of such payment by Landlord.

15

ARTICLE 14 - TENANT’S INSURANCE

14.1 Tenant’s Insurance. By the Commencement Date, and continuing during the entire Term, Tenant shall obtain and keep in full force and effect, the following insurance with limits of coverage as set forth in Section 1.14 of the Summary:

(a) Special Form (formerly known as “all risk”) insurance, including fire and extended coverage, sprinkler leakage, vandalism, malicious mischief upon property of every description and kind owned by Tenant and located in or on the Premises, or for which Tenant is legally liable or installed by or on behalf of Tenant including, without limitation, furniture, equipment and any other personal property, and any Alterations (but excluding the initial Tenant Improvements), in an amount not less than the full replacement cost thereof. In the event that there shall be a dispute as to the amount which comprises full replacement cost, the decision of Landlord or the Mortgagees of Landlord shall be presumptive.

(b) Commercial general liability insurance coverage on an occurrence basis, including personal injury, bodily injury (including wrongful death), broad form property damage, operations hazard, owner’s protective coverage, contractual liability (including Tenant’s indemnification obligations under this Lease), liquor liability (if Tenant serves alcohol on the Premises), products and completed operations liability.

(c) Commercial Automobile Liability covering all owned, hired and non-owned automobiles.

(d) Workers’ compensation, in statutory amounts and employer’s liability, covering all persons employed in connection with any work done in, on or about the Premises for which claims for death, bodily injury or illness could be asserted against Landlord, Tenant or the Premises.

(e) Umbrella liability insurance on an occurrence basis, in excess of and following the form of the underlying insurance described in Sections 14.1(b) and 14.1(c) and the employer’s liability coverage in Section 14.1(d) which is at least as broad as each and every area of the underlying policies. Such umbrella liability insurance shall include pay on behalf of wording, concurrency of effective dates with primary policies, blanket contractual liability, application of primary policy aggregates, and shall provide that if the underlying aggregate is exhausted, the excess coverage will drop down as primary insurance, subject to customary commercially reasonable deductible amounts imposed on umbrella policies.

14.2 Requirements. Each policy required to be obtained by Tenant hereunder shall: (a) be issued by insurers which are approved by Landlord and/or Landlord’s Mortgagees and are authorized to do business in the state in which the Premises are located and rated not less than Financial Size X, and with a Financial Strength rating of A in the most recent version of Best’s Key Rating Guide (provided that, in any event, the same insurance company shall provide the coverages described in Sections 14.1(a) and 14.1(g) above); (b) name Tenant as named insured thereunder and shall name Landlord and, at Landlord’s request, such other persons or entities of which Tenant has been informed in writing, as additional insureds thereunder, all as their respective interests may appear; (c) specifically provide that the insurance afforded by such

16

policy for the benefit of Landlord and any other additional insureds shall be primary, and any insurance carried by Landlord or any other additional insureds shall be excess and non-contributing; (d) contain an endorsement that the insurer waives its right to subrogation; (e) not have a deductible amount exceeding Fifty Thousand Dollars ($50,000.00), which deductible amount shall be deemed self-insured with full waiver of subrogation; and (f) contain a cross-liability or severability of interest endorsement; and (g) be in amounts sufficient at all times to satisfy any coinsurance requirements thereof. Tenant agrees to deliver to Landlord, as soon as practicable after the placing of the required insurance, but in no event later than the date Tenant is required to obtain such insurance as set forth in Section 14.1 above, certificates from the insurance company evidencing the existence of such insurance and Tenant’s compliance with the foregoing provisions of this Article 14. Tenant shall cause replacement insurance certificates to be delivered to Landlord immediately upon the expiration of any such policy or policies.

ARTICLE 15 - LANDLORD’S INSURANCE

During the Term, Landlord shall maintain property insurance written on a Special Form (formerly known as “all risk”) basis covering one hundred percent (100%) replacement cost of the Building, including the initial Tenant Improvements (excluding, however, Tenant’s furniture, equipment and other personal property and Alterations, unless Landlord otherwise elects to insure the Alterations pursuant to Section 13.1 above) against damage by fire and standard extended coverage perils and with vandalism and malicious mischief and a minimum of 12 months of rental loss coverage. In addition, at Landlord’s option, Landlord may obtain earthquake damage coverage. Landlord shall also carry commercial general liability in such reasonable amounts and with such reasonable deductibles as would be carried by a prudent owner of a similar building in the state in which the Premises are located. At Landlord’s option, all such insurance may be carried under any blanket or umbrella policies that Landlord has in force for other buildings and projects. In addition, at Landlord’s option, Landlord may elect to self-insure all or any part of such required insurance coverage. Landlord may, but shall not be obligated to carry any other form or forms of insurance as Landlord or the Mortgagees or ground lessors of Landlord may reasonably determine is advisable. The cost of insurance obtained by Landlord pursuant to this Article 15 (including self-insured amounts and deductibles) shall be included in Insurance Costs.

ARTICLE 16 - INDEMNIFICATION AND EXCULPATION

16.1 Tenant’s Assumption of Risk and Waiver. Except to the extent such matter is not covered by the insurance required to be maintained by Tenant under this Lease and/or except to the extent such matter is attributable to the negligence or willful misconduct of Landlord or Landlord’s agents, contractors or employees, Landlord shall not be liable to Tenant, or any of Tenant’s Parties for: (i) any damage to property of Tenant, or of others, located in, on or about the Premises, (ii) the loss of or damage to any property of Tenant or of others by theft or otherwise, (iii) any injury or damage to persons or property resulting from fire, explosion, falling ceiling tiles masonry, steam, gas, electricity, water, rain or leaks from any part of the Premises or from the pipes, appliance of plumbing works or from the roof, street or subsurface or from any other places or by dampness or by any other cause of whatsoever nature, (iv) any such damage caused by persons in the Premises, occupants of any other portions of the Premises, or the public, or caused by operations in construction of any private, public or quasi-public work, or (v) any

17

interruption of utilities and services. Landlord shall in no event be liable to Tenant or any other person for any consequential damages, special or punitive damages, or for loss of business, revenue, income or profits and Tenant hereby waives any and all claims for any such damages. Notwithstanding anything to the contrary contained in this Section 16.1, all property of Tenant and Tenant’s Parties kept or stored on the Premises, whether leased or owned by any such parties, shall be so kept or stored at the sole risk of Tenant and Tenant shall hold Landlord harmless from any claims arising out of damage to the same, including subrogation claims by Tenant’s insurance carriers. Landlord or its agents shall not be liable for interference with light or other intangible rights.

16.2 Tenant’s Indemnification. Tenant shall be liable for, and shall indemnify, defend, protect and hold Landlord and the Landlord Parties harmless from and against, any and all claims, damages, judgments, suits, causes of action, losses, liabilities and expenses, including, without limitation, attorneys’ fees and court costs (collectively, “Landlord Indemnified Claims”), arising or resulting from (a) any occurrence in the Premises following the date Landlord delivers possession of all or any portion of the Premises to Tenant, except to the extent caused by the negligence or willful misconduct of Landlord or Landlord’s agents, contractors or employees, (b) any act or omission of Tenant or any of Tenant’s Parties; (c) the use of the Premises, and conduct of Tenant’s business by Tenant or any of Tenant’s Parties, or any other activity, work or thing done, permitted or suffered by Tenant or any of Tenant’s Parties, in or about the Premises; and/or (d) any Default by Tenant as to any obligations on Tenant’s part to be performed under the terms of this Lease or any default by Tenant under the terms of any other contract or agreement to which Tenant is a party or by which it is bound, affecting this Lease or the Premises. The foregoing indemnification shall include, but not be limited to, any injury to, or death of, any person, or any loss of, or damage to, any property on the Premises, or on adjoining sidewalks, streets or ways, or connected with the use, condition or occupancy thereof, whether or not Landlord or any Landlord Parties has or should have knowledge or notice of the defect or conditions causing or contributing to such injury, death, loss or damage. In case any action or proceeding is brought against Landlord or any Landlord Parties by reason of any such Landlord Indemnified Claims, Tenant, upon notice from Landlord, shall defend the same at Tenant’s expense by counsel approved in writing by Landlord, which approval shall not be unreasonably withheld. Tenant’s indemnification obligations under this Section 16.2 and elsewhere in this Lease shall survive the expiration or earlier termination of this Lease. Tenant’s covenants, agreements and indemnification in Section 16.1 and this Section 16.2 are not intended to and shall not relieve any insurance carrier of its obligations under policies required to be carried by Tenant pursuant to the provisions of this Lease.

16.3 Landlord’s Indemnification. Landlord shall be liable for, and shall indemnify, defend, protect and hold Tenant and Tenant’s Parties harmless from and against, any and all claims, damages, judgments, suits, causes of action, losses, liabilities and expenses, including, without limitation, attorneys’ fees and court costs (collectively, “Tenant Indemnified Claims”), arising or resulting from (a) any negligent act or negligent omission of Landlord or any of the Landlord Parties; and/or (b) any default by Landlord as to any obligations on Landlord’s part to be performed under the terms of this Lease or any default by Landlord under the terms of any other contract or agreement to which Landlord is a party or by which it is bound, affecting this Lease, the Premises, the Building and/or the Property. In case any action or proceeding is brought against Tenant or any Tenant’s Parties by reason of any such Tenant Indemnified

18

Claims, Landlord, upon notice from Tenant, shall defend the same at Landlord’s expense by counsel approved in writing by Tenant, which approval shall not be unreasonably withheld. Landlord’s indemnification obligations under this Section 16.3 and elsewhere in this Lease shall survive the expiration or earlier termination of this Lease. Landlord’s covenants, agreements and indemnification in this Section 16.3 are not intended to and shall not relieve any insurance carrier of its obligations under policies required to be carried by Landlord pursuant to the provisions of this Lease.

ARTICLE 17 - CASUALTY DAMAGE/DESTRUCTION

17.1 Landlord’s Rights and Obligations. If the Building is damaged by fire or other casualty (“Casualty”): (i) to an extent not exceeding fifty percent (50%) of the full replacement cost thereof, and Landlord has insurance coverage with respect to such Casualty and/or was required to carry insurance with respect to such Casualty pursuant to this Lease; or (ii) to an extent not exceeding ten percent (10%) of the full replacement cost thereof with respect to any other Casualty, then Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration and this Lease shall continue in full force and effect. If, however: (a) the Building is damaged to an extent exceeding fifty percent (50%) of the full replacement cost thereof by a Casualty for which Landlord has insurance coverage and/or was required to carry insurance coverage pursuant to this Lease; or (b) the Building is damaged to an extent exceeding ten percent (10%) of the full replacement cost thereof by a Casualty for which Landlord does not have insurance coverage and for which Landlord was not required to carry insurance pursuant to the Lease (“Uninsured Casualty”), then Landlord may elect to either: (i) repair, reconstruct and restore the portion of the Building damaged by such Casualty (including the Tenant Improvements, the Alterations that Landlord elects to insure pursuant to Section 13.1 and, to the extent of insurance proceeds received from Tenant, the Alterations that Tenant is required to insure pursuant to Section 13.1), in which case this Lease shall continue in full force and effect; or (ii) terminate this Lease effective as of the date which is thirty (30) days after Tenant’s receipt of Landlord’s election to so terminate. In the event the Building is damaged to an extent exceeding ten percent (10%) of the full replacement cost of thereof, and Landlord elects to terminate this Lease pursuant to clause (ii) of the preceding sentence, Tenant may vitiate any such termination notice by notifying Landlord, in writing, prior to the expiration of the thirty (30) day period provided for in clause (ii) of the proceeding sentence, that Tenant will contribute to the cost of repair, reconstruction and restoration of the Building to the extent that such cost exceeds ten percent (10%) of the full replacement cost of the Building. Under any of the conditions of this Section 17.1, Landlord shall give written notice to Tenant of its intention to repair or terminate within the later of sixty (60) days after the occurrence of such Casualty, or fifteen (15) days after Landlord’s receipt of the estimate from Landlord’s contractor or, as applicable, thirty (30) days after Landlord receives approval from Landlord’s Mortgagee to rebuild.

17.2 Tenant’s Costs and Insurance Proceeds. In the event of any damage or destruction of all or any part of the Premises, Tenant shall immediately: (a) notify Landlord thereof; and (b) deliver to Landlord all insurance proceeds received by Tenant with respect to the Tenant Improvements and Alterations (to the extent such items are not covered by Landlord’s Casualty insurance obtained by Landlord pursuant to this Lease) and with respect to Alterations in the Premises that Tenant is required to insure pursuant to Section 13.1, excluding proceeds for

19

Tenant’s furniture and other personal property, whether or not this Lease is terminated as permitted in Section 17.1, and Tenant hereby assigns to Landlord all rights to receive such insurance proceeds.

17.3 Abatement of Rent. If as a result of any such damage, repair, reconstruction and/or restoration of the Building, Tenant is prevented from using, and does not use, the Premises or any portion thereof, then Rent shall be abated or reduced, as the case may be, during the period that Tenant continues to be so prevented from using and does not use the Premises or portion thereof, in the proportion that the rentable square feet of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable square feet of the Premises. Notwithstanding the foregoing to the contrary, if the damage is due to the negligence or willful misconduct of Tenant or any of Tenant’s Parties, there shall be no abatement of Rent in excess of the rent abatement insurance proceeds received by Landlord in connection with such damage or casualty to the Building (Landlord acknowledging that it shall carry 12 month rental loss coverage as part of Landlord’s insurance under Article 15 above). Except for abatement of Rent as provided hereinabove, Tenant shall not be entitled to any compensation or damages for loss of, or interference with, Tenant’s business or use or access of all or any part of the Premises resulting from any such damage, repair, reconstruction or restoration.

17.4 Inability to Complete. Notwithstanding anything to the contrary contained in this Article 17, if Landlord is obligated or elects to repair, reconstruct and/or restore the damaged portion of the Building pursuant to Section 17.1 above, but is delayed from completing such repair, reconstruction and/or restoration beyond the date which is six (6) months after the date estimated by Landlord’s contractor for completion thereof pursuant to Section 17.1, by reason of any causes beyond the reasonable control of Landlord (including, without limitation, delays due to Force Majeure, and delays caused by Tenant or any of Tenant’s Parties), then at Tenant’s sole discretion, Tenant may elect to terminate this Lease upon giving Landlord thirty (30) days’ prior written notice.

17.5 Damage Near End of Term. In addition to its termination rights in Sections 17.1 and 17.4 above, Landlord shall have the right to terminate this Lease if any damage to the Building occurs during the last twelve (12) months of the Term and Landlord’s contractor estimates in writing delivered to the parties that the repair, reconstruction or restoration of such damage cannot be completed within the earlier of (a) the scheduled expiration date of the Term, or (b) sixty (60) days after the date of such Casualty.

17.6 Tenant’s Termination Right. In the event of any damage or destruction which affects Tenant’s use and enjoyment of the Premises if Tenant’s possession and use of the Premises cannot be restored by Landlord within one hundred eighty (180) days for reasons other than delays caused by Tenant or any of Tenant’s Parties, Tenant shall have the right to terminate this Lease upon written notice to Landlord given within thirty (30) days after the expiration of said one hundred eighty (180) day period, unless Landlord completes the restoration within said thirty (30) day notice period, in which case this Lease shall continue in full force and effect.

20

17.7 Waiver of Termination Right. This Lease sets forth the terms and conditions upon which this Lease may terminate in the event of any damage or destruction. Accordingly, except as expressly provided herein, Tenant hereby waives any and all provisions of applicable Law that provide alternative rights for the parties in the event of damage or destruction.

ARTICLE 18 - CONDEMNATION

18.1 Substantial or Partial Taking. Subject to the provisions of Section 18.3 below, Tenant may terminate this Lease if any material part of the Premises is taken or condemned for any public or quasi-public use under law, by eminent domain or private purchase in lieu thereof (a “Taking”). Landlord shall also have the right to terminate this Lease if there is a Taking of any portion of the Premises which would have a material adverse effect on Landlord’s ability to profitably operate the remainder of the Premises. The terminating party shall provide written notice of termination to the other party within thirty (30) days after it first receives notice of the Taking. The termination shall be effective as of the effective date of any order granting possession to, or vesting legal title in, the condemning authority. If this Lease is not terminated, Base Rent and all other elements of this Lease which are dependent upon the area of the Premises shall be appropriately adjusted to account for any reduction in the square footage of the Premises. All compensation awarded for a Taking shall be the property of Landlord. The right to receive compensation or proceeds are expressly waived by Tenant, however, Tenant may file a separate claim for Tenant’s furniture, fixtures, equipment and other personal property, loss of goodwill and Tenant’s reasonable relocation expenses, provided the filing of the claim does not diminish the amount of Landlord’s award.

18.2 Condemnation Award. Subject to the provisions of Section 18.3 below, in connection with any Taking of the Premises, Landlord shall be entitled to receive the entire amount of any award which may be made or given in such taking or condemnation, without deduction or apportionment for any estate or interest of Tenant, it being expressly understood and agreed by Tenant that no portion of any such award shall be allowed or paid to Tenant for any so called bonus or excess value of this Lease, and such bonus or excess value shall be the sole property of Landlord. Tenant shall not assert any claim against Landlord or the taking authority for any compensation because of such taking (including any claim for bonus or excess value of this Lease); provided, however, if any portion of the Premises is taken, Tenant shall be granted the right to recover from the condemning authority (but not from Landlord) any compensation as may be separately awarded or recoverable by Tenant for the taking of Tenant’s furniture, fixtures, equipment and other personal property within the Premises, for Tenant’s relocation expenses, and for any loss of goodwill or other damage to Tenant’s business by reason of such taking.

18.3 Temporary Taking. In the event of a Taking of the Premises or any part thereof for temporary use, (a) this Lease shall be and remain unaffected thereby and Rent shall not abate, and (b) Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the Term, provided that if such taking shall remain in force at the expiration or earlier termination of this Lease, Tenant shall perform its obligations with respect to surrender of the Premises and shall pay to Landlord the portion of any award which is attributable to any period of time beyond the Term expiration

21

date. For purpose of this Section 18.3, a temporary taking shall be defined as a taking for a period of ninety (90) days or less.

18.4 Waiver. Tenant hereby waives any rights it may have pursuant to any applicable Laws and agrees that the provisions hereof shall govern the parties’ rights in the event of any Taking.

ARTICLE 19 - WAIVER OF CLAIMS; WAIVER OF SUBROGATION

19.1 Waiver. Landlord and Tenant each hereby waive their respective rights against the other party for any claims or damages or losses, including any deductibles and self-insured amounts, which are caused by or result from (a) any occurrence insured under any property insurance policy carried by either party, or (b) any occurrence which would have been covered under any property insurance required to be obtained and maintained by either party under this Lease had such insurance been obtained and maintained as required. The foregoing waiver shall be in addition to, and not a limitation of, any other waivers or releases contained in this Lease.

19.2 Waiver of Insurers. Landlord and Tenant shall each cause their respective insurance policies to be carried under this Lease to provide that the insurer waives all rights of recovery by way of subrogation against the other party, in connection with any claims, losses and damages covered by such policy. If either party fails to maintain insurance for an insurable loss, such loss shall be deemed to be self-insured with a deemed full waiver of subrogation as set forth in the immediately preceding sentence.

ARTICLE 20 - ASSIGNMENT AND SUBLETTING

20.1 Restriction on Transfer. Tenant will not assign this Lease in whole or in part, nor sublet all or any part of the Premises or enter into any license or concession agreements (collectively or individually, a “Transfer”), without the prior written consent of Landlord, which consent Landlord will not unreasonably withhold. In no event may Tenant encumber or hypothecate this Lease. The consent by Landlord to any Transfer shall not constitute a waiver of the necessity for such consent to any subsequent Transfer. This prohibition against Transfers shall be construed to include a prohibition against any assignment or subletting by operation of law. Any attempted transfer, assignment, subletting, license or concession agreement, or hypothecation shall be void and confer no rights upon any third person and shall be a violation of this Section 20.1. Any transfer of this Lease from Tenant by merger, consolidation, liquidation or otherwise by operation of law, including, but not limited to, an assignment for the benefit of creditors, shall be included in the term “assignment” for the purposes of this Lease and shall be a violation of this Section 20.1. If this Lease is transferred by Tenant, or if the Premises or any part thereof are transferred or occupied by any person or entity other than Tenant, Landlord may collect rent from the assignee, subtenant or occupant, and apply the net amount collected to the rent herein reserved, but no such Transfer, occupancy or collection shall be deemed a waiver on the part of Landlord, or the acceptance of the assignee, subtenant or occupant as Tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained unless expressly made in writing by Landlord. Irrespective of any Transfer, Tenant shall remain fully liable under this Lease and shall not be released from performing any of the terms, covenants and conditions of this Lease.

22

20.2 Landlord’s Options. If Tenant desires to effect a Transfer, then at least thirty (30) days prior to the date when Tenant desires the Transfer to be effective (the “Transfer Date”), Tenant shall deliver to Landlord written notice (“Transfer Notice”) setting forth the terms and conditions of the proposed Transfer and the identity of the proposed assignee, sublessee or other transferee (sometimes referred to hereinafter as a “Transferee”). Tenant shall also deliver to Landlord with the Transfer Notice, a current financial statement and such evidence of financial responsibility and standing as Landlord may reasonably require of the Transferee which have been certified or audited by a reputable independent accounting firm acceptable to Landlord, and such other information concerning the business background and financial condition of the proposed Transferee as Landlord may reasonably request. Except with respect to a Permitted Transfer, within fifteen (15) business days after Landlord’s receipt of any Transfer Notice, and any additional information requested by Landlord pursuant to this Section 20.2, Landlord will notify Tenant of its election to do one of the following: (a) consent to the proposed Transfer subject to such reasonable conditions as Landlord may impose in providing such consent; or (b) refuse such consent, which refusal shall be on reasonable grounds.

20.3 Additional Conditions; Excess Rent. A condition to Landlord’s consent to any Transfer will be the delivery to Landlord of a true copy of the fully executed instrument of assignment, sublease, transfer or hypothecation, in form and substance reasonably satisfactory to Landlord, an original of Landlord’s standard consent form executed by both Tenant and the proposed Transferee. If Tenant effects a Transfer or requests the consent of Landlord to any Transfer (whether or not such Transfer is consummated), then, upon demand, and as a condition precedent to Landlord’s consideration of the proposed assignment or sublease, Tenant agrees to pay Landlord a non-refundable administrative fee of Five Hundred Dollars ($500.00) plus Landlord’s reasonable attorneys’ and paralegal fees and other costs incurred by Landlord in reviewing such proposed assignment or sublease (whether attributable to Landlord’s in-house attorneys or paralegals or otherwise). Acceptance of the Five Hundred Dollar ($500.00) administrative fee and/or reimbursement of Landlord’s attorneys’ and/or paralegal fees shall in no event obligate Landlord to consent to any proposed Transfer.

20.4 Reasonable Disapproval. Without limiting in any way Landlord’s right to withhold its consent on any reasonable grounds, it is agreed that Landlord will not be acting unreasonably in refusing to consent to a Transfer if, in Landlord’s reasonable opinion: (a) the proposed assignee or subtenant does not have the financial capability to fulfill the obligations imposed by the Transfer; (b) the proposed Transferee is a governmental entity; or (c) the proposed Transfer involves a change of use of the Premises or would violate any exclusive use covenant to which Landlord is bound.

20.5 No Release. No Transfer, occupancy or collection of rent from any proposed Transferee shall be deemed a waiver on the part of Landlord, or the acceptance of the Transferee as Tenant and no Transfer shall release Tenant of Tenant’s obligations under this Lease or alter the primary liability of Tenant to pay Rent and to perform all other obligations to be performed by Tenant hereunder. Landlord may require that any Transferee remit directly to Landlord on a monthly basis, all monies due Tenant by said Transferee, and each sublease shall provide that if Landlord gives said sublessee written notice that Tenant is in Default under this Lease, said sublessee will thereafter make all payments due under the sublease directly to or as directed by Landlord, which payments will be credited against any payments due under this Lease. Tenant

23

hereby irrevocably and unconditionally assigns to Landlord all rents and other sums payable under any sublease of the Premises; provided, however, that Landlord hereby grants Tenant a license to collect all such rents and other sums so long as Tenant is not in Default under this Lease. Consent by Landlord to one Transfer shall not be deemed consent to any subsequent Transfer. In the event of Default by any Transferee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such Transferee or successor. Landlord may not consent to subsequent assignments of this Lease or sublettings or amendments or modifications to this Lease with assignees of Tenant, without first notifying Tenant, or any successor of Tenant or Tenant shall be fully released of any and all of its obligations, duties and responsibilities under the Lease.

20.6 Permitted Transfers. Notwithstanding anything to the contrary, Landlord hereby consents to: (i) a Transfer of this Lease by Tenant to any entity which owns or controls Tenant, to any entity owned or controlled by Tenant, to any entity owned or controlled by or affiliated with any entity which owns or controls Tenant, or to any entity resulting from a consolidation, or to the surviving entity in case of a merger, to which consolidation or merger Tenant shall be a party, or to an entity to which all or substantially all of the assets of Tenant have been sold (each, a “Tenant Affiliate”), so long as in each case, Tenant shall continue to remain liable to Landlord under all of the terms, conditions and covenants of this Lease, which any such assignee or transferee shall also assume; and (ii) a transfer of all or substantially all of the stock of Tenant, an initial public offering of Tenant’s stock and/or the sale of any of the stock of Tenant if such stock is publicly traded on a nationally recognized stock exchange (including NASDAQ). Any Transfer by Tenant pursuant to this Section 20.6 is hereinafter referred to as a “Permitted Transfer”).

ARTICLE 21 - SURRENDER AND HOLDING OVER

21.1 Surrender of Premises. Upon the expiration or sooner termination of this Lease, Tenant shall surrender all keys for the Premises and exclusive possession of the Premises to Landlord broom clean and in good condition and repair, reasonable wear and tear, Landlord’s obligations, and Casualty damage excepted, with all of Tenant’s personal property, electronic, fiber, phone and data cabling and related equipment that is installed by or for the exclusive benefit of Tenant (to be removed in accordance with the National Electric Code and other applicable Laws) and those items, if any, of Alterations identified by Landlord pursuant to Section 13.2, removed therefrom and all damage caused by such removal repaired. If Tenant fails to remove by the expiration or sooner termination of this Lease all of its personal property and Alterations identified by Landlord for removal pursuant to Section 13.2, Landlord may, (without liability to Tenant for loss thereof), at Tenant’s sole cost and in addition to Landlord’s other rights and remedies under this Lease, at law or in equity: (a) remove and store such items in accordance with applicable Law; and/or (b) upon ten (10) days’ prior notice to Tenant, sell all or any such items at private or public sale for such price as Landlord may obtain as permitted under applicable Law. Landlord shall apply the proceeds of any such sale to any amounts due to Landlord under this Lease from Tenant (including Landlord’s attorneys’ fees and other costs incurred in the removal, storage and/or sale of such items), with any remainder to be paid to Tenant.

24

21.2 Holding Over. Tenant will not be permitted to hold over possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. If Tenant holds over after the expiration or earlier termination of the Term with or without the express written consent of Landlord, then, in addition to all other remedies available to Landlord, Tenant shall become a tenant at sufferance only, upon the terms and conditions set forth in this Lease so far as applicable (including Tenant’s obligation to pay all Additional Rent under this Lease), but at a Monthly Base Rent equal to one hundred twenty-five percent (125%) of the Monthly Base Rent applicable to the Premises immediately prior to the date of such expiration or earlier termination. Any such holdover Rent shall be paid on a per month basis without reduction for partial months during the holdover. Acceptance by Landlord of Rent after such expiration or earlier termination shall not constitute consent to a hold over hereunder or result in an extension of this Lease. This Section 21.2 shall not be construed to create any express or implied right to holdover beyond the expiration of the Term or any extension thereof. Tenant shall be liable, and shall pay to Landlord within ten (10) days after demand, for all losses incurred by Landlord as a result of such holdover, and shall indemnify, defend and hold Landlord and the Landlord Parties harmless from and against all liabilities, damages, losses, claims, suits, costs and expenses (including reasonable attorneys’ fees and costs) arising from or relating to any such holdover tenancy, including without limitation, any claim for damages made by a succeeding tenant. Tenant’s indemnification obligation hereunder shall survive the expiration or earlier termination of this Lease. The foregoing provisions of this Section 21.2 are in addition to, and do not affect, Landlord’s right of re-entry or any other rights of Landlord hereunder or otherwise at law or in equity.

ARTICLE 22 - DEFAULTS

22.1 Tenant’s Default. The occurrence of any one or more of the following events shall constitute a “Default” under this Lease by Tenant:

(a) Intentionally omitted;

(b) the failure by Tenant to make any payment of Rent, Additional Rent or any other payment required to be made by Tenant hereunder, where such failure continues for ten (10) days after written notice thereof (and any applicable cure period) from Landlord that such payment was not received when due;

(c) the failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in Sections 22.1(a) or (b) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant’s Default is such that it may be cured but more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in Default if Tenant shall commence such cure within said thirty (30) day period and thereafter diligently prosecute such cure to completion, which completion shall occur not later than sixty (60) days from the date of such notice from Landlord; or

(d) Intentionally Omitted;

25

(e) The filing of a voluntary petition in bankruptcy by Tenant, the filing by Tenant of a voluntary petition for an arrangement, the filing by or against Tenant of a petition, voluntary or involuntary, for reorganization, or the filing of an involuntary petition by the creditors of Tenant, said involuntary petition remaining undischarged for a period of one hundred twenty (120) days;

(f) Receivership, attachment, or other judicial seizure of substantially all of Tenant’s assets on the Premises, such attachment or other seizure remaining undismissed or undischarged for a period of thirty (30) days after the levy thereof;

(g) The failure by Tenant to maintain its legal existence, if Tenant or such Guarantor is a corporation, partnership, limited liability company, trust or other legal entity.

Any notice sent by Landlord to Tenant pursuant to this Section 22.1 shall be in lieu of, and not in addition to, any notice required under any applicable Law.

ARTICLE 23 - REMEDIES OF LANDLORD

23.1 Landlord’s Remedies; Termination. In the event of any such Default by Tenant, and subsequent to Landlord providing Tenant with an additional (i.e., in addition to any notice required by Article 22 above) written notice and ten (10) days to cure any such Default, then in addition to any other remedies available to Landlord under this Lease, at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder and to re-enter the Premises and remove all persons and property from the Premises; such property may be removed, stored and/or disposed of as permitted by applicable Law. If Landlord shall elect to so terminate this Lease, then Landlord may recover from Tenant: (a) the worth at the time of award of any unpaid Rent which had been earned at the time of such termination; plus (b) the worth at the time of the award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (c) the worth at the time of award of the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus (d) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom including, but not limited to: attorneys’ fees; brokers’ commissions; any costs required to return the Premises to the conditioned required at the end of the Term; the costs of refurbishment, renovation and repair of the Premises; and removal (including the repair of any damage caused by such removal) and storage (or disposal) of Tenant’s personal property, equipment, fixtures, Alterations, Tenant Improvements and any other items which Tenant is required under this Lease to remove but does not remove; plus (e) all other monetary damages allowed under applicable Law.

As used in Sections 23.1(a) and 23.1(b) above, the “worth at the time of award” is computed by allowing interest at the Interest Rate set forth in the Summary. As used in Section 23.1(c) above, the “worth at the time of award” is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

26

23.2 Landlord’s Remedies; Continuation of Lease; Re-Entry Rights. In the event of any such Default by Tenant, in addition to any other remedies available to Landlord under this Lease, at law or in equity, Landlord shall also have the right to (a) continue this Lease in effect after Tenant’s breach and abandonment and recover Rent as it becomes due, and (b) after terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed, stored and/or disposed of as permitted by applicable Law. No re-entry or taking possession of the Premises by Landlord pursuant to this Section 23.2, and no acceptance of surrender of the Premises or other action on Landlord’s part, shall be construed as an election to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. No notice from Landlord or notice given under a forcible entry and detainer statute or similar Laws will constitute an election by Landlord to terminate this Lease unless such notice specifically so states. Notwithstanding any reletting without termination by Landlord because of any Default, Landlord may at any time after such reletting elect to terminate this Lease for any such Default.

23.3 Landlord’s Right to Perform. Except as specifically provided otherwise in this Lease, all covenants and agreements by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any abatement or offset of Rent. In the event of any Default by Tenant, Landlord may, without waiving or releasing Tenant from any of Tenant’s obligations, make such payment or perform such other act as required to cure such Default on behalf of Tenant. All sums so paid by Landlord and all necessary incidental costs incurred by Landlord in performing such other acts shall be payable by Tenant to Landlord within five (5) days after demand therefor as Additional Rent.

23.4 Rights and Remedies Cumulative. All rights, options and remedies of Landlord contained in this Article 23 and elsewhere in this Lease shall be construed and held to be cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law or in equity, whether or not stated in this Lease. Nothing in this Article 23 shall be deemed to limit or otherwise affect Tenant’s indemnification of Landlord pursuant to any provision of this Lease.

23.5 Costs Upon Default and Litigation. Tenant shall pay to Landlord and its Mortgagees as Additional Rent all the expenses incurred by Landlord or its Mortgagees in connection with any Default by Tenant hereunder or the exercise of any remedy by reason of any Default by Tenant hereunder, including reasonable attorneys’ fees and expenses. If Landlord or its Mortgagees shall be made a party to any litigation commenced against Tenant or any litigation pertaining to this Lease or the Premises, at the option of Landlord and/or its Mortgagees, Tenant, at its expense, shall provide Landlord and/or its Mortgagees with counsel approved by Landlord and/or its Mortgagees and shall pay all costs incurred or paid by Landlord and/or its Mortgagees in connection with such litigation.

27

ARTICLE 24 - ENTRY BY LANDLORD

Landlord and its employees and agents shall at all reasonable times, and only during Orchard Supply Hardware normal business hours, have the right to enter the Premises to inspect the same, to supply any service required to be provided by Landlord to Tenant under this Lease, to Exhibit the Premises to prospective lenders or purchasers (or during the last year of the Term or during any Default by Tenant, to prospective tenants), to post notices of non-responsibility, and/or to alter, improve or repair the Premises or any portion thereof, all without being deemed guilty of or liable for any breach of Landlord’s covenant of quiet enjoyment or any eviction of Tenant, and without abatement of Rent. In exercising such entry rights, Landlord shall endeavor to minimize, to the extent reasonably practicable, the interference with Tenant’s business, and shall provide Tenant with reasonable advance notice (oral or written) of such entry. For each of the foregoing purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant’s vaults and safes, and Landlord shall have the means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry to the Premises obtained by Landlord by any of said means or otherwise shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the Premises or any portion thereof, or grounds for any abatement or reduction of Rent and Landlord shall not have any liability to Tenant for any damages or losses on account of any such entry by Landlord.

ARTICLE 25 - LIMITATION ON LANDLORD’S LIABILITY

Notwithstanding anything contained in this Lease to the contrary, the obligations of Landlord under this Lease (including as to any actual or alleged breach or default by Landlord) do not constitute personal obligations of the individual members, managers, investors, partners, directors, officers, or shareholders of Landlord or Landlord’s members or partners, and Tenant shall not seek recourse against the individual members, managers, investors, partners, directors, officers, or shareholders of Landlord or Landlord’s members or partners or any other persons or entities having any interest in Landlord, or any of their personal assets for satisfaction of any liability with respect to this Lease. In addition, in consideration of the benefits accruing hereunder to Tenant and notwithstanding anything contained in this Lease to the contrary, Tenant hereby covenants and agrees for itself and all of its successors and assigns that the liability of Landlord for its obligations under this Lease (including any liability as a result of any actual or alleged failure, breach or default hereunder by Landlord), shall be limited solely to, and Tenant’s and its successors’ and assigns’ sole and exclusive remedy shall be against, Landlord’s interest in the Premises (and the rents, profits, proceeds and insurance proceeds thereof), and no other assets of Landlord. The term “Landlord” as used in this Lease, so far as covenants or obligations on the part of the Landlord are concerned, shall be limited to mean and include only the owner or owners, at the time in question, of the fee title to, or a lessee’s interest in a ground lease of, the Premises (and the rents, profits, proceeds and insurance proceeds thereof). In the event of any transfer or conveyance of any such title or interest (other than a transfer for security purposes only), the transferor shall be automatically relieved of all then-unaccrued covenants and obligations on the part of Landlord contained in this Lease. Landlord and Landlord’s transferees and assignees shall have the absolute right to transfer all or any portion of their respective title and interest in the Premises and/or this Lease without the consent of Tenant, and such transfer or

28

subsequent transfer shall not be deemed a violation on Landlord’s part of any of the terms and conditions of this Lease.

ARTICLE 26 - SUBORDINATION

Landlord acknowledges that as of the Commencement Date, there will be no financing encumbering the Premises. Tenant agrees that, subject to the following, this Lease shall be subject and subordinate to any mortgage(s), deed(s) of trust, ground lease(s) or other lien(s) now or subsequently arising upon the Premises, and to renewals, modifications, refinancings and extensions thereof (collectively referred to as a “Mortgage”); provided, however, that Tenant’s obligation to subordinate this Lease to a future Mortgage shall be conditioned upon the holder of such Mortgage (each, a “Mortgagee” and collectively, “Mortgagees”) agreeing to enter into with Tenant an agreement of subordination, attornment and non-disturbance (a “SNDA”) in commercially reasonable form. No later than ten (10) business days after written request from Landlord or any holder of a Mortgage (each, a “Mortgagee” and collectively, “Mortgagees”), Tenant shall enter into a SNDA in a commercially reasonable form. As an alternative, a Mortgagee shall have the right at any time to subordinate its Mortgage to this Lease. No later than ten (10) business days after written request by Landlord or any Mortgagee, Tenant shall, without charge, attorn to any successor to Landlord’s interest in this Lease. Tenant hereby waives its rights under any current or future Law which gives or purports to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder in the event of any such foreclosure proceeding or sale. Should Tenant fail to sign and return any such documents within said ten (10) business day period, Tenant shall be in Default hereunder.

ARTICLE 27 - ESTOPPEL CERTIFICATE

Within twenty (20) business days following Landlord’s written request, Tenant shall execute and deliver to Landlord an estoppel certificate, in a form substantially similar to the form of Exhibit F attached hereto. Any such estoppel certificate delivered pursuant to this Article 27 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of any portion of the Property, as well as their assignees. Tenant’s failure to deliver such certificate within such time shall be conclusive upon Tenant that this Lease is in full force and effect, without modification except as may be represented by Landlord, that there are no uncured defaults in Landlord’s performance, and that not more than one (1) month’s Rent has been paid in advance.

ARTICLE 28 - RELOCATION OF PREMISES

Intentionally Omitted.

ARTICLE 29 - MORTGAGEE PROTECTION

Intentionally Deleted.

29

ARTICLE 30 - QUIET ENJOYMENT

Landlord covenants and agrees with Tenant that, upon Tenant performing all of the covenants and provisions on Tenant’s part to be observed and performed under this Lease (including payment of Rent hereunder), Tenant shall have the right to use and occupy the Premises in accordance with and subject to the terms and conditions of this Lease as against all persons claiming by, through or under Landlord. This covenant shall be binding upon Landlord and its successors only during its or their respective periods of ownership of the Premises.

ARTICLE 31 - MISCELLANEOUS PROVISIONS

31.1 Broker. Tenant represents that it has not had any dealings with any real estate broker, finder or intermediary with respect to this Lease, other than the Brokers specified in the Summary. Tenant shall indemnify, protect, defend (by counsel reasonably approved in writing by Landlord) and hold Landlord harmless from and against any and all claims, judgments, suits, causes of action, damages, losses, liabilities and expenses (including attorneys’ fees and court costs) resulting from any breach by Tenant of the foregoing representation, including, without limitation, any claims that may be asserted against Landlord by any broker, agent or finder undisclosed by Tenant herein. Landlord shall indemnify, protect, and hold Tenant harmless from and against any and all claims, judgments, suits, causes of action, damages, losses, liabilities and expenses (including attorneys’ fees and court costs) resulting from any other brokers claiming to have represented Landlord in connection with this Lease. The foregoing indemnities shall survive the expiration or earlier termination of this Lease. Landlord shall pay to the Brokers the brokerage fee, if any, pursuant to a separate written agreement between Landlord and Brokers. \

31.2 Governing Law. This Lease shall be governed by, and construed pursuant to, the laws of the state in which the Premises are located. Venue for any litigation between the parties hereto concerning this Lease or the occupancy of the Premises shall be initiated in the county in which the Premises are located. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the Premises, and all rules and regulations adopted pursuant thereto and all covenants, conditions and restrictions applicable to and/or of record against the Premises (individually, a “Law” and collectively, the “Laws”).

31.3 Successors and Assigns. Subject to the provisions of Article 25 above, and except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, personal representatives and permitted successors and assigns; provided, however, no rights shall inure to the benefit of any Transferee of Tenant unless the Transfer to such Transferee is made in compliance with the provisions of Article 20, and no options or other rights which are expressly made personal to the original Tenant hereunder or in any rider attached hereto shall be assignable to or exercisable by anyone other than the original Tenant under this Lease.

31.4 No Merger. The voluntary or other surrender of this Lease by Tenant or a mutual termination thereof shall not work as a merger and shall, at the option of Landlord, either (a) terminate all or any existing subleases, or (b) operate as an assignment to Landlord of Tenant’s interest under any or all such subleases.

30

31.5 Professional Fees. If either Landlord or Tenant should bring suit (or alternate dispute resolution proceedings) against the other with respect to this Lease, including for unlawful detainer, forcible entry and detainer, or any other relief against the other hereunder, then all costs and expenses incurred by the prevailing party therein (including, without limitation, its actual appraisers’, accountants’, attorneys’ and other professional fees, expenses and court costs), shall be paid by the other party, including any and all costs incurred in enforcing, perfecting and executing such judgment and all reasonable costs and attorneys’ fees associated with any appeal.

31.6 Waiver. The waiver by either party of any breach by the other party of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant and condition herein contained, nor shall any custom or practice which may become established between the parties in the administration of the terms hereof be deemed a waiver of, or in any way affect, the right of any party to insist upon the performance by the other in strict accordance with said terms. No waiver of any default of either party hereunder shall be implied from any acceptance by Landlord or delivery by Tenant (as the case may be) of any Rent or other payments due hereunder or any omission by the non-defaulting party to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in said waiver.

31.7 Terms and Headings. The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular. Words used in any gender include other genders. The Article and Section headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. Any deletion of language from this Lease prior to its execution by Landlord and Tenant shall not be construed to raise any presumption, canon of construction or implication, including, without limitation, any implication that the parties intended thereby to state the converse of the deleted language. The parties hereto acknowledge and agree that each has participated in the negotiation and drafting of this Lease; therefore, in the event of an ambiguity in, or dispute regarding the interpretation of, this Lease, the interpretation of this Lease shall not be resolved by any rule of interpretation providing for interpretation against the party who caused the uncertainty to exist or against the draftsman.

31.8 Time. Time is of the essence with respect to performance of every provision of this Lease in which time or performance is a factor.

31.9 Business Day. A “business day” is Monday through Friday, excluding holidays observed by the United States Postal Service and reference to 5:00 p.m. is to the time zone of the recipient. Whenever action must be taken (including the giving of notice or the delivery of documents) under this Lease during a certain period of time (or by a particular date) that ends (or occurs) on a non-business day, then such period (or date) shall be extended until the immediately following business day.

31.10 Payments and Notices. All Rent and other sums payable by Tenant to Landlord hereunder shall be paid to Landlord at the address designated in the Summary, or to such other persons and/or at such other places as Landlord may hereafter designate in writing. Any notice required or permitted to be given hereunder must be in writing and may be given by personal delivery (including delivery by nationally recognized overnight courier or express mailing

31

service), or by registered or certified mail, postage prepaid, return receipt requested, addressed to Tenant at the address(es) designated in the Summary, or to Landlord at the address(es) designated in the Summary. Either party may, by written notice to the other, specify a different address for notice purposes. Notice given in the foregoing manner shall be deemed given (i) upon confirmed transmission if sent by facsimile transmission, provided such transmission is prior to 5:00 p.m. on a business day (if such transmission is after 5:00 p.m. on a business day or is on a non-business day, such notice will be deemed given on the following business day); (ii) when actually received or refused by the party to whom sent if delivered by a carrier or personally served; or (iii) if mailed, on the day of actual delivery or refusal as shown by the certified mail return receipt or the expiration of three (3) business days after the day of mailing, whichever first occurs.

31.11 Prior Agreements; Amendments. This Lease, including the Summary and all Exhibits attached hereto, contains all of the covenants, provisions, agreements, conditions and understandings between Landlord and Tenant concerning the Premises and any other matter covered or mentioned in this Lease, and no prior agreement or understanding, oral or written, express or implied, pertaining to the Premises or any such other matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. The parties acknowledge that all prior agreements, representations and negotiations are deemed superseded by the execution of this Lease to the extent they are not expressly incorporated herein.

31.12 Separability. The invalidity or unenforceability of any provision of this Lease shall in no way affect, impair or invalidate any other provision hereof, and such other provisions shall remain valid and in full force and effect to the fullest extent permitted by law.

31.13 Recording. Landlord or Tenant shall have the right to record a short form memorandum of this Lease.

31.14 Accord and Satisfaction. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent payment herein stipulated shall be deemed to be other than on account of the Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue any other remedy provided in this Lease. Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by any statute or at common law.

31.15 Financial Statements. Upon twenty (20) business days prior written request from Landlord (which Landlord may make at any time during the Term including in connection with Tenant’s exercise of any Option in this Lease, but no more often that one (1) time in any calendar year, other than in the event of a Default by Tenant during such calendar year or the exercise of any Option in such calendar year, when such limitation shall not apply), Tenant shall deliver to Landlord (a) the most current, audited financial statement of Tenant. Such statements shall be prepared in accordance with generally acceptable accounting principles and certified as true in all material respects by Tenant (if Tenant is an individual) or by an authorized officer,

32

member/manager or general partner of Tenant (if Tenant is a corporation, limited liability company or partnership, respectively).

31.16 No Partnership. Landlord does not, in any way or for any purpose, become a partner of Tenant in the conduct of its business, or otherwise, or joint venturer or a member of a joint enterprise with Tenant by reason of this Lease.

31.17 Force Majeure. If either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power, governmental moratorium or other governmental action or inaction (including, without limitation, failure, refusal or delay in issuing permits, approvals and/or authorizations), injunction or court order, riots, insurrection, war, terrorism, bioterrorism, fire, earthquake, inclement weather including rain, flood or other natural disaster or other reason of a like nature not the fault of the party delaying in performing work or doing acts required under the terms of this Lease (but excluding delays due to financial inability) (herein, “Force Majeure Delay(s)”), then performance of such act shall be excused for the period of such Force Majeure Delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. The provisions of this Section 31.17 shall not apply to nor operate to excuse Tenant from the payment of Monthly Base Rent, or any Additional Rent or any other payments strictly in accordance with the terms of this Lease.

31.18 Counterparts. This Lease may be executed in one or more counterparts, each of which shall constitute an original and all of which shall be one and the same agreement.

31.19 Nondisclosure of Lease Terms. Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord. Disclosure of the terms could adversely affect the ability of Landlord to negotiate other leases and impair Landlord’s relationship with other tenants. Accordingly, Tenant agrees that it, and its partners, officers, directors, shareholders, members, managers, employees, agents and attorneys, shall not intentionally and voluntarily disclose the terms and conditions of this Lease to any newspaper or other publication, or real estate agent, either directly or indirectly, without the prior written consent of Landlord, provided, however, that Tenant may disclose the terms to prospective subtenants or assignees under this Lease.

31.20 Tenant’s Authority. If Tenant executes this Lease as a partnership, corporation or limited liability company, then Tenant and the persons and/or entities executing this Lease on behalf of Tenant represent and warrant that: (a) Tenant is a duly organized and existing partnership, corporation or limited liability company, as the case may be, and is qualified to do business in the state in which the Premises are located; (b) such persons and/or entities executing this Lease are duly authorized to execute and deliver this Lease on Tenant’s behalf; and (c) this Lease is binding upon Tenant in accordance with its terms. Tenant shall provide to Landlord a copy of any documents reasonably requested by Landlord evidencing such qualification, organization, existence and authorization within ten (10) days after Landlord’s request. Tenant represents and warrants to Landlord that Tenant is not, and the entities or individuals constituting Tenant or which may own or control Tenant or which may be owned or controlled by Tenant are not, (i) in violation of any Laws relating to terrorism or money laundering, or (ii) among the

33

individuals or entities identified on any list compiled pursuant to Executive Order 13224 for the purpose of identifying suspected terrorists or on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov/ofac/tllsdn.pdf or any replacement website or other replacement official publication of such list.

31.21 Intentionally Omitted.

31.22 No Option. The submission of this Lease for examination or execution by Tenant does not constitute a reservation of or option for the Premises and this Lease shall not become effective as a Lease until it has been executed by Landlord and delivered to Tenant.

31.23 Options and Rights in General. Any option (each an “Option” and collectively, the “Options”), including without limitation, any option to extend, option to terminate, option to expand, right to lease, right of first offer, and/or right of first refusal, granted to Tenant is personal to the original Tenant executing this Lease or a Permitted Transferee and may be exercised only by the original Tenant executing this Lease while occupying the entire Premises and without the intent of thereafter assigning this Lease or subletting the Premises or a Permitted Transferee and may not be exercised or be assigned, voluntarily or involuntarily, by any person or entity other than the original Tenant executing this Lease or a Permitted Transferee. The Options, if any, granted to Tenant under this Lease are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. Tenant will have no right to exercise any Option, notwithstanding any provision of the grant of option to the contrary, and Tenant’s exercise of any Option may be nullified by Landlord and deemed of no further force or effect, if (i) Tenant is in Default under the terms of this Lease (or if Tenant would be in such Default under this Lease but for the passage of time or the giving of notice, or both) as of Tenant’s exercise of the Option in question or at any time after the exercise of any such Option and prior to the commencement of the Option event, (ii) Tenant has sublet all or more than fifty percent (50%) of the Premises except pursuant to a Permitted Transfer, or (iii) Landlord has given Tenant two (2) or more notices of Default, whether or not such Defaults are subsequently cured, during any twelve (12) consecutive month period of this Lease. Each Option granted to Tenant, if any, is hereby deemed an economic term which Landlord, in its sole and absolute discretion, may or may not offer in conjunction with any future extensions of the Term.

[NO FURTHER TEXT ON THIS PAGE; SIGNATURES ON FOLLOWING PAGE]

34

IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the date first above written.

Tenant:

ORCHARD SUPPLY HARDWARE LLC,
a Delaware limited liability company
By:	/s/ Mark Baker
Name:	Mark Baker
Title:	President and CEO

[SIGNATURE CONTINUED ON THE FOLLOWING PAGE]

35

Landlord:

LBA RIV-COMPANY XVII, LLC, a Delaware limited liability company,
	By:	LBA REIT IV, LLC
		a Delaware limited liability company its Sole Member and Manager
		By:	LBA Realty Fund IV, L.P.
			a Delaware limited partnership its Sole Manager
			By:	LBA Management Company IV, LLC
				a Delaware limited liability company its General Partner
				By:	LBA Realty LLC
					a Delaware limited liability company its Manager
					By:	LBA Inc.
						a California corporation its Managing Member
						By:	/s/ Perry Schonfeld
						Name:	Perry Schonfeld
						Title:	Authorized Signatory

For LBA Office Use Only: Prepared & Reviewed by:

36

EXHIBIT A

BUILDING FLOOR PLAN

EXHIBIT A

-1-

EXHIBIT B

PREMISES SITE PLAN

-1-

EXHIBIT C

INTENTIONALLY OMITTED

-1-

EXHIBIT D

NOTICE OF LEASE TERM DATES

Date:

To:

Re:                      dated                      (“Lease”) by and between

                            , a                                          (“Landlord”), and

                                         , a                      (“Tenant”) for the premises

commonly known as,                                                   (“Premises”).

Dear :

In accordance with the above-referenced Lease, we wish to advise and/or confirm as follows:

• That Tenant has accepted and is in possession of the Premises and acknowledges the following:

• Term of the Lease:

• Commencement Date:

• Expiration Date:

• Rentable Square Feet:

• That in accordance with the Lease, rental payments will/has commence(d) on                      and rent is payable in accordance with the following schedule:

Months	Monthly Base Rent
00/00/0000 – 00/00/0000	$	00,000.00
00/00/0000 – 00/00/0000	$	00,000.00
00/00/0000 – 00/00/0000	$	00,000.00

• Rent is due and payable in advance on the first day of each and every month during the Term of the Lease.

D-1

• Your rent checks should be made payable to:

ACCEPTED AND AGREED
TENANT:		LANDLORD:
	, a		, a
By:		By:
Name:		Name:
Its:		Its:

D-2

EXHIBIT E

RULES AND REGULATIONS

1. Intentionally omitted.

2. Tenant shall not cause any unnecessary janitorial labor by carelessness or indifference to the good order and cleanliness of the Premises. Landlord shall not in any way be responsible to Tenant for loss of property on the Premises, however occurring, or for any damage to Tenant’s property by any janitors or any other employee or any other person.

3. Tenant, upon termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to, or otherwise procured by Tenant.

4. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant.

5. Tenant shall not use any method of heating or air-conditioning other than that supplied to the Building by Landlord.

6. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person.

7. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substances of any kind whatsoever shall be thrown therein.

8. Intentionally omitted.

9. Tenant shall store all its trash and garbage within the trash receptacles for the Premises. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions reasonably issued from time to time by Landlord.

10. Tenant shall not use the name of the Building, if any, in connection with, or in promoting or advertising, the business of Tenant, except for Tenant’s address.

11. Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage. Such responsibility shall include keeping doors locked and other means of entry to the Premises closed.

12. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant’s Parties.

E-1

13. Tenant shall not without Landlord’s consent, which may be given or withheld in Landlord’s sole and absolute discretion, receive, store, discharge, or transport firearms, ammunition, or weapons or explosives of any kind or nature at, on or from the Premises.

E-2

EXHIBIT F

ESTOPPEL CERTIFICATE

The undersigned, Orchard Supply Hardware LLC, a Delaware limited liability company(the “Tenant”) under that certain Single-Tenant Commercial/Industrial Lease (NNN) dated October 28, 2011 (the “Lease”), by and between LBA RIV-Company XVII, LLC,, as Landlord, and Orchard Supply Hardware LLC, as Tenant, covering the premises commonly known as 2650 N. MacArthur Drive, Tracy, CA 95376 (the “Premises”), hereby certifies that as of the date hereof:

1. The Lease is in full force and effect and has not been modified or amended, except as stated above.

2. The term of the Lease commenced on                     , 2011 (the “Commencement Date”) and will continue for a period of two hundred forty (240) months following the Commencement Date until                     , 2031, subject to any termination rights as provided in the Lease.

3. No rent has been paid more than one month in advance of its due date.

4. Tenant has not received nor has Tenant given any notice of default pursuant to the terms of the Lease.

5. Tenant has no option to renew or extend the Term of the Lease except:                    .

6. Tenant has no preferential right to purchase the Premises or any portion of the Building/Premises except:                                                                                                                   .

7. The Lease has: (Initial One)

(    ) not been amended, modified, supplemented, extended, renewed or assigned.

(    ) been amended, modified, supplemented, extended, renewed or assigned by the following described agreements, copies of which are attached hereto:                                                              .

8. Tenant has accepted and is now in possession of the Premises and has not sublet, assigned or encumbered the Lease, the Premises or any portion thereof except as follows:                                                                                                           .

9. The current Base Rent is $                    ; and current monthly parking charges are $                    .

F-1

10. The amount of security deposit (if any) is $                    . No other security deposits have been made.

11. All rental payments payable by Tenant have been paid in full as of the date hereof. No rent under the Lease has been paid for more than thirty (30) days in advance of its due date.

12. All work required to be performed by Landlord under the Lease has been completed and has been accepted by Tenant, and all tenant improvement allowances have been paid in full except                                         .

This Estoppel Certificate is given solely for your information and may not be relied upon by any other person or entity, nor shall it in any way create any liability in, or provide any right of action against Orchard Supply Hardware LLC, its officers, directors, agents, employees and representatives.

ORCHARD SUPPLY HARDWARE LLC
By:
Print Name:	Michael Fox
Title :	Vice President of Real Estate, General Counsel & Secretary

F-2

EXHIBIT G

ENVIRONMENTAL QUESTIONNAIRE AND DISCLOSURE STATEMENT

See Attached

HAZARDOUS SUBSTANCES SURVEY FORM

The purpose of this form is to obtain information regarding the use of Hazardous Substances on the Premises. Prospective Tenants should answer the questions in light of their proposed operations on the Premises. Existing Tenants should answer the questions as they relate to ongoing operations on the Premises and should update any information previously submitted. If additional space is needed to answer the questions, you may attach separate sheets of paper to this form.

Your cooperation in this matter is appreciated. Any questions should be directed to, and when completed, the form should be mailed to:

1. GENERAL INFORMATION

Company Name:

Check Applicable Status: Prospective Tenant:         Current Tenant:

Mailing Address:

Contact Person & Title:

Phone #: (    )

Address of Premises:

Describe the proposed operations to take place on the Premises, including principal products manufactured or services to be conducted. Existing Tenants should describe any proposed changes to ongoing operations.

G-2

2. STORAGE OF HAZARDOUS SUBSTANCES

2.1 Will any Hazardous Substances be used or stored on the Premises?

Wastes	Yes	No
Chemical Products	Yes	No

Attach the list of any Hazardous Substances to be used or stored, the quantities that will be on Site at any given time, and the location and method of storage.

3. STORAGE TANKS & SUMPS

3.1 Is any above or belowground storage of gasoline, diesel, or other Hazardous Substances in tanks or sumps proposed or currently conducted on the Premises?

Yes                      No                     

If yes, describe ‘the materials to be stored, and the type, size and construction of the sump or tank. Attach copies of any permits obtained for the storage of such substances.

3.2 Have any of the tanks or sumps been inspected or tested for 16ikage?

Yes                      No                     

If so, attach results.

3.3 Have any spills or leaks occurred from such tanks or sumps?

Yes                      No                     

If so, describe.

3.4 Were any regulatory agencies notified of the spill or leak?

Yes                      No                     

If so, attach copies of any spill reports filed, any clearance letters or other correspondence from regulatory agencies relating to the spill or leak.

G-3

3.5 Have any underground storage tanks or sumps been taken out of service or been removed?

Yes                      No                     

If yes, attach copies of any closure permits and clearance obtained from regulatory agencies relating to closure and removal of such tanks.

4. SPILLS

4.1 During the past year, have any spills occurred on the Premises?

Yes                      No                     

If so, please describe the spill and attach the results of any testing conducted to determine the extent of such spills.

4.2 Were any agencies notified in connection with such spills?

Yes                      No                     

If so, attach copies of any spill reports or other correspondence with regulatory agencies.

4.3 Were any cleanup actions undertaken in connection with the spill?

Yes                      No                     

If so, briefly describe the actions taken. Attach copies of any clearance letters obtained from any regulatory agencies involved and the results of any final soil or ground water sampling done upon completion of the cleanup work.

5. WASTE MANAGEMENT

5.1 Has your company been issued an EPA Hazardous Waste Generator 1.D. Number?

Yes                      No                     

G-4

5.2 Has your company filed a biennial report as a hazardous waste generator?

Yes                      No                     

If so, attach a copy of the most recent report files.

5.3 Attach a list of the Hazardous Substances, if any, generated or to be generated at the Premises, its hazard class and the quality generated on a monthly basis.

5.4 Describe the method(s) of disposal for each substance. Indicate where and how often disposal will take place.

5.5 Indicate the name of the person(s) responsible for maintaining copies of hazardous manifests completed for off-site shipments of Hazardous Substances.

5.6 Is any treatment or processing of Hazardous Substances currently conducted or proposed to be conducted at the Premises:

Yes                      No                     

If yes, please describe any existing or proposed treatment methods.

5.7 Attach copies of any hazardous waste permits or licenses issued to your company with respect to its operations on the Premises.

6. WATER TREATMENT / DISCHARGE

G-5

6.1 Do you discharge waste water to:

storm drain?	sewer?
surface water:	no industrial discharge.

6.2 Is your wastewater treated before discharge?

Yes                      No                     

If yes, describe the type of treatment conducted.

Attach copies of any wastewater discharge permits issued to your company with respect to its operations on the Premises.

7. AIR DISCHARGES

7.1 Do you have any filtration systems or stacks that discharge into the air?

Yes                      No                     

7.2 Do you operate any of the following types of equipment, or any other equipment requiring an air emissions permit?

Spray booth

Dip tank

Drying overt

Incinerator

Other                                                    

No Equipment Requiring Air Permits

7.3 Are air emissions from your operation monitored?

Yes                      No                     

If so, indicate the frequency of monitoring and a description of the monitoring results.

7.4 Attach copies of any air emissions permits pertaining to your operations on the Premises.

G-6

8. HAZARDOUS SUBSTANCES DISCLOSURES

8.1 Does your company handle Hazardous Substances in a quantity equal to or exceeding an aggregate of 500 pound, S gallons, or 200 cubic feet?

Yes                      No                     

8.2 Has your company prepared a Hazardous Substances management plan (“Business Plan”) pursuant to the Fire Department requirements for the County in which the Premises is located?

Yes                      No                     

8.3 Are any of the chemicals used in your operation regulated under Proposition 65?

Yes                      No                     

If so, describe the actions taken, or proposed actions to be taken, to comply with the proposition.

8.4 Describe the procedure followed to comply with OSHA Hazard Communication Standard requirements.

9. ENFORCEMENT ACTIONS, COMPLAINTS

9.1 Has your company ever been subject to any agency enforcement actions, administrative orders, or consent decrees?

Yes                      No                     

If so, describe the actions and any continuing compliance obligations imposed as a result of these actions.

9.2 Has your company ever received requests for information, notice or demand letters, or any other inquiries regarding its operation?

Yes                      No                     

9.3 Have there ever been, or are there now pending, any lawsuits against the company regarding any environmental or health and safety concerns?

Yes                      No                     

9.4 Has an environmental audit ever been conducted at your company’s current facility?

Yes                      No                     

G-7

9.5 Have there been any problems or complaints from neighbors at the company’s current facility?

Yes                      No                     

Company

By:

Title:

Date:

G-8

Exhibit G

1. General Information

Orchard Supply Hardware LLC

Current Tenant

6450 Via del Oro, San Jose, CA 95119

Contact Person, Title, Phone #

Anita Haws, Director of Real Estate, Asset Management, (408) 361-2599

On all correspondence, please cc:

Michael W. Fox, Senior Vice President, General Counsel and Secretary

6450 Via Del Oro, San Jose, CA 95119

Premises Address:

2650 N. MacArthur Dr., Tracy, CA 95376

Describe the proposed operations. Existing Tenants should describe any proposed changes to ongoing operations:

We are an existing Tenant. There are no expected changes to ongoing operations.

2. Storage of Hazardous Substances

2.1 Will any Hazardous Substances be used or stored on the Premises? Attach the list of any Hazardous Substances to be used or stored, the quantities that will be on site at any given time, the location, and method of storage.

Wastes	Yes
Chemical Products	Yes

See attached items 1, 2, 3, and 4

The quantities noted in the above attachments vary from time to time. In addition to the specified items, other items typically sold in Tenant’s retail stores from time to time will be stored in, and distributed from the Premises.

3. Storage Tank and Sumps

3.1 Is any above or below ground storage of gasoline, diesel or other Hazardous Substances in tanks or sumps proposed or currently conducted on the Premises?

Yes

See attached item 4 for materials stored, type, size, construction.

See attached item 5 for copies of the permit for such substances

3.2 Have any of the tanks or sumps been inspected or tested for leakage?

Yes

See attached item 6 - Septic tank pumped and cleaned 7/26/11

3.3 Have any spills or leaks occurred from such tanks or sumps?

No

G-9

3.4 Were any regulatory agencies notified of the spill or leak?

N/A

3.5 Have any underground storage tanks or sums been taken out of service or been removed?

Yes

See attached item 7

4. Spills

4.1 During the past year, have any spills occurred on the Premises?

No

4.2 Were any agencies notified in connection with such spills?

N/A

4.3 Were any cleanup actions undertaken in connection with the spill?

N/A

5. Waste Management

5.1 Has your company been issued an EPA ID number?

Yes

5.2 Has your company filed a biennial report as a hazardous waste generator?

No, it is not required

5.3 List the Hazardous Substances, if any, generated at the Premise, its Hazard Class and the quantity generated on a monthly basis.

See attached item 8

In addition, other substances may be generated from time to time consistent with the Premises’ being the Distribution Center for Tenant’s retail stores.

5.4 Describe the method of disposal for each substance. Indicate where and how often disposal will take place.

See attached item 8

5.5 The name of the person(s) responsible for maintaining copies of hazardous waste manifests completed for off-site shipments of Hazardous Substances.

Arnold Monize, Loss Prevention Lead

Scott McClung, Facility Director

5.6 Is any treatment or processing of Hazardous Substances currently conducted or proposed?

No

5.7 Attached copies of any hazardous waste permits or licenses issued to your company with respect to its operations on the Premises.

See attached item 9

G-10

6. Water Treatment/Discharge 6.1 No industrial discharge

6.1 Is your wastewater treated before discharge? N/A

Water from the battery wash area is collected by Safety Kleen

Water from the oil water separator is collected by Safety Kleen

Water from the truck wash is collected by Mountain Valley Septic

7. Air Discharges

7.1 Do you have any filtration systems or stacks that discharge into the air? No

7.2 Do you operate any of the following types of equipment, or any other equipment requiring an air emissions permit?

Generator

7.3 Are your air emissions monitored?

Periodic self-monitoring

7.4 See attached item # 10 for air emissions pertaining to the operations on the Premises.

8. Hazardous Substance Disclosures

8.1 Does your company handle Hazardous Substances in a quantity equal to or exceeding an aggregate of 500 lbs, 5 gallons, or 200 cubic feet?

Yes

8.2 Has your company prepared a Hazardous Substance management plan (“Business Plan”) pursuant to the Fire Department requirements for the County in which the Premises is located?

Yes

8.3 Are any of the chemicals used in your operation regulated under Proposition 65? If so, describe the actions taken, or proposed actions to be taken to comply with the proposition.

Yes, Proposition 65 information Program is posted for all associates near the Production Control Office at the entrance of the warehouse and is available in the OSH Safety Manual. Vendors are responsible for required product labeling.

8.4 Describe the procedure followed to comply with OSHA Hazard Communication Standard Requirements.

• Products are labeled when they come in from the vendor/manufacturer.

• Products with defaced or missing labels are disposed of as Hazardous Waste.

• The OSH written Hazardous Communications Program is posted for all associates near the Production Control Office at the entrance of the warehouse and is available in the OSH Safety Manual.

• Hazardous Communication information is noted at the Associate Orientation and must be completed before beginning work with these products.

• MSDS/Poison Control Helpline numbers are posted on phones. MSDS are maintained by a service and are available within 15 minutes as needed.

• Hazardous Waste Program Best Practices are updated regularly

G-11

9. Enforcement Actions, Complaints.

9.1 Has your company ever been subject to any agency enforcement actions, administrative orders, or consent decrees?

No, however we have had inspections from the local CUPA

9.2 Has your company ever received request for information, notice or demand letter, or any other inquiries regarding its operation?

Yes, during the normal course of business we receive requests for information.

9.3 Have there ever been, or are there now pending, any lawsuits against the company regarding any environmental or health and safety concerns?

No

9.4 Has an environmental audit ever been conducted at your current facility?

Yes, during the normal course of business has had audits conducted.

9.5 Have there been any problems or complaints from neighbors at the company’s current facility?

No

G-12

EXTENSION OPTION

RIDER NO. 1 TO LEASE

This Rider No. 1 is made and entered into by and between LBA RIV-COMPANY XVII, LLC, a Delaware limited liability company (“Landlord”), and ORCHARD SUPPLY HARDWARE LLC, a Delaware limited liability company (“Tenant”), as of the day and year of the Lease between Landlord and Tenant to which this Rider is attached. Landlord and Tenant hereby agree that, notwithstanding anything contained in the Lease to the contrary, the provisions set forth below shall be deemed to be part of the Lease and shall supersede any inconsistent provisions of the Lease. All references in the Lease and in this Rider to the “Lease” shall be construed to mean the Lease (and all Exhibits and Riders attached thereto), as amended and supplemented by this Rider. All capitalized terms not defined in this Rider shall have the same meaning as set forth in the Lease.

1. Landlord hereby grants to Tenant three (3) options (collectively, the “Extension Options”, and each, an “Extension Option”) to extend the Term of the Lease for three (3) additional periods of sixty (60) months each (collectively, the “Option Terms”, and each, an “Option Term”), on the same terms, covenants and conditions as provided for in the Lease during the initial Term, except for the Monthly Base Rent, which shall initially be equal to the greater of: (a) the Monthly Base Rent payable by Tenant during the last month of the then current Term immediately preceding the Option Term or (b) the “fair market rental rate” for the Premises for the Option Term as defined and determined in accordance with the provisions of the Fair Market Rental Rate Rider attached to the Lease as Rider No. 2, subject to fair market annual rent adjustments during the Option Term. If Landlord determines that the Monthly Base Rent for the Option Term is to be the Monthly Base Rent payable by Tenant during the last month of the then current Term pursuant to Section 1(a) above, such determination shall be conclusive, Tenant shall have no right to object thereto, and the Landlord and Tenant shall avoid the formal fair market value determination process. If, however, Landlord determines that the Monthly Base Rent for the applicable Option Term is to be the fair market rental rate, then such fair market rental rate shall be determined in accordance with the Fair Market Rental Rate Rider attached to the Lease as Rider No. 2.

2. An Extension Option must be exercised, if at all, by written notice (“Extension Notice”) delivered by Tenant to Landlord no sooner than that date which is twelve (12) months and no later than that date which is nine (9) months prior to the expiration of the then current Term of the Lease. Provided Tenant has properly and timely exercised the Extension Option, the then current Term of the Lease shall be extended by the Option Term, and all terms, covenants and conditions of the Lease shall remain unmodified and in full force and effect, except that the Monthly Base Rent shall be as set forth above and except that the number of remaining Extension Options (if any) shall be reduced by one.

Rider No. 1 - 1

FAIR MARKET RENTAL RATE

RIDER NO. 2 TO LEASE

This Rider No. 2 is made and entered into by and between LBA RIV-COMPANY XVII, LLC, a Delaware limited liability company (“Landlord”), and ORCHARD SUPPLY HARDWARE LLC, a Delaware limited liability company (“Tenant”), as of the day and year of the Lease between Landlord and Tenant to which this Rider is attached. Landlord and Tenant hereby agree that, notwithstanding anything contained in the Lease to the contrary, the provisions set forth below shall be deemed to be part of the Lease and shall supersede any inconsistent provisions of the Lease. All references in the Lease and in this Rider to the “Lease” shall be construed to mean the Lease (and all Exhibits and Riders attached thereto), as amended and supplemented by this Rider. All capitalized terms not defined in this Rider shall have the same meaning as set forth in the Lease.

1. The term “fair market rental rate” as used in this Rider and any Rider attached to the Lease means the annual amount per square foot, projected for each year of the Option Term (including annual adjustments), that a willing, non-equity tenant (excluding sublease and assignment transactions) would pay, and a willing landlord of a comparable quality building located in the Tracy, California area would accept, in an arm’s length transaction (what Landlord is accepting in then current transactions for the Building may be used for purposes of projecting rent for the Option Term), for space of comparable size, quality and floor height as the Premises, taking into account the age, quality and layout of the existing improvements in the Premises, and taking into account items that professional real estate brokers or professional real estate appraisers customarily consider, including, but not limited to, rental rates, space availability, tenant size, tenant improvement allowances, parking charges and any other lease considerations, if any, then being charged or granted by Landlord or the lessors of such similar buildings. All economic terms other than Monthly Base Rent, such as tenant improvement allowance amounts, if any, operating expense allowances, parking charges, etc., will be established by Landlord and will be factored into the determination of the fair market rental rate for the Option Term. Accordingly, the fair market rental rate will be an effective rate, not specifically including, but accounting for, the appropriate economic considerations described above.

2. If Landlord determines that the Option Term’s initial Monthly Base Rent is to be based on the fair market rental rate for the Premises, the Landlord shall provide written notice of Landlord’s determination of the fair market rental rate not later than sixty (60) days after the last day upon which Tenant may timely exercise the right giving rise to the necessity for such fair market rental rate determination. Tenant shall have thirty (30) days (“Tenant’s Review Period”) after receipt of Landlord’s notice of the fair market rental rate within which to accept such fair market rental rate or to reasonably object thereto in writing. Failure of Tenant to so object to the fair market rental rate submitted by Landlord in writing within Tenant’s Review Period shall conclusively be deemed Tenant’s approval and acceptance thereof. If within Tenant’s Review Period Tenant reasonably objects to or is deemed to have disapproved the fair market rental rate submitted by Landlord, Landlord and Tenant will meet together with their respective legal counsel to present and discuss their individual determinations of the fair market rental rate for the Premises under the parameters set forth in Paragraph 1 above and shall diligently and in good

Rider No. 2 - 1

faith attempt to negotiate a rental rate on the basis of such individual determinations. Such meeting shall occur no later than ten (10) days after the expiration of Tenant’s Review Period. The parties shall each provide the other with such supporting information and documentation as they deem appropriate. At such meeting if Landlord and Tenant are unable to agree upon the fair market rental rate, they shall each submit to the other their respective best and final offer as to the fair market rental rate. If Landlord and Tenant fail to reach agreement on such fair market rental rate within five (5) business days following such a meeting (the “Outside Agreement Date”), then the determination of the fair market rental rate shall be made by appraisal in accordance with the provisions of Section 3 below.

3. (a) Landlord and Tenant shall each appoint one (1) independent appraiser who shall by profession be an M.A.I. certified real estate appraiser who shall have been active over the five (5) year period ending on the date of such appointment in the leasing of commercial (including office) properties in the Tracy, California area. The determination of the appraisers shall be limited solely to the issue of whether Landlord’s or Tenant’s last proposed (as of the Outside Agreement Date) best and final fair market rental rate for the Premises is the closest to the actual fair market rental rate for the Premises as determined by the appraisers, taking into account the requirements specified in Section 1 above. Each such appraiser shall be appointed within ten (10) business days after the Outside Agreement Date.

(b) The two (2) appraisers so appointed shall within ten (10) business days after the date of the appointment of the last appointed appraiser agree upon and appoint a third appraiser who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) appraisers.

(c) The three (3) appraisers shall within ten (10) business days after the appointment of the third appraiser reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted best and final fair market rental rate, and shall notify Landlord and Tenant thereof. During such ten (10) business day period, Landlord and Tenant may submit to the appraisers such information and documentation to support their respective positions as they shall deem reasonably relevant and Landlord and Tenant may each appear before the appraisers jointly to question and respond to questions from the appraisers.

(d) The decision of the majority of the three (3) appraisers shall be binding upon Landlord and Tenant and neither party shall have the right to reject the decision or to undo the exercise of the applicable Option. If either Landlord or Tenant fails to appoint an appraiser within the time period specified in Section 3(a) hereinabove, the appraiser appointed by one of them shall within ten (10) business days following the date on which the party failing to appoint an appraiser could have last appointed such appraiser reach a decision based upon the same procedures as set forth above (i.e., by selecting either Landlord’s or Tenant’s submitted best and final fair market rental rate), and shall notify Landlord and Tenant thereof, and such appraiser’s decision shall be binding upon Landlord and Tenant and neither party shall have the right to reject the decision or to undo the exercise of the applicable Option.

(e) If the two (2) appraisers fail to agree upon and appoint a third appraiser, either party, upon ten (10) days written notice to the other party, can apply to the Presiding Judge of the Superior Court of San Joaquin County to appoint a third appraiser meeting the

Rider No. 2 - 2

qualifications set forth herein. The third appraiser, however, selected shall be a person who has not previously acted in any capacity for ether party.

(f) The cost of each party’s appraiser shall be the responsibility of the party selecting such appraiser, and the cost of the third appraiser (or arbitration, if necessary) shall be shared equally by Landlord and Tenant.

(g) If the process described hereinabove has not resulted in a selection of either Landlord’s or Tenant’s submitted best and final fair market rental rate by the commencement of the applicable Option Term, then the fair market rental rate estimated by Landlord will be used until the appraiser(s) reach a decision, with an appropriate rental credit and other adjustments for any overpayments of Monthly Base Rent or other amounts if the appraisers select Tenant’s submitted best and final estimate of the fair market rental rate. The parties shall enter into an amendment to this Lease confirming the terms of the decision.

Rider No. 2 - 3

EX-23.2

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in this Amendment No. 2 to Registration Statement No. 333-175105 of our report dated April 26, 2011, relating to the consolidated financial statements of Orchard Supply Hardware Stores Corporation and subsidiaries as of January 29, 2011 and January 30, 2010, and for each of the three years in the period ended January 29, 2011, appearing in the Prospectus, which is a part of this Registration Statement.

We also consent to the reference to us under the headings “Experts” in such Prospectus.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

November 17, 2011

CORRESP

SEC Response Letter