Exhibit 10.4

Execution Copy

SUPPLEMENTAL AGREEMENT
Dated: December 9, 2013

This Supplemental Agreement (this “Agreement”) between Sears Holdings
Corporation, a Delaware corporation (“SHLD”), and Sears Hometown and Outlet
Stores, Inc., a Delaware corporation (“SHO”), is retroactive to October 6, 2013
(the “Effective Date”).

SHLD and SHO each are sometimes referred to as a “Party” and together sometimes
are referred to as the “Parties.” “Affiliates” means (solely for purposes of
this Agreement and for no other purpose) (i) with respect to SHO, its
subsidiaries, and (ii) with respect to SHLD the subsidiaries of SHLD.

Whereas, the parties have entered into that Separation Agreement dated August 8,
2012 (the “Separation Agreement”).

    Whereas, the parties have entered into that Services Agreement dated August
8, 2012 (the “Services Agreement”).

Whereas, the parties have agreed to certain additional terms and conditions as
set forth below.

Terms and Conditions

For good and valuable consideration, the receipt of which SHLD and SHO
acknowledge, SHLD and SHO agree as follows:

Article I.
SUPPLEMENTAL TERMS

1.01    Confidentiality. This Agreement is ancillary to the Services Agreement
between the parties. Information disclosed by the parties and their
Representatives (as that term is defined in the Services Agreement), shall be
subject to Section 4.01(a) (Confidential Information) of the Services Agreement.
1.02    Dispute Resolution.
a.Released Claims. SHO and its Affiliates on the one hand and SHLD and its
Affiliates on the other hand, have made certain claims against each other under
the Ancillary Agreements. SHLD and its affiliates deny each claim made by SHO
and its affiliates. SHO and its affiliates deny each claim made by SHLD’s
affiliates. In order to avoid the risks, burdens and uncertainties of
litigation, SHO and SHLD have agreed to resolve certain of the foregoing claims,
which resolved claims are set forth on Appendix #1 hereto (the “Released
Claims”). Appendix #2 hereto lists certain matters that are not Released Claims
and that SHO and SHLD have reserved for continuing discussions (such matters
together

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Exhibit 10.4

Execution Copy

the “Open Issues”); provided that neither party admits that any Open Issues
raised by the opposing party have merit.
  
b.SHO Limited Release. Subject to the terms and conditions of this Agreement,
SHO, on behalf of itself and its past and present parents, affiliates,
subsidiaries, owners, directors, officers, partners, executives, employees,
agents, attorneys, representatives, heirs, successors, predecessors, and
assigns, hereby forever acquits, releases, absolves, waives, and discharges SHLD
and any and all of its past and present parents, affiliates, subsidiaries, and
each of the foregoing's owners, directors, officers, partners, executives,
employees, agents, attorneys, representatives, heirs, successors, predecessors,
and assigns (the “SHLD Releasees”) of, for, and from any and all actions, causes
of action, suits, claims, damages, obligations, liabilities, losses, demands,
attorneys' fees, costs, sanctions, expenses, sums of money, and accounts of any
kind, direct or indirect, actual or potential, foreseen or unforeseen, at law or
in equity, in contract or in tort or otherwise, whether known or unknown,
liquidated or unliquidated, that it has or has had against them for, upon, by
reason of, or arising as a result of or in connection with any matter, cause,
transaction, occurrence, or thing whatsoever, from the beginning of the world to
the Effective Date; provided, however, that this limited release shall only
apply to Released Claims (i.e. all of the claims expressly set forth in the
Appendix #1 (Released Claims)) and shall not apply to any other claims. For the
avoidance of doubt, SHO is hereby releasing each of the “Claims Made By SHO” and
each SHO defense of the “Claims Made by SHLD” contained in Appendix 1 (but such
defenses are only released as to those specific Released Claims). Moreover, SHO
expressly: (a) represents and warrants that it is not aware of any facts giving
rise to any actual or potential claim or cause of action (other than the Open
Issues) arising from the Released Claims against any of the SHLD Releasees that
would not be released as a result of this Agreement; and (b) covenants not to
assert in the future any claim or cause of action arising from the Released
Claims against any of the SHLD Releasees.

c.SHLD Limited Release. Subject to the terms and conditions of this Agreement,
SHLD, on behalf of itself and its past and present parents, affiliates,
subsidiaries, owners, directors, officers, partners, executives, employees,
agents, attorneys, representatives, heirs, successors, predecessors, and
assigns, hereby forever acquits, releases, absolves, waives, and discharges SHO
and any and all of its past and present parents, affiliates, subsidiaries, and
each of the foregoing's owners, directors, officers, partners, executives,
employees, agents, attorneys, representatives, heirs, successors, predecessors,
and assigns (the “SHO Releasees”) of, for, and from any and all actions, causes
of action, suits, claims, damages, obligations, liabilities, losses, demands,
attorneys' fees, costs, sanctions, expenses, sums of money, and accounts of any
kind, direct or indirect, actual or potential, foreseen or unforeseen, at law or
in equity, in contract or in tort or otherwise, whether known or unknown,
liquidated or unliquidated, that it has or has had against them for, upon, by
reason of, or arising as a result of or in connection with any matter, cause,
transaction, occurrence, or thing whatsoever, from the beginning of the world to
the Effective Date; provided, however, that this limited release shall only
apply to Released Claims (i.e., all of the claims expressly set forth in the
Appendix #1 (Released Claims)) and shall not apply to any other claims. For the
avoidance of doubt, SHLD is hereby releasing each of the “Claims Made By SHLD”

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Exhibit 10.4

Execution Copy

and each SHLD defense of the “Claims Made by SHO” contained in Appendix 1 (but
such defenses are only released as to those specific Released Claims). Moreover,
SHLD expressly: (a) represents and warrants that it is not aware of any facts
giving rise to any actual or potential claim or cause of action (other than the
Open Issues) arising from the Released Claims against any of the SHO Releasees
that would not be released as a result of this Agreement; and (b) covenants not
to assert in the future any claim or cause of action arising from the Released
Claims against any of the SHO Releasees.

d.Unreleased Claims. The parties acknowledge that this Agreement does not
release any claims the parties may have that do not arise from the Released
Claims.

e.No Admission of Liability. Neither this Agreement, the Related Amendments nor
anything contained in this Agreement or the Related Amendments are to be
construed or considered an admission of wrongdoing or liability by any person or
party.
ARTICLE II.    
MISCELLANEOUS
2.01    Expenses. Except as otherwise provided herein, in the Separation
Agreement or the Ancillary Agreements, in connection with the provision of this
Agreement, each Party will bear its own expenses.
2.02    Waiver of Compliance. Any failure of a Party to comply with any
obligation, covenant, agreement or condition in this Agreement may be waived in
writing by the other Party, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition will not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
2.03    Amendment. This Agreement may not be amended except by a written
amendment signed by each Party.
2.04    Assignment. SHO may not assign its rights or obligations under this
Agreement without the prior written consent of SHLD, to be withheld in SHLD’s
absolute discretion. SHLD may freely assign its rights and obligations under
this Agreement to any of its Affiliates without the prior consent of SHO;
provided that any such assignment will not relieve SHLD of its obligations
hereunder. This Agreement will be binding on, and will inure to the benefit of,
the successors and assigns of the Parties.
2.05    Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement must be in
writing and will be deemed to have been duly given (i) when delivered by hand,
(ii) three business days after it is mailed, certified or registered mail,
return receipt requested, with postage prepaid, (iii) on the same business day
when sent by facsimile if the transmission is completed before 5:00 p.m.
recipient’s time, or one business day after the facsimile is sent, if the
transmission is completed on or after 5:00 p.m. recipient’s time or (iv) one
business day after it is sent by Express Mail, Federal Express or other courier
service, as follows:

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Exhibit 10.4

Execution Copy

(a)    if to SHLD:
Sears Holdings Management Corporation
3333 Beverly Road B5-119A
Hoffman Estates, Illinois 60179
Attention: Senior Vice President-Finance
Telephone: (847) 286-8991
Facsimile: (847) 286-1699
with a copy to:
Sears Holdings Management Corporation
3333 Beverly Road, B6-210B
Hoffman Estates, Illinois 60179
Attention: General Counsel
Telephone: (847) 286-5933 
Facsimile: (847) 286-2471

(b)    if to SHO:
Sears Hometown and Outlet Stores, Inc.
3333 Beverly Road B4-150A
Hoffman Estates, Illinois 60179
Attention: Senior Vice President and Chief Operating Officer
Telephone: (847) 286-9741
Facsimile: (847) 286-7838

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

or such other address as the person to whom notice is to be given has furnished
in writing to the other Parties. A notice of change in address will not be
deemed to have been given until received by the addressee.
2.06    Survival. The provisions of Articles I (Supplemental Terms) and II
(Miscellaneous) will survive any termination or expiration of this Agreement.
2.07    Headings. The article and section headings contained in this Agreement
are inserted for reference purposes only and will not affect the meaning or
interpretation of this Agreement.

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Exhibit 10.4

Execution Copy

2.08    No Third Party Rights. Except for the releases in this Agreement of any
SHLD Releasees or any SHO Releasees in their respective capacities as such, this
Agreement is intended to be solely for the benefit of the Parties and is not
intended to confer any benefits upon, or create any rights in favor of, any
person other than the Parties.
2.09    Counterparts. This Agreement may be executed by facsimile and in any
number of counterparts, each of which will be deemed to be an original, and all
of which together will be deemed to be one and the same instrument.
2.10    Severability. If any provision of this Agreement is declared by any
court of competent jurisdiction to be illegal, invalid, void or unenforceable,
such provision will (to the extent permitted under applicable law) be construed
by modifying or limiting it so as to be legal, valid and enforceable to the
maximum extent compatible with, and possibly under, applicable law, and all
other provisions of this Agreement will not be affected and will remain in full
force and effect.
2.11    Entire Agreement. This Agreement (including the Appendixes hereto)
constitutes the entire agreement between the parties hereto and supersedes all
prior agreements and understandings, oral and written, between the parties
hereto with respect to the subject matter hereof.
2.12    Fair Construction. This Agreement will be deemed to be the joint work
product of the Parties without regard to the identity of the draftsperson, and
any rule of construction that a document will be interpreted or construed
against the drafting Party will not be applicable.
2.13    No Agency. Nothing in this Agreement creates a relationship of agency,
partnership, or employer/employee between SHLD and SHO and it is the intent and
desire of the Parties that the relationship be and be construed as that of
independent contracting parties and not as agents, partners, joint venturers or
a relationship of employer/employee.
2.14    Governing Law; Jurisdiction; Waiver of Jury Trial.

(a)    This Agreement will be governed and construed in accordance with the laws
of the State of Illinois, without regard to any choice or conflicts of law
provision that would cause the application of the laws of any other
jurisdiction. This Agreement will not be subject to any of the provisions of the
United Nations Convention on Contracts for the International Sale of Goods.
(b)    Each of the Parties irrevocably and unconditionally submits, for itself
and its property, to the exclusive jurisdiction of any Illinois state court or
Federal court of the United States of America, in either case sitting in Cook
County, Illinois, and any appellate court to any thereof, in any action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby or for recognition or enforcement of any judgment relating
thereto, and each of the Parties irrevocably and unconditionally (i) agrees not
to commence any such action or proceeding except in such courts, (ii) agrees
that any claim in respect of any such action or proceeding may be heard and
determined in such Illinois state court or, to the extent permitted by law, in
such Federal court, (iii) waives, to the fullest extent it may legally and

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Exhibit 10.4

Execution Copy

effectively do so, any objection that it may now or hereafter have to the laying
of venue of any such action or proceeding in any such Illinois state or Federal
court, and (iv) waives, to the fullest extent permitted by law, the defense of
an inconvenient forum to the maintenance of such action or proceeding in any
such Illinois state or Federal court. A final judgment in any such action or
proceeding will be conclusive and may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by law. Each Party irrevocably
consents to service of process in the manner provided for notices in
Section 2.05. Nothing in this Agreement will affect the right of any Party to
serve process in any other manner permitted by law.
(c)    Each Party acknowledges that each controversy that may arise under this
Agreement is likely to involve complicated and difficult issues and, therefore,
it irrevocably and unconditionally waives all rights it may have to a trial by
jury in respect of any litigation directly or indirectly arising out of or
relating to this Agreement or the transactions contemplated hereby. Each Party
certifies and acknowledges that (i) it understands and has considered the
implications of such waivers, (ii) it makes such waivers voluntarily, and (iii)
it has been induced to enter into this Agreement by, among other things, the
mutual waivers and certifications in this Section 2.14.
2.15    Condition Precedent. It is a condition precedent to the effectiveness of
this Agreement that the parties (or their Affiliates, as applicable) also
execute (collectively the “Related Amendments”): (a) that certain Amendment #2
to Merchandising Agreement (the “Merchandise Amendment”), (b) that certain
Amendment No. 1 to Services Agreement, (c) that certain Amendment No. 1 to Store
License Agreement (Outlet), and (d) that certain Amendment No. 1 to the
Separation Agreement (the “Separation Amendment”).
Signature Page Follows

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Exhibit 10.4

Execution Copy

SEARS HOLDINGS MANAGEMENT CORPORATION

By:    /s/ Ronald Boire
Executive Vice President, Chief Merchandising Officer and President, Sears
Full-Line Stores & Kmart Formats
December 9, 2013

SEARS HOMETOWN AND OUTLET STORES, INC.

By:     /s/ W.BRUCE JOHNSON
W. Bruce Johnson
Chief Executive Officer and President
Date: December 9, 2013

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Exhibit 10.4

Execution Copy

Appendix #1
Released Claims
All references to SHO in this Appendix #1 shall be deemed references to SHO and
its Affiliates. Further, all references to SHLD in this Appendix #1 shall be
deemed references to and SHLD and its Affiliates.
Issue
Claims Made By SHO

1.    Relationship
Claims that SHO should not expect SHLD to perform as a normal service
provider—SHLD has said, and acted in ways that indicate, that it doesn’t want
SHO’s services business.

2.    Authority to negotiate and enter into agreements
Claims that SHO has in good faith negotiated agreements with SHLD and then is
told that unspecified “others” at SHLD have rejected the negotiated terms for
reasons unrelated to the negotiated agreements. SHO does not understand who is
empowered to negotiate the terms of, and enter into, binding agreements on
SHLD’s behalf.

3.    Pricing and promotional information

Claims that SHLD has refused to deliver the information, has delivered the
information late, or has delivered inaccurate information.

4.    MOS apparel
•    Claims that SHLD has delayed delivery dates with inadequate notice,
resulting in SHO’s inability to efficiently schedule labor, allocate
selling-floor space, and plan sales volumes.
•    Claims that SHLD has diverted merchandise to liquidators.

5.    IBM Charges
Claims that SHLD has overcharged SHO approximately $2.2M from separation through
April 2013, and the overcharges continue.

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Exhibit 10.4

Execution Copy

6.    Outlet HA Product
Claims that SHLD has prior to the Effective Date refused to sell to SHO at the
prices specified in the Merchandising Agreement the following categories of DRM
merchandise: (1) transitions (displays); (2) web order cancellations that are
not part of SHLD’s Take-It-Home-Today program; and (3) customer returns that are
not otherwise subject to the Merchandising Agreement.

7.    Clearance centers
Claims that SHLD prior to the Effective Date aggregated DRM merchandise in SHLD
Outlet clearance centers, which violate the Merchandising Agreement.

8.    Kenmore Save-A-Sale
Claims that SHO and KCD agreed post-separation to this promotional initiative to
increase Kenmore sales, including royalty rebates and fixture reimbursement. SHO
incurred expense in reliance on the agreement. SHLD has failed to honor the
agreement.

9.    Subsidy sharing
Claims that SHLD on numerous occasions has attempted to avoid sharing with SHO
subsidies that SHLD is obligated to share in accordance with the Merchandising
Agreement.

10.    Outlet’s costs for Outlet merchandise
•    Claims that SHLD has overcharged SHO $1.1M through week 10 by calculating
pricing to SHO using landed cost rather than core cost and continues to do so.
•    Claims that SHLD has overcharged SHO $1.6M through week 10 by calculating
pricing to SHO for KCD products using higher non-KCD-product pricing and
continues to do so.

11.    Trade Area Restriction
Claims that SHLD recently announced that it is closing its Christianburg, VA,
Chicago-79th Street, and Chicago-Western stores. Claims that SHLD then notified
SHO that SHLD intends to continue its retail presence in the trade areas for
these stores. Claims that SHLD’s notification blocks SHO’s opportunity to expand
into, and maintain a physical “Sears” presence in, these markets.

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Exhibit 10.4

Execution Copy

12.    Real estate
•    Claims that Subleases and related documents were withheld until immediately
prior to separation; documentation does not include commercially reasonable
terms and are not consistent with status quo pre-separation.
•    Claims that SHO had limited time review the leases and subleases between
the parties and that such limited review time is a basis for changing what the
parties agreed to.
•    Claims that SHLD has demanded charges post-separation that were either not
charged pre-separation or the post-separation charges are significantly greater
than pre-separation charges. Most of these charges were not addressed at the
Steering Committee, and they were not contemplated when determining the Duff &
Phelps valuation.
•    Claims that SHLD’s subleases do not permit subleasing to SHO’s franchisees.
These restrictions, which were not addressed pre-separation at the Steering
Committee, restrict SHO’s franchising initiative for more than 60 Outlet Store
locations.
•    Claims that SHLD’s claims that SHO is responsible for SHLD’s failures to
maintain, prior to the separation, premises that SHLD has subleased to SHO
(roof, HVAC, and other major tenant repairs).
•    Claims that SHLD refuses to acknowledge SHO’s request to extend leases.
•    Claims that SHLD refused to agree to SHO’s requested 60-day extension for
the Newark, DE ORDC.
•    Claims that SHLD refuses to negotiate leases extensions for former TGI
premises; SHO’s offered renewal terms are the same as the terms approved
pre-separation by SHLD’s CAPCON.
•    Claims that SHLD refuses to allow Outlet to temporarily use adjoining
unused and unleased space in premises that SHO has leased from SHLD.

13.    MetaScale agreement
Claims that SHLD (1) demanded, unreasonably, that SHO provide adequate assurance
of SHO’s due performance and (2) suspended contract work.
•    SHLD’s demand is based apparently on SHO’s assertion (made in good faith)
that it did not have to pay IBM charges in excess of the $9.6M for IT services
specified in the Services Agreement.
•    Charges have been the subject of a good faith dispute, and were paid
promptly in full, prior to the delivery of the request for adequate assurance.
Claims that SHLD’s work stoppage has delayed implementation of the contract
work. Claims that SHLD’s unjustified demand raises legitimate SHO concerns about
SHLD’s reliability as a service provider.

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Exhibit 10.4

Execution Copy

14.    HR training materials
Claims that SHLD has refused to consistently give to SHO training materials in
accordance with the applicable agreements.

15.    IT services
Claims that SHLD’s service levels have been substandard.

16.    Craftsman Lifetime Warranty Exchange

Claims that SHO was not obligated to perform Craftsman Lifetime Warranty
Exchanges and Claims that SHO was entitled to reimbursement for such exchanges
prior to October 6, 2013.
17.    Written Agreement
Claims by SHO that SHO is able to proceed without Seller’s written agreement
when the applicable agreement between the parties state that “and Buyer and
Seller agree in writing.”
18.    Blue Label MOS Apparel
Claims that SHLD was improperly sending SHO damaged or defective (Blue Label)
goods as part of MOS
19.    Outlet Warranty Charges
Claims that SHLD’s charges for Outlet Products improperly included charges for
warranty.

    

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Exhibit 10.4

Execution Copy

Issue
Claims Made By Sears Holdings

1.    Hybrid Delivery Issue
Claims that SHLD has overpaid SHO for Hybrid Deliveries for orders originating
from SHLD’s Affiliates stores.
2.    Outlet Increased sale of New Products
Claims that SHO’s increase in the amount of new products sold at Outlets (new
products, increased SCIM, etc.) prior to the Effective Date are in violation of
the Outlet License Agreement.
3.    Franchising
Claims that SHO has been pursuing franchises of Sears Outlet without SHLD’s
permission in violation of the Outlet License Agreement.
4.    2012 IT Service Charges
Claims that SHO has refused to pay the same rate for project IT Services that
SHLD pays.
5.    Certain Real Estate Leases
For the properties listed on Schedule 12.2(h) to the Separation Agreement,
claims that SHO failed to pay amounts under the leases for those properties
which are allocated to SHLD as its responsibility under the Separation
Amendment.
6.    New HTS Stores within 5-8 miles
Claims that SHO opened the specific stores listed in Section 1.(d)(i) to the
Merchandise Amendment in violation of Section 9(b)(i)(C) of the Merchandise
Agreement.

 

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Exhibit 10.4

Execution Copy

Appendix #2
Open Issues

Issue
Open Issues
1.    Excess Inventory and Storage Fees

Claims that SHO is not properly incented to control its demand forecast to SHC
because SHC bears the carrying costs on DC inventory for SHO.
2.    Clearance centers
Claims that SHLD is not permitted to open “Clearance Centers.”

3.    Outlet Products
All Claims related to SHLD’s on-going investigation into how SHO was charged for
Outlet Products; except those claims expressly included in the Released Claims.
For example, SHLD has notified SHO that SHLD has determined: (1) that in some
instances, the DRM discount was applied more than once to an Outlet Product (2)
SHO received a credit for DRM products not sold to SHO), and (3) SHO received
excess credits when products were returned.
4.    CRC Pick-Up Timeframes
Claims that SHO has not been picking up freight from the CRC in a timely manner.
5.    Selective Acceptance by SHO of DRM From CRC

Claims that SHO has been selectively rejecting certain goods from the CRC (e.g.,
Tempur-Pedic)
6.    Damaged Goods
Claims that SHO been unilaterally taking markdowns for damaged DRM.
7.    W2S Expansion (All Formats)
Claims that SHC has refused to provide W2S services for SHO’s Outlet Store and
Home Appliance Showroom locations, including SHLD’s proposals for altering the
economics between the parties related for all Web 2 Store transactions,
including hybrid deliveries which originate online.
8.    Outlet HA Product
Claims after the Effective Date that SHLD is obligated to sell SHO the following
categories of DRM merchandise: (1) transitions (displays); (2) web order
cancellations that are not part of SHLD’s Take-It-Home-Today program; and (3)
customer returns that are not otherwise subject to the Merchandising Agreement.

1