Exhibit 10.2

EXECUTION VERSION

EXCHANGE AGREEMENT

by and among

FAIRHOLME CAPITAL MANAGEMENT, L.L.C. and

SERITAGE GROWTH PROPERTIES

June 30, 2015

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TABLE OF CONTENTS

 

             Page  

1.

  Definitions      1   

2.

  Exchange      3     

2.1

  Exchange      3     

2.2

  Exchange Closing      4   

3.

  Representations and Warranties of the Company      4     

3.1

  Existence and Power      4     

3.2

  Capitalization      4     

3.3

  Authorization of the Transactions      4     

3.4

  Valid Issuance of Exchange Interests      5     

3.5

  Non-Contravention; No Consents      5     

3.6.

  Conversion of Class C Shares      5     

3.7.

  Registration      5   

4.

  Representations and Warranties of the Holder      5     

4.1

  Organization; Ownership      5     

4.2

  Authorization of the Transactions      5     

4.3

  Non-Contravention, No Consents      5     

4.4

  SHC Securities      6     

4.5

  Brokers and Finders      6     

4.6

  No Additional Representations      6   

5.

  Covenants      7     

5.1

  Taking of Necessary Action      7     

5.2.

  Standstill      7     

5.3.

  Restrictions on Transfer      8     

5.4.

  Class C Share to Class A Share Exchange      9     

5.5.

  Tax Matters      9     

5.6.

  Class C Conversions      9   

6.

  Termination      10     

6.1

  Conditions of Termination      10     

6.2

  Effect of Termination      10   

7.

  Indemnification      10     

7.1.

  Indemnification of Fairholme      10     

7.2.

  Settlement      11     

7.3.

  Contribution      11     

7.4.

  Indemnification Procedures      11     

7.5.

  Limitation on Indemnification      12   

8.

  Miscellaneous Provisions      12     

8.1

  Survival of Representations and Warranties      12      8.2   Notices      12
  

 

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             Page     8.3   Entire Agreement; Third Party Beneficiaries;
Amendment      13      8.4   Counterparts      14      8.5   Governing Law;
Jurisdiction; Venue      14      8.6   Expenses      14      8.7   Successors
and Assigns      14      8.8   Severability      14      8.9   Specific
Performance      15      8.10   Headings      15   

 

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EXCHANGE AGREEMENT

This EXCHANGE AGREEMENT is dated as of June 30, 2015 (this “Agreement”), by and
among Seritage Growth Properties, a Maryland real estate investment trust (the
“Company”) and Fairholme Capital Management L.L.C. (“Fairholme”), acting on its
own behalf and on behalf of its advisory clients from time to time, other than
clients that are series of Fairholme Funds, Inc. (Fairholme’s advisory clients
from time to time, except clients that are series of Fairholme Funds, Inc., are
collectively referred to as the “Class C Acquirors”.)

WHEREAS, Sears Holdings Corporation (“SHC”) has announced its intent to
undertake a separation transaction whereby it will cause its Subsidiaries to
sell to the Company certain properties, joint venture interests and one or more
of its Subsidiaries owning certain properties and lease such properties back
from the Company and/or such Subsidiaries, and, in connection therewith, the
Company, through a pro rata distribution (the “Distribution”) by SHC to holders
of shares of its common stock, par value $0.01 per share of rights (the
“Rights”) to purchase from the Company Class A common shares of beneficial
interest, par value $0.01 per share, of the Company (the “Class A Shares”) (the
“Rights Offering”).

WHEREAS, the Company will become a new publicly traded real estate investment
trust under the Internal Revenue Code of 1986, as amended.

WHEREAS, in connection with the proposed separation transaction, the Company has
agreed to grant the Class C Acquirors the right to exchange any and all Rights
held by such Class C Acquirors as of immediately prior to the closing of the
Rights Offering (the “Rights Offering Closing”), whether received in the
Distribution or otherwise acquired (such Rights, the “Exchange Rights”),
together with cash as provided herein, not for Class A Shares but rather for
Class C common shares of beneficial interest, par value $0.01 per share, of the
Company (the “Class C Shares”) and Fairholme has agreed to cause the Class C
Acquirors not to exercise their Rights to acquire Class A Shares and to be
subject to certain limitations of their rights as holders of Class C Shares, in
each case, subject to the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the mutual agreements, representations,
warranties and covenants in this Agreement contained, the parties agree as
follows:

1. Definitions. As used in this Agreement, the following terms shall have the
following respective meanings:

“Affiliate” shall mean, with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person; provided, that for, purposes of this Agreement, (x) each
series of Fairholme Funds, Inc. shall be deemed not to be an Affiliate of
Fairholme or any Class C Acquiror and (y) each of the Class C Acquirors and each
of their respective Affiliates shall be deemed not to be an Affiliate of the
Company, the Operating Partnership or SHC, and vice versa.

“Business Day” means any day other than a Saturday, Sunday or day on which banks
in New York, New York are required or authorized to remain closed.

 

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“Change of Control” means (i) any transaction involving (x) a sale of all or
substantially all of the assets of the Company and its Subsidiaries (determined
on a consolidated basis), in one transaction or series of related transactions
or (y) the consolidation, merger, amalgamation, reorganization of the Company or
a similar transaction in which the Company is combined with another Person,
unless common shares of beneficial interest held by holders who are not
affiliated with the Company or any entity acquiring the Company remain unchanged
or are exchanged for, converted into or constitute solely (except to the extent
of applicable appraisal rights or cash received in lieu of fractional shares)
the right to receive as consideration common shares listed on a recognized U.S.
national securities exchange and the Persons who Beneficially Own the
outstanding Class A Shares and Class C Shares of the Company and Operating
Partnership units of the Operating Partnership (other than the Company)
immediately before consummation of the transaction Beneficially Own more than
50% (by voting power or economic interest) of the outstanding equity interests
of the combined or surviving entity or new parent on a consolidated basis
immediately thereafter or (ii) Edward S. Lampert ceases to Beneficially Own a
majority of the issued and outstanding Operating Partnership units that are not
held by the Company (or in the case of a transaction contemplated by clause
(i) of this definition, a plurality of the outstanding equity interests of the
combined or surviving entity or new parent on a consolidated basis immediately
thereafter).

“Governmental Authority” means any court, administrative agency or commission or
other governmental authority or instrumentality, whether federal, state, local
or foreign, and any applicable industry self-regulatory organization.

“Law” means applicable statutes, common law, rules, ordinances, regulations,
codes, licensing requirements, orders, judgments, injunctions, writs, decrees,
licenses, governmental guidelines or interpretations having the force of law,
permits, rules and bylaws, in each case, of a Governmental Authority.

“Operating Partnership” means Seritage Growth Properties, L.P.

“Purchase Price” means the amount in cash in U.S. dollars equal to the product
obtained by multiplying (a) the aggregate number of Class A Shares for which an
Exchange Right would be exercisable pursuant to its terms by (b) the
subscription price per Class A Share, as set forth in the Registration
Statement, as amended through the date of this Agreement and as it may be
further amended from time to time, of the Company.

“Person” means any individual, corporation, company, limited liability company,
partnership, association, trust, joint venture, group or any other entity or
organization, including any government or political subdivision or any agency or
instrumentality thereof.

“Proceeding” means any action, claim, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding and any informal proceeding), prosecution, contest, hearing, inquiry,
inquest, audit, examination or investigation commenced, brought, conducted or
heard by or before any Governmental Authority or any arbitrator or arbitration
panel.

 

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“Registration Statement” means the Registration Statement on Form S-11 (File
No. 333-203163) filed by the Company.

“Regular-Way Settlement” means, at any time, the current practice in the United
States for settlement of sales of publicly-traded equity securities. For the
avoidance of doubt, Fairholme and the Company each acknowledge that, as of the
date hereof, Regular Way Settlement means settlement three Business Days after
the execution of a sale of publicly-traded equity securities.

“Securities Act” shall mean the Securities Act of 1933, as amended, and all of
the rules and regulations promulgated thereunder.

“Subsidiary” means, with respect to any Person, any other Person of which the
first Person owns, directly or indirectly, securities or other ownership
interests having voting power to elect a majority of the board of directors or
other persons performing similar functions (or, if there are no such voting
interests, more than 50% of the equity interests of the second Person).

Index of Defined Terms

 

    Page  

Affiliate

    1   

Agreement

    1   

Beneficial Ownership

    8   

Business Day

    1   

Change of Control

    2   

Class A Shares

    1   

Class C Acquirors

    1   

Class C Conversions

    9   

Class C Exchange Election

    4   

Class C Shares

    1   

Class C Transfer

    5   

Closing

    4   

Company

    1   

Distribution

    1   

Enforceability Exceptions

    4   

Exchange

    4   

Exchange Act

    8   

Exchange Rights

    1   

Exchange Share

    4   

Fairholme

    1   

Governmental Authority

    2   

    Page  

Indemnified Person

    10   

Law

    2   

Losses

    10   

Person

    2   

Proceeding

    2   

Purchase Price

    2   

Registration Statement

    3   

Regular-Way Settlement

    3   

Representation Letter

    9   

Rights

    1   

Rights Offering

    1   

Rights Offering Closing

    1   

Securities Act

    3   

Sell

    8   

SHC

    1   

Subject Securities

    8   

Subject Transaction

    8   

Subsidiary

    3   

Tax Advisor

    9   

Transactions

    4   

 

 

2. Exchange.

2.1. Exchange. Subject to and upon the terms and conditions set forth in this
Agreement, the Company and Fairholme hereby agree that each Class C Acquiror may
elect (a

 

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“Class C Exchange Election”) prior to the Rights Offering Closing to tender some
or all of the Exchange Rights held by such Class C Acquiror together with the
Purchase Price applicable to such Exchange Right, in exchange for the issuance
and sale to such Class C Acquiror of one Class C Share (an “Exchange Share”) per
Class A Share for which such Exchange Rights are otherwise exercisable pursuant
to their terms (collectively, the “Exchange”). Fairholme agrees that to the
extent that any Class C Acquiror elects to participate in the Rights Offering,
Fairholme shall cause such Class C Acquiror to do so pursuant to the Exchange
and not to exercise any Rights for Class A Shares. In addition, each Class C
Acquiror shall have the right to exercise its over-subscription privilege (as
described in the Company’s Registration Statement on Form S-11) relating to its
Exchange Rights to the same extent as it would have if it were to exercise such
Exchange Rights for Class A Shares, except that in lieu of Class A Shares, such
Class C Acquiror shall receive additional Exchange Shares for each Class A Share
that would have been issuable pursuant to the exercise of such over-subscription
privilege.

2.2. Exchange Closing. If any Class C Acquiror makes a Class C Exchange
Election, the closing of the Exchange (the “Closing”) shall occur immediately
prior to the Rights Offering Closing. At the Closing, (a) Fairholme shall cause
each Class C Acquiror participating in the Exchange to (i) deliver to the
Company all of the Exchange Rights that it is tendering for Exchange, free and
clear of all liens, together with any necessary or appropriate instruments of
transfer relating thereto, and (ii) pay, or cause to be paid, to the Company or
its designee the Purchase Price applicable to each such Exchange Right, and
(b) the Company shall issue to such Class C Acquirors free and clear of all
liens, and deliver to the Class C Acquirors certificates or book-entry notations
evidencing the Exchange Shares.

3. Representations and Warranties of the Company. The Company hereby represents
and warrants to Fairholme, as of the date hereof and as of the Closing, as
follows:

3.1. Existence and Power. The Company is a real estate investment trust duly
organized, validly existing and in good standing under the laws of the State of
Maryland.

3.2. Capitalization. The authorized shares of beneficial interest of the Company
immediately prior to the Closing will consist of 100,000,000 Class A Shares,
5,000,000 Class B common shares of beneficial interest, par value $0.01 per
share, 50,000,000 Class C Shares, and 10,000,000 preferred shares of beneficial
interest. As of the date of this Agreement, 100 common shares of beneficial
interest of the Company are issued and outstanding.

3.3. Authorization of the Transactions. The execution, delivery and performance
of the transactions contemplated by this this Agreement (the “Transactions”)
have been duly authorized by all necessary action on the part of the Company,
and this Agreement is a valid and binding obligation of the Company, enforceable
against it in accordance with its terms, subject to the limitation of such
enforcement by (i) the effect of bankruptcy, insolvency, reorganization,
receivership, conservatorship, arrangement, moratorium or other laws affecting
or relating to creditors’ rights generally or (ii) the rules governing the
availability of specific performance, injunctive relief or other equitable
remedies and general principles of equity, regardless of whether considered in a
proceeding in equity or at law (the “Enforceability Exceptions”).

 

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3.4. Valid Issuance of Exchange Shares. The Exchange Shares have been duly
authorized by all necessary trust action of the Company. When issued and sold
against receipt of the consideration therefor, the Exchange Shares will be
validly issued, fully paid and nonassessable.

3.5. Non-Contravention; No Consents. The execution, delivery and performance of
this Agreement, and the consummation by the Company of the Transactions, does
not or will not conflict with, violate or result in a breach of any provision
of, or constitute a default under, or result in the termination of or accelerate
the performance required by, or result in a right of termination or acceleration
under, (i) the organizational documents of the Company, (ii) any mortgage, note,
indenture, deed of trust, lease, loan agreement or other agreement binding upon
the Company or (iii) any permit, license, judgment, order, decree, ruling,
injunction, statute, law, ordinance, rule or regulation applicable to the
Company or any of its Subsidiaries, other than in the cases of clauses (ii) and
(iii) as would not reasonably be expected to have a material adverse effect on
the Company and its Subsidiaries, taken as a whole. Assuming the accuracy of the
representations of Fairholme set forth herein, other than as have been obtained
prior to the date of this Agreement, no material consent, approval, order or
authorization of, or material registration, declaration or filing with, any
Governmental Authority is required on the part of the Company or any of its
Subsidiaries in connection with the execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
Transactions.

3.6. Conversion of Class C Shares. Upon any transfer of Class C Shares by a
Class C Acquiror to any Person other than to an Affiliate of such Class C
Acquiror (a “Class C Transfer”), each such Class C Share shall automatically
convert into one Class A Share.

3.7. Registration. The Company has filed the Registration Statement relating to
the Class A Shares and the Class C Shares with the Securities and Exchange
Commission. Prior to the Closing, the Registration Statement will have become
effective, no stop order suspending the effectiveness of the Registration
Statement will be in effect and no proceedings for such purposes will be pending
before or threatened by the Securities and Exchange Commission.

4. Representations and Warranties of Fairholme. Fairholme hereby represents and
warrants to the Company, as of the date hereof and as of the Closing, as
follows:

4.1. Organization; Ownership. Fairholme is a limited liability company, duly
organized, validly existing and in good standing under the laws of Delaware.

4.2. Authorization of the Transactions. Entry into this Agreement has been duly
authorized by all necessary corporate or equivalent action on the part of
Fairholme, and this Agreement is a valid and binding obligation of Fairholme,
enforceable against it in accordance with its terms, subject to the limitation
of such enforcement by the Enforceability Exceptions.

4.3. Non-Contravention; No Consents. The execution, delivery and performance of
this Agreement by Fairholme, and the consummation by the Class C Acquirors of
the Transactions, does not conflict with, violate or result in a breach of any
provision of, or constitute a default under, or result in the termination of or
accelerate the performance required by, or result in a right of termination or
acceleration under, (i) the organizational documents of

 

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Fairholme or, to the actual knowledge of Fairholme, any other Class C Acquiror,
(ii) any mortgage, note, indenture, deed of trust, lease, loan agreement or
other agreement binding upon Fairholme or, to the actual knowledge of Fairholme,
any other Class C Acquiror or (iii) any permit, license, judgment, order,
decree, ruling, injunction, statute, law, ordinance, rule or regulation
applicable to Fairholme or, to the actual knowledge of Fairholme, any other
Class C Acquiror, other than in the cases of clauses (ii) and (iii) as would not
reasonably be expected to adversely affect or delay the consummation of the
Transactions. Assuming the accuracy of the representations of the Company set
forth herein, other than as have been obtained prior to the date of this
Agreement, (x) no material consent, approval, order or authorization of any
Governmental Authority is required on the part of Fairholme or, to the actual
knowledge of Fairholme, any other Class C Acquiror in connection with the
execution, delivery and performance by and the consummation by, the Class C
Acquirors of the Transactions and (y) no material registration, declaration or
filing with any Governmental Authority is required on the part of Fairholme or,
to the actual knowledge of Fairholme, any other Class C Acquiror in connection
with the execution, delivery and performance by and the consummation by, the
Class C Acquirors of the Transactions, other than such registrations,
declarations or filings, the failure of which to make would not reasonably be
expected to adversely affect or delay the consummation of the Transactions.

4.4. Rights. As of the Closing, each Class C Acquiror owns and has valid title
to each of the Exchange Rights being Exchanged by such Class C Acquirer, free
and clear of any and all liens. As of the Closing, other than this Agreement, to
Fairholme’s knowledge, no Class C Acquiror is party to any option, warrant,
purchase right or other contract or commitment obligating it to sell, transfer,
pledge or otherwise dispose of the Exchange Rights being Exchanged by such Class
C Acquirer or to any voting trust, proxy or other agreement or understanding
with respect to the voting of the Exchange Rights being Exchanged by such Class
C Acquirer.

4.5. Brokers and Finders. Fairholme and its officers, directors, employees or
agents have not utilized any broker, finder, placement agent or financial
advisor or incurred any liability for any brokers’, finders’ or similar fees or
commissions in connection with any of the Transactions which are or may become
payable by the Company or any of its Subsidiaries.

4.6. No Additional Representations.

(a) Fairholme acknowledges that neither the Company nor any other person makes
any representation or warranty as to any matter whatsoever except as expressly
set forth in Section 3.

(b) Fairholme has conducted its own independent review and analysis of the
business, operations, assets, liabilities, results of operations, financial
condition and prospects of the Company and its Subsidiaries. Except for the
representations and warranties expressly set forth in Section 3 by the Company
in accordance with the terms hereof, in entering into this Agreement, Fairholme
has relied solely upon its independent investigation and analysis of the Company
and its Subsidiaries, and Fairholme acknowledges and agrees that it has not been
induced by and has not relied upon any representations, warranties or
statements, whether express or implied, made by the Company, its Subsidiaries or
any of their respective affiliates,

 

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shareholders, controlling persons or representatives that are not expressly set
forth or incorporated by reference in Section 3 or the Registration Statement,
as amended through the date of this Agreement, whether or not such
representations, warranties or statements were made in writing or orally.
Fairholme acknowledges and agrees that, except for the representations and
warranties expressly set forth in Section 3 and the statements made or
incorporated by reference in the Registration Statement, as amended through the
date of this Agreement, (i) the Company does not make, or has not made, any
representations or warranties relating to itself or its business or otherwise in
connection with the Transactions and Fairholme is not relying on any
representation or warranty except for those expressly set forth in this
Agreement and (ii) no person has been authorized by the Company to make any
representation or warranty relating to it or its businesses or otherwise in
connection with the Transactions, and if made, such representation or warranty
must not be relied upon by Fairholme as having been authorized by the Company.

5. Covenants.

5.1. Taking of Necessary Action. Each of the parties hereto agrees to use its
reasonable best efforts promptly to take or cause to be taken all action and
promptly to do or cause to be done all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
Transactions.

5.2. Standstill.

(a) After Closing and until the occurrence of a Change of Control, Fairholme
covenants to and agrees with the Company that, without the Company’s prior
written consent, it will not cause or permit any Class C Acquiror to, directly
or indirectly:

(i) acquire or offer to acquire, seek, propose or agree to acquire, by means of
a purchase, tender or exchange offer, business combination or in any other
manner, Beneficial Ownership of any Class A Shares; or

(ii) make any public announcement with respect to, or submit to the Company or
any of its trustees, officers, representatives, employees, attorneys, advisors,
agents or Affiliates, any proposal for or recommendation in support of the
acquisition of any shares of beneficial interest of the Company entitled to vote
in the election of trustees (other than Class B Shares) or any other matter upon
which the holders of such shares of beneficial interest are entitled to vote or
with respect to any merger, consolidation, business combination, restructuring,
recapitalization or purchase of any substantial portion of the assets of the
Company or of any of its Subsidiaries, and whether or not such proposal or
recommendation might require the making of a public announcement by the Company
unless the Company shall have made a prior written request to Fairholme to
submit such a proposal or recommendation (provided that the foregoing shall not
prohibit Fairholme from submitting a proposal to the Chief Executive Officer or
Chief Financial Officer of the Company on a confidential basis so long as such
proposal would not require the making of any public announcement or public
reporting by the Company or any public reporting by Fairholme or any Class C
Acquiror or any of their respective Affiliates)

 

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(iii) seek or propose to influence, advise, change or control the management,
board of trustees, governing instruments or policies or affairs of the Company
by way of any public communication, or make any “solicitation” of “proxies” (as
such terms are defined or used in Regulation 14A under the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (the “Exchange
Act”)) to vote any shares of beneficial interest of the Company entitled to vote
in election of trustees of the Company or any other matter upon which the
holders of Class A Shares are entitled to vote or become a “participant” in any
“election contest” (as such terms are defined and used in Rule 14a-11 under the
Exchange Act) with respect thereto; provided, however, that nothing in this
clause (iii) shall prevent Fairholme, the Class C Acquirors or their respective
Affiliates from voting in any manner any Class A Shares over which it has
Beneficial Ownership; or

(iv) make a request to amend or waive any provision of this Section 5.2(a).

(b) A Person shall be deemed to have “Beneficial Ownership” of, or to
“Beneficially Own,” any securities in respect of which such Person or any of
such Person’s Affiliates is considered to be a “Beneficial Owner” under Rule
13d-3 under the Exchange Act as in effect on the date hereof; provided that for
purposes of Section 5.2(a)(i), Class C Acquirors shall be deemed not to have
Beneficial Ownership of (x) the Class A Shares into which Exchange Rights are
exercisable pursuant to their terms and (y) Class A Shares acquired or to be
acquired for the purpose of conversion into Class C Shares pursuant to
Section 5.6.

5.3. Restrictions on Transfer. Until the occurrence of a Change of Control,
Fairholme agrees that it will cause each Class C Acquiror not to sell, transfer,
assign or similarly dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, assignment or
similar disposition of (collectively, “Sell” and “Sale” shall have a correlative
meaning), any Class C Shares or other shares of beneficial interest of the
Company held by such Class C Acquiror (collectively, the “Subject Securities”)
(any such transaction, a “Subject Transaction”), if, after giving effect to such
Subject Transaction, the acquiring Person to the actual knowledge of Fairholme,
after due inquiry, would individually, together with its Affiliates or as a
member of a “group” (as such term is used in Section 13(d)(3) of the Exchange
Act), Beneficially Own five percent (5%) or more of the issued and outstanding
Class A Shares; provided that each Class C Acquiror may Sell Class C Shares or
other shares of beneficial interest of the Company held by such Class C Acquiror
(a) to the Company, (b) to an Affiliate that agrees in writing to be bound by
the terms and provisions of this Agreement to the same extent as such Class C
Acquiror, (c) in the public market (other than a Sale made with the knowledge
that such Sale would otherwise be prohibited by this Section 5.3), (d) to Edward
S. Lampert and his Affiliates, (e) in connection with any bona fide mortgage,
encumbrance, pledge or hypothecation of capital stock to a financial institution
in connection with any bona fide loan or (f) to any Person if such Class C
Acquiror has received the Company’s prior written consent to such Sale.

 

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5.4. Class A Share to Class C Share Exchange. Subject to the availability of an
applicable exemption or exception from the registration requirements of the
Securities Act, Fairholme may request, on behalf of its new or existing advisory
clients (other than clients that are series of Fairholme Funds, Inc.) that have
acquired or are acquiring Class A Shares, that the Company exchange some or all
Class A Shares held by such investors for an equal number of Class C Shares;
provided, that, the Company shall have no obligation to complete any such
exchange if (a) it would be required under applicable law to disclose material
non-public information concerning the Company that at the time is not, in the
good faith judgment of the Board of Trustees of the Company, in the best
interests of the Company to disclose and is not otherwise required to be
disclosed or (b) the number of Class C Shares outstanding following such
exchange would exceed the greater of (x) the number of Class C Shares
outstanding immediately following the Closing (as adjusted for any share split,
share dividend, recapitalization, exchange or similar event) and (y) 37.7% of
the aggregate amount of then-outstanding Class A Shares and Class C Shares.

5.5. Tax Matters. Fairholme shall deliver to Wachtell, Lipton, Rosen & Katz (the
“Tax Advisor”) and, if reasonably requested by the Company, shall cause Class C
Acquirors to deliver to the Tax Advisor (a) a certificate signed by an
authorized representative of Fairholme, and dated as of the date hereof, with
the representations set forth in Exhibit A (the “Representation Letter”), with
such additions or modifications as may be mutually agreed to by Fairholme and
the Tax Advisor after the date hereof, and (b) a certificate signed by an
authorized representative of Fairholme to the effect that the Representation
Letter remains true, accurate, and correct in all respects as of the date of the
Closing.

5.6. Class C Conversions.

(a) The Company agrees promptly to take or cause to be taken all actions and
promptly to do or cause to be done all things necessary, proper or advisable
under applicable laws and regulations to facilitate Regular-Way Settlement of
transfers of Class A Shares from time to time (where such transfers are to be
settled by the delivery of newly converted Class A Shares converted from Class C
Shares following the agreement by a Class C Acquiror to sell Class A Shares)
(such transfers, “Class C Conversions”). Without limiting the foregoing, the
Company agrees prior to the Closing (i) to direct its transfer agent to effect
timely issuance of Class A Shares to Class C Acquirors in time for such Class C
Acquirors to effect Regular-Way Settlement of Class C Conversions, subject to
the transfer agent having been provided with notice from the depositary of such
Class C Shares of the conversion of such Class C Shares in the form as may be
agreed from time to time among the transfer agent and the depositary) prior to
the consummation of the Class C Conversion being effected and (ii) to direct the
depositary for the Class C Shares to establish a mechanism with the transfer
agent for the conversion of Class C Shares to, and issuance of, Class A Shares
upon, and promptly following, the receipt by the depositary of a conversion
notice with respect to such Class C Shares in electronic form (or such other
form as may be customarily used from time to time by the depositary to effect
conversions and issuances within the applicable Regular-Way Settlement
timeframe) from the applicable Class C Acquiror. Fairholme agrees (x) to take
such actions, or deliver such information, as may be reasonably requested by the
Company from time to time to facilitate the Company’s obligations under this
Section 5.6(a) and (y) to advise the Class C Acquirors that any Sale of Class C
Shares to a Person other than another Class C Acquiror or other Fairholme
Affiliate shall be effected as Sale of Class A Shares and a related Class C
Conversion.

 

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(b) If the client relationship between Fairholme and a Class C Acquiror is
terminated, (i) Fairholme agrees to instruct such Class C Acquiror to effect a
conversion of Class C Shares into Class A Shares and (ii) the Company agrees to
promptly to take or cause to be taken all actions and promptly to do or cause to
be done all things necessary, proper or advisable under applicable laws and
regulations, if any, to direct its transfer agent to promptly issue Class A
Shares to such former Class C Acquiror in exchange for its Class C Shares,
subject to the transfer agent having been provided by Fairholme with notice of
the termination in the form attached as Exhibit B (or such other form as may be
agreed from time to time among the Company, Fairholme and the transfer agent).

6. Termination.

6.1. Conditions of Termination. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement:

(a) may be terminated at any time:

(i) by mutual consent of the Company and Fairholme; or

(ii) by either the Company, on the one hand, or Fairholme, on the other hand, if
any preliminary or permanent injunction or other judgment or order issued by any
court of competent jurisdiction or other Law prohibiting, restraining or
rendering illegal the consummation of the Transactions shall be in effect and
shall have become final and nonappealable;

(b) shall be terminated automatically if at any time SHC publicly announces that
it has determined to cancel the Rights Offering.

6.2. Effect of Termination. In the event of any termination pursuant to
Section 6.1, this Agreement shall become null and void and have no effect, with
no continuing obligation or liability on the part of any party hereto, or their
respective directors, trustees, officers, agents or shareholders, with respect
to this Agreement; provided that nothing herein shall relieve any party of any
liability for its willful breach; provided, further that the provisions of
Article 7 shall survive the termination of this Agreement.

7. Indemnification.

7.1. Indemnification of Fairholme. The Company agrees to indemnify and hold
harmless Fairholme and each Class C Acquiror and their respective Affiliates and
each officer, director, employee, advisor, partner, member, controlling entity
and agent of Fairholme and each Class C Acquiror (each, an “Indemnified Person”)
from and against any and all losses, liabilities, causes of action, demands,
claims, damages, judgments, reasonable costs and expenses (including reasonable
fees and disbursements of counsel) (collectively, “Losses”) to which any such
Indemnified Person may become subject arising out of, related to or in
connection to any

 

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Proceeding (other than Proceedings brought by an Indemnified Person against the
Company, SHC or any of their respective Affiliates) relating to this Agreement,
the Transactions, the Rights Offering or the Distribution, regardless of whether
any Indemnified Person is a party thereto, brought by a third party or by the
Company or any of its Affiliates, including, without limitation, any action
alleging misconduct or other liability on account of any Indemnified Person
entering into or otherwise participating in this Agreement or the Transactions.
Notwithstanding the foregoing, the Company shall not be required to indemnify
any Indemnified Person for any Losses to the extent that such Losses are finally
judicially determined by a court of competent jurisdiction to have resulted from
the gross negligence, fraud or willful misconduct of such Indemnified Person or
resulted from such Indemnified Person’s breach of this Agreement.

7.2. Settlement. The Company will not, without the prior written consent of each
Indemnified Person, settle, compromise, consent to the entry of any judgment in
or otherwise seek to terminate any Proceeding in respect of which
indemnification may be sought hereunder (whether or not any Indemnified Person
is a party thereto) unless such settlement, compromise, consent or termination
(i) includes an unconditional release of each Indemnified Person from all
liability arising out of such Proceeding and (ii) does not include a statement
as to, or an admission of, fault, culpability, or a failure to act by or on
behalf of such Indemnified Person.

7.3. Contribution. If the indemnification provided for in this Article 7 is
unavailable to or insufficient to hold harmless an Indemnified Person under
Section 7.1 in respect of any losses, liabilities, causes of action, demands,
claims, damages, judgments, costs and expenses referred to therein, then the
Company shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, liabilities, claims, causes of action,
damages, or judgments in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Class C
Acquirors on the other from this Agreement and the Transactions. The relative
benefits received by the Company on the one hand and the Class C Acquirors on
the other shall be deemed to be in the same proportion as to the aggregate
amount of then-outstanding Class A Shares and Class C Shares bears to the amount
of Class A Shares and Class C Shares held by the Class C Acquirors. If, however,
the allocation provided by the immediately preceding sentences is not permitted
by applicable law, then the Company shall contribute to such amount paid or
payable by such Indemnified Person in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Class C Acquirors on the other in connection
with the actions or omissions which resulted in such losses, liabilities, causes
of action, demands, claims, damages, judgments, costs and expenses, as well as
any other relevant equitable considerations. The Company and Fairholme, on
behalf of itself and each of the Class C Acquirors, agree that it would not be
just and equitable if contribution pursuant to this Section 7.3 were determined
by any other method of allocation which does not take account of the equitable
considerations referred to above.

7.4. Indemnification Procedures. An Indemnified Person shall give written notice
to the Company of any claim with respect to which it seeks indemnification
promptly after the discovery by such party of any matters giving rise to a claim
for indemnification; provided that the failure of any Indemnified Person to give
notice as provided herein shall not relieve the Company of its obligations under
Section 7.1 unless and to the extent that the Company shall have been actually
prejudiced by the failure of such Indemnified Person to so notify such party.

 

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In case of any Proceeding against an Indemnified Person in respect of which
indemnification has been sought hereunder by an Indemnified Person, the Company
shall be entitled to assume and conduct the defense; provided, however, that
unless (i) the Company shall have failed to assume the defense of such claim
within a reasonable time after receipt of notice of such claim from the
Indemnified Person or (ii) in the reasonable judgment of any Indemnified Person
(based upon advice of its counsel) a conflict of interest may exist between the
Indemnified Person and the Company with respect to such claims, then, in each
case, the Indemnified Person may assume responsibility for conducting the
defense (in which case the Company shall be liable for any reasonable legal or
other expenses reasonably incurred by the Indemnified Person in connection with
assuming and conducting the defense). The Company shall not be liable for any
settlement of any action, suit, claim or proceeding effected without its written
consent.

7.5. Limitations on Indemnification. In no event shall the Company have any
liability to the Indemnified Persons for (a) (i) Losses computed on a multiple
of earnings, book value or similar basis, (ii) special, speculative, indirect or
consequential Loss or lost profits, or (iii) punitive damages (except in the
case of clauses (i) or (ii), Losses incurred by an Indemnified Person from the
award of such amounts against the Indemnified Person in a Proceeding) or (b) for
any Losses in an amount greater than the aggregate Purchase Price paid by the
Indemnified Persons.

8. Miscellaneous Provisions.

8.1. Survival of Representations and Warranties. All covenants and agreements
contained herein, other than those which by their terms apply in whole or in
part after the Closing, shall terminate as of the Closing. Each of (a) the
representations and warranties contained in Section 3 and Section 4 and (b) the
provisions of Article 7 shall survive the Closing until the expiration of the
applicable statute of limitations.

8.2. Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given, if delivered personally, by
facsimile, by email or sent by overnight courier as follows:

 

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If to Fairholme, to:

Fairholme Capital Management, L.L.C.

Suite 900

4400 Biscayne Boulevard

Miami, FL 22137

Attention: Daniel E. Schmerin

Fax: (305) 358-8002

Email: notices@fairholme.net

With a copy (which shall not constitute notice) to:

Sullivan & Cromwell LLP 125 Broad Street

New York, NY 10004

Attention: Andrew G. Dietderich

Fax: (212) 291-9041

Email: dietdericha@sullcrom.com

If to the Company, to:

Seritage Growth Properties

c/o Sears Holdings Corporation

3333 Beverly Road

Hoffman Estates, Illinois 60179

Attention: General Counsel

Email: mfernand@seritage.com

With a copy (which shall not constitute notice) to:

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, NY 10019

Attention: Robin Panovka

Fax: (212) 403-2000

Email: RPanovka@wlrk.com

or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.

8.3. Entire Agreement; Third Party Beneficiaries; Amendment. This Agreement sets
forth the entire agreement between the parties hereto with respect to the
Transactions and is not

 

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intended to and shall not confer upon any person other than the parties hereto
any rights or remedies hereunder. Any provision of this Agreement may be amended
or modified in whole or in part at any time by an agreement in writing between
the parties hereto executed in the same manner as this Agreement. No failure on
the part of any party to exercise, and no delay in exercising, any right shall
operate as a waiver thereof nor shall any single or partial exercise by any
party of any right preclude any other or future exercise thereof or the exercise
of any other right.

8.4. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to constitute an original, but all of which
together shall constitute one and the same document. Signatures to this
Agreement transmitted by facsimile transmission, by electronic mail in “portable
document format” (“.pdf”) form, or by any other electronic means intended to
preserve the original graphic and pictorial appearance of a document will have
the same effect as physical delivery of the paper document bearing the original
signature.

8.5. Governing Law; Jurisdiction; Venue. This Agreement shall be governed by,
and interpreted in accordance with, the laws of the State of New York. EACH
PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND THE COURTS OF THE STATE
OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK (AND OF THE
APPROPRIATE APPELLATE COURTS THEREFROM) FOR THE PURPOSE OF ANY JUDICIAL
PROCEEDING ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT. The
parties hereby waive, to the fullest extent permitted by applicable law, any
objection which they now or hereafter may have to personal jurisdiction or to
the laying of venue of any such suit, action or proceeding brought in any court
referred to in this Section 7.5 and such parties agree not to plead or claim the
same. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO TRIAL BY JURY IN
CONNECTION WITH ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY

8.6. Expenses. Except as otherwise expressly provided herein, each party hereto
shall bear its own costs and expenses (including attorneys’ fees) incurred in
connection with this Agreement and the Transactions.

8.7. Successors and Assigns. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, each of
the Company’s, the Operating Partnership’s, Fairholme’s and the Class C
Acquirors’ respective successors and assigns, and no other person.

8.8. Severability. If any provision of this Agreement is determined to be
invalid, illegal, or unenforceable, the remaining provisions of this Agreement
shall remain in full force and effect provided that the economic and legal
substance of any of the Transactions is not affected in any manner materially
adverse to any party. In the event of any such determination, the parties agree
to negotiate in good faith to modify this Agreement to fulfill as closely as
possible the original intent and purpose hereof. To the extent permitted by law,
the parties hereby to the same extent waive any provision of law that renders
any provision hereof prohibited or unenforceable in any respect.

 

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8.9. Specific Performance. The parties agree that if any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached, irreparable damage would occur, no adequate remedy at
law would exist and damages would be difficult to determine, and that the
parties will be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.

8.10. Headings. The headings of Articles and Sections contained in this
Agreement are for reference purposes only and are not part of this Agreement.

*        *        *         *        *        *

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.

 

SERITAGE GROWTH PROPERTIES

By:

/s/ Benjamin Schall

Name:

Benjamin Schall

Title:

Chief Executive Officer and President

[Signature Page to Exchange Agreement]

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FAIRHOLME CAPITAL MANAGEMENT, L.L.C.

By:

/s/ Bruce R. Berkowitz

Name:

Bruce R. Berkowitz

Title:

Managing Member

[Signature Page to Exchange Agreement]